Home Improvement (Image Source: sraroofs.com)

Do you need to remodel your home?  Do you need to upgrade your bathrooms and kitchens?

Kitchen and Bathroom remodels add significant value to your home if they are done properly.  In fact, remodeling your kitchen and Master Bath will increase the sale price by as much as 30% according to National Association of Realtors research.  Now that we know these Home Improvement Projects will increase your home value, let’s explore how you can use your equity in your home to fund these home improvement projects:

Home Equity Line of Credit (HELOC):  HELOCs are lines of credit lenders offer to home owners with equity.  The equity is the amount of money over and above what you owe on your mortgages.     In the case of a HELOC, bank will issue you a checkbook that you can use to pay for your home improvements.   The maximum amount of the HELOC is determined by your credit score, equity in your home, your home value and your debt-to-income ratio.

The advantage of using a HELOC vs a Home Equity loan is that you are only paying interest on the amount you borrow for your projects.   So, HELOCs are ideal for quick flip projects where you are not going to hold on to the property for a long period of time to be subject to the interest on the full amount borrowed.

Home Equity Loan:  The equity you have in your Los Gatos home can be utilized to fund the Home Improvement projects.  Equity is determined by the difference between your home’s current value vs the amount of existing loans attached to it. For example, if your home is valued at $500,000 but you only owe $300,000 to the bank, then you have $200,000 of home equity available.  However, no bank will loan you this $200,000 since the resulting situation would be that you have a 100% loan on your house with no equity.   The amount of Home Equity loan would be restricted by the ratio of total loans to your home’s value (LTV).  Most banks will loan up to 80% of LTV.  In the example above with the existing LTV is at 60%.

So, there is room for banks tt add a 2nd loan on top of the existing 300,000 loan.  The home owners in this example should be able to borrow an additional $100,000 for Home Improvement Projects.  Lending Tree is one site where you can search for best home equity rates and compare the programs to choose the one that best fits your needs.  Most major banks offer interest rates as low as 2.78% on Home Improvement Loans for an owner occupied Home.

Since the amount you are borrowing will eventually impact your ROI, it’s advisable to get multiple bids for your home improvement projects.    In addition, check the background and references of your contractors before awarding them the work.

Contact Us if you need help funding your Home Improvement Projects.


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