The cost of home renovations has skyrocketed in recent years, driven by demand for contractors' services and, more recently, by material shortages caused by the pandemic. Still, renovating your home is the ultimate way to add value to our investment. There are several ways to secure financing to pay for the changes. This article discusses different ways you can add value to residential property and what types of financing may be available.
Buying a Fixer-Upper
Buying a home that has been vacant for some time or neglected by the previous owners is appealing to people who want to pay less for a house and don't mind a challenge. Simply restoring a house to a more livable condition and making improvements like new windows or a new heating system for better energy efficiency adds significantly to its value. If you have the skills to do some or all of the work yourself, you'll reduce your costs (and your need for financing ) dramatically since labour costs tend to be the most significant portion of renovation costs. If you do need to borrow, you may be able to add the costs to your mortgage when you purchase the home. This allows you to borrow at a lower interest rate than credit cards or another unsecured loan. Amortizing the payments over the longer terms typical of a mortgage makes the payments more affordable.
Getting Ready to Sell
Often, people find that as they prepare to sell a home they have lived in for many years, work needs to be done before the home is listed. Some of the work may be necessary, like replacing the roof, repairing walls, or updating electrical service. Others may be more cosmetic, like remodelling the kitchen or bathrooms or finishing the basement. Updating the aesthetic of your home and proactively doing maintenance makes your home more appealing to buyers and, therefore, more valuable.
To fund the renovations, you can save up the money in advance or obtain a home equity line of credit (HELOC) to cover the cost. HELOC interest rates are much better than credit cards but not quite as low as your mortgage rate.
Expanding Your Space
With the housing market becoming so challenging to navigate, many homebuyers are opting to stay in their current home, extending the space they already have. This could include adding an extension, digging out and finishing a basement, or even adding a second story. Expansion tends to be a big job with a big price tag. However, you can significantly add to the value of your home by increasing the square footage of livable space.
Financing an expansion generally requires renegotiating your mortgage or getting a home equity line of credit. If you renegotiate, the bank may ask you to provide estimates of the new value of the home before they agree to lend you the money.
Increasing the size of your home will also impact the value for property tax assessment, the cost of utilities, heating, and cooling. If any of these costs were a concern to you before, they might be more so when your home is larger.
Going Green
Improving the energy efficiency of your home and adding green technology adds value for today's environmentally conscious homebuyers, whether you plan to sell now, or live in the home for a while longer. You may qualify for government grants and special loans to pay for the renovations. Mortgage refinancing is the way to go if you plan to stay in the house. If you plan to sell, a HELOC may be the only option available to you.
Making improvements to your home is a good investment that tends to pay off with higher prices and more offers when you sell.
Work with a mortgage broker who can help you find the most viable financing solution with a great interest rate. Mortgage brokers can help with HELOCs, second mortgages, mortgage refinancing and first-time mortgages.