Remodeling your home with home equity

Establish a sense of value before remodeling with a home equity loan

There are many good uses for home equity loans, but one of the best from a financial standpoint is to use the value of your home to remodel or add on to the home. You sort of get an added bonus in that the money you use, borrowed from the house itself, can add value to the property. Its a far better use of the money than to borrow it to buy a car, which depreciates over time.

Not all remodeling projects are equal, however. Some are fun, like building a home theater, and some are necessary, like bringing a 1960’s era kitchen up to date. Each has their pros and cons, but studies have shown that some remodeling projects are more financially profitable than others. While your first priority when doing work on your home should be to take care of your needs, you should also keep an eye on those projects which will offer the best return for your money. They are not all equal, as we shall soon see.

How you should finance depends on the type of project in which you wish to engage. A project of fixed cost and duration is probably best done with a home equity loan, while a do it yourself project that is open ended may be best financed by a home equity line of credit, which will let you borrow on an as-needed basis. But what to remodel first?

Studies have shown over and over that the first project on any remodeling list should be the kitchen. Why? Because you can recoup, on average, more than 90% of the cost of the project should you need to sell the home. People spend a lot of time in the kitchen, and kitchens tend to be the part of the house that dates most quickly. An off-white living room may not show signs of age, but a kitchen with wrought iron, gold-colored glass and Harvest Gold or Avocado colored appliances just screams “1970s!” at a glance. Replacing dated cabinets and appliances and adding new granite countertops can very quickly turn a kitchen that is several decades old into a modern showpiece, and you can recoup most of the money, provided that you don’t overdo it.

After the kitchen, you should consider the bathroom. These remodels can often include major structural changes, but they are often worth it and can return nearly 90% of the cost. Modern consumers want double sinks, jetted tubs, and spacious, walk-in closets. It’s not always possible to make such improvements in older homes, but if you can, the money spent is well worth it.

Family room improvements are useful, as well, If you can get rid of older wood paneling and increase the sense of space, you have a winner. If you don’t have a sizable family room, it may be wise to consider adding one on. Family rooms are often the focal point of modern living, and the addition will return more than 80% of its cost.

A little bit of thought can go a long way towards planning a remodel. Do it wisely and you can recoup nearly all of your investment.