Maximizing Home Value Through Smart Financing Options

Ready to supercharge your home’s value, but not feeling like emptying your savings?

Here’s a little secret most homeowners never tell you…

Home improvement projects can make or break your bottom line. The right financing decision will help you get that bathroom remodel done or improve curb appeal to skyrocket the value of your property. In fact, in 2023 homeowners invested a median $24,000 in home improvement projects.

Let’s look at the problem:

Many homeowners wait years before they save enough for a project. Over that time their property value can fall behind market averages, leaving them on the losing end of real estate appreciation.

Sound familiar? Well, there is another way.

Let’s walk through:

• How to Finance Your Home Improvement Project Without Breaking the Bank
• What Projects Give You The Best Return on Investment (ROI)
• How to Time Your Project for the Biggest Payoff
• How to Avoid Common Home Improvement Money Pitfalls

Reasons Why Financing Makes Sense for Home Improvement

OK, so before we get into some of the nitty-gritty details, let’s talk principles…

Financing your project means using someone else’s money so you don’t have to touch your savings. You’ll likely use a traditional home equity loan or personal loan for home improvements.

Think about it this way…

Market values don’t stand still while you save. Neither does that aging roof, outdated kitchen, or that drafty window that’s boosting your energy bill every month. Financing smart is the same thing as paying for home improvements with the value they create in the first place.

Let’s drive this home with another example…

A typical home improvement loan will have manageable repayment terms compared to a mortgage. What does that mean in practical terms? Well, you could be paying off that investment back for years, but the improvements to your home are starting to add value right away.

How to Choose the Right Financing Option

OK, so now that you know why you should be considering financing. Let’s talk about the different ways homeowners can fund their dream projects…

One of the most common types of home improvement financing is a home equity loan.  This is a line of credit up to a certain percentage of your home’s value. It makes sense if you know your project costs up front, and it’s usually a great option for large scale investments like whole-home renovations or exterior upgrades.

Personal loans don’t require home equity and can be received faster. They’re ideal for homeowners that haven’t built equity yet, or for smaller, more defined projects like a new furnace or HVAC installation.

Credit cards are a wildcard. You can use them, but the interest rates are often higher than other options. Pay it off before you’re charged interest, and you might be fine. But once you do, your home improvement financing costs will skyrocket.

The key is matching the term of your home improvement financing to the investment payback timeline. Big ticket investments like kitchen remodels and new roofing benefit from longer financing terms.

Personal loans are ideal for quick turn projects that take a few months or less, like a minor kitchen remodel or new washer/dryer.

The Types of Projects That Are Worth Financing

Not all home improvements are created equal…

Some projects are a slam dunk. You know they’re going to deliver high ROI. Others? Not so much.

Check out this data I found showing a few of the best projects you can do:

Garage door replacement offers a 268% ROI. What does that mean? You’ll get nearly $3 of value for every $1 you spend. Entry door replacement clocks in around 200%.

And here’s what I mean by slam dunks:

Kitchen and bathroom updates are always strong performers. Even a small kitchen remodel can recoup over 100% of its costs in many areas of the country. Bathrooms aren’t far behind, especially if you’re upgrading a dated bathroom.

Energy efficient improvements can be smart plays as well. New windows, increased insulation, more efficient HVAC units and appliances — these all lower your monthly costs while also adding resale value. Lower utility bills are a major selling point for buyers.

Curb appeal projects are typically the least expensive. Landscaping, fresh paint, and new siding can transform the way your home is viewed the moment it hits the market.

The home improvement projects you want to avoid? 

Luxury items are a major no-no. An extra high end kitchen in a neighborhood where the average home sells for $300k won’t help you recoup costs. Stick to improvements that meet or exceed the neighborhood standard, not projects that surpass it by a long shot.

Think wine cellar. For most of us, that’s just a dream we never realized we had until we saw it in a home magazine.

Calculating Your ROI for Home Improvement Financing

Here’s where the winners separate themselves from the crowd…

Any time you’re financing a home improvement project. First you should run the numbers. What will the project cost? What value will it add to your home? When do you plan to sell or refinance?

A good rule of thumb — don’t spend more than 30% of the total value of your home on renovations. That means a home worth $300,000 should not have more than $90,000 total worth of home improvement projects added value.

But most people miss this part:

Timing is just as important as project selection. Financing your home improvements can let you time that improvement to be done when market conditions favor sellers. If you wait to save up, you might miss that window.

Budget matters, too. Most homeowners can afford $300 a month in car payments with no problem. Make sure you can also comfortably afford the additional loan payments every month while still meeting all your other financial obligations.

Putting it all Together to Finance Smart

Alright, so how do you put all these lessons into action?

Get three or four quotes for any home improvement project. Seriously, just make sure you’re not getting ripped off.

Shop around for financing before you commit to a lender. Different lenders will have different rates and terms. A half point difference in interest rate can mean thousands over the course of a home improvement loan.

Check your credit score before you apply. Better scores unlock better rates.

Read the fine print.  Do you have prepayment penalties? Origination fees? Variable rates that could jump later on? Know exactly what you’re getting before you sign on the dotted line.

And most important of all — have a plan. Know what you’re going to improve and how it fits into your long-term plans.

Wrapping it All Up

Financing your home improvement project smartly is all about viewing your home as the investment it really is.

Stop thinking of home improvement loans as “debt”. Financing is a tool that lets you capture value right away instead of watching it pass you by.

The homeowners that build the most wealth out of their property are the ones who understand leverage. Who understand timing and return on investment.

Your next step?

Choose a high ROI home improvement project that makes sense for your home. Get a few contractor quotes. Shop around for financing options. Then get the ball rolling.

Home values in strong markets rise every single year. Every year you delay improving your home, you fall further behind.

Financing your home improvement project lets you close that gap. It puts you in control of your home value trajectory instead of leaving it to chance.

And that’s the difference between a homeowner that builds wealth and a homeowner that simply pays a mortgage.