Americans are tapping into the equity built up in their homes to make necessary home improvements, whether they plan on selling in a few months or staying in their homes for decades to come. With interest rates at historical lows, there is no better time than now to leverage the equity in your home with a home equity loan or line of credit. Home equity loans come with lower interest rates than personal loans and credit cards, plus allow you to upgrade your home – and increase the value of your home – without draining your savings account.
We spoke with a veteran real estate agent in Southern California, Natalie Riggs, to find out how to get the most bang for your buck on home improvements. See which home improvements will increase the resale value of your home and which ones miss the mark.
Selling Your Home? Top Home Improvements to Add Value
Riggs says the first step is to determine why you're making a home improvement. First, are you interested in increasing the market value of your home because you plan to sell within the next year or two? Or are you improving the home for your own enjoyment with no plans to sell in the next 10 to 20 years?
Improve the Exterior of the Home
"I encourage my clients that are considering selling to first make improvements on the exterior of the home, such as fresh paint, or a nicely manicured lawn or garden. These directly relate to the 'curb appeal' of your home and cannot be underrated," Riggs says. "Home buyers make a decision whether they are interested in a home or not within seconds of driving up to it."
Update Your Kitchen and Bathroom
The insides matter too, of course. Prospective buyers also look for fresh paint, nice flooring and an updated kitchen and bath.
Riggs says that after a newly painted exterior and interior, the kitchen brings the highest return in investment – sometimes 100% – followed closely by bathrooms.
When it comes to landscaping, however, don't go overboard. "Though a weed-filled yard can turn off a buyer, the return on landscaping is lower than other home improvement projects," Riggs says. "Make it nice enough that you would want to walk up the front door, but not so nice that you have invested the majority of your home equity loan on plants. You'll want to save money for the kitchen because this is the room that has the most impact on the overall impression of the home."
If you don't have the cash available to make these improvements, a home equity loan could help get your home in pristine condition to sell your home quicker and for a better price.
Not Selling? Consider These 4 Improvements
If you want to make improvements for maintenance or so you can more fully enjoy your home, with no plans to sell in the next 10 to 20 years, Riggs says to ascertain your needs vs. desires:
Is your home big enough for your needs? Do you need an extra bathroom, bedroom, guest house? This should be one of the first things you assess when determining what improvements to make with your home equity loan.
Update Your Kitchen
When was the last time you updated your kitchen? Even if you don't plan on selling, an updated kitchen can make your life easier and allow you to more fully enjoy your home. Plus, kitchen remodels can last decades. If you choose high-quality countertops and pick neutral colors, you will add value to your home for years to come.
Update Your Bathroom
When were your bathrooms last updated? Like updating your kitchen, bathroom remodels will both make your home more enjoyable and add value to your home if and when you decide to sell. Win-win!
When were the major systems in your home updated, such as HVAC, plumbing, electrical and the roof – and do any of these systems currently need repairs? While general maintenance on your home may not be "fun" or add to your quality of life, it's certainly a necessity and can prevent major problems down the line.
"I would guide a homeowner to address these items in this order as their budget permits because the return on investment is quite significant on bathroom and bedroom additions and to a lesser degree, guesthouse additions to a property," Riggs says.
How Not to Spend Your Home Equity Money
One of the investments that is harder to recoup: A pool. "Don't build a pool if you plan to sell your home in less than 10 years," Riggs says. Not only are they expensive, but they might actually be a deal-breaker for some buyers.
The most important thing to remember, Riggs says, is to not "over-upgrade" your home with your home equity loan. She uses the example of a $500,000 home that has the expensive finishes and remodeling worthy of a million-dollar house. "It's still going to have a market-value of $500,000," Riggs says. "'Mansionization,' otherwise known as 'over building,' can dramatically lower your return on investment because though the property may now be twice as big, it doesn't fit the neighborhood and consequently you may end up with the biggest house on the block that has the lowest market value per square foot and lowest return on your investment."
But of course, the first thing to spend money on is critical repairs. "Keep the roof in an operable condition to avoid costly leaks and perhaps even mold, change your air filters so that your HVAC system is not unnecessarily taxed, and if you have a plumbing leak have it repaired immediately to prevent water damage to your flooring and walls," Riggs says.
How to Get a Home Equity Loan
A home equity loan can help you with all of your home improvements – from the ones that are necessary to the ones that will increase the value of your home to the ones that will simply improve your quality of life.
If you're interested in making home improvements with a home equity loan, make sure to comparison shop different lenders. You don't have to apply through your current lender, and could potentially save thousands of dollars over the life of your loan by locking in the best interest rate possible.