By Mike Kinane, SVP of Consumer Lending at TD Bank
Signs of spring are starting to peek through! With warmer weather and longer days, people are thinking about home improvement projects.
If you're in the market for a home renovation, you are not alone. According to TD Bank’s 2016 Home Equity Sentiment Index, kitchen renovations are top priority for 42 percent of homeowners, with another 25 percent looking to upgrade their bathrooms.
With Americans living in their houses for an average of 14 years before selling, up from just six years in 2007, according to the National Realtor Association’s “2015 Profile of Homebuyers and Sellers,” renovation projects are becoming less of a luxury and more a necessity as families grow and houses are subjected to more wear and tear. Last year, investment in residential improvement rose 5.5% and it appears likely to accelerate in 2016, according to the TD Economics report, "U.S. Housing & Renovation Outlook."
If you're approaching five or ten years in your home and cannot imagine another decade with a dated kitchen or unfinished basement, it may be time to consider renovating and that takes money. There are three essential things to consider before undertaking a home renovation project:
1. Assess the current value of your home.
An important first step in the renovation process is to determine your home's estimated value based on recent home sales in your area. Changes in your neighborhood and fluctuations in the economy can impact property values, which in turn impacts your home’s equity. In fact, TD Economics Housing & Renovation report indicated that the rise in home prices over the last several years has brought millions of homeowners out of negative equity positions. With that in mind, it's important to obtain an accurate and updated assessment for your home.
2. Evaluate financing options
How will you pay for your renovations, and how much will they cost? If you have savings set aside for home upgrades, you’re probably at least part way there – and a Home Equity Line of Credit, or HELOC, can help you finance a renovation by using your home as collateral. HELOCs provide the flexibility to borrow funds as needed during the renovation process and typically have lower rates and payments than other financing options.
One benefit of a HELOC is that you are tapping into your home’s equity to maintain or potentially increase its value tomorrow. Whether you're in your forever home or plan on moving down the road, renovations can be vital to maintaining your home’s overall value.
3. Choose Wisely, Spend Smart: Are you investing or embellishing?
When approaching the renovation process, know the difference between investments and embellishments. How much might your home value increase as a result of this project? Undertaking a major landscaping project or building an in-ground pool may only increase 'curb appeal.' Renovations of this nature can increase your personal enjoyment, but often don't add to its market value. Keep your expectations realistic.
When dipping into the equity in your home, it's wise to use caution. Market values fluctuate, and you want to ensure you're spending smart. For example, the real estate market is considerably strong with homes prices increasing at 5-6 percent, according to TD Economics. However, you don't want to over-renovate your property by investing in a $60,000 kitchen remodel that will put your home price over the average property value in your neighborhood. If you did go that route, you'd have to stay in the home a little longer to see a return on investment.
The housing marketing is improving, with home values increasing and low interest rates, which translates to lower monthly payments. If you're considering a home improvement project to accommodate your growing family or upgrade existing rooms, begin your renovation process now. When looking into lenders, consider a lender who can offer flexible terms and lending guidelines, to best fit your unique borrowing needs.
