Four money considerations for your next home improvement project

When you own a home, you want it to be just right for your needs. Maybe you have been dreaming of a more spacious kitchen, a new garage, or lowering your electrical bills with solar panels. Before swinging a hammer, read on for expert guidance from Chip Allen, AVP Mortgage Sales at UNFCU and Lisa James, Licensed Real Estate Salesperson with The Corcoran Group (a US-based real estate firm with a network of international affiliates).

1. Options available to pay for the project 

Understanding your options for financing will help you choose a project that you can easily afford. One popular option among homeowners is to borrow using your home as collateral: 

• A home equity loan provides you with a lump sum, which can be paid off over time with fixed monthly payments. 
• You can also use your home as collateral for a home equity line of credit (HELOC). A HELOC works similarly to a credit card in some ways. You can borrow up to a certain limit, and each payment you make replenishes the amount that is available to borrow. With a HELOC, you will pay interest and principal only on the amount you use.  

Secured loans (loans backed by collateral) tend to have lower rates than unsecured loans. For this reason, a home equity loan or a HELOC may save you money on interest. 

According to our mortgage team, home improvements are the most popular use for home equity loans and HELOCs among UNFCU members. “It doesn’t ever hurt to have a conversation with a mortgage representative,” says Chip. “They can help you gain a full understanding of how accessing equity can work.” 

2. Your budget for the project 

Knowing roughly how much you are willing to spend can help you understand what's possible. The cost of different home improvement projects varies, and for some of the most popular projects, the bill can add up quickly. “Renovation projects that involve opening up walls or making changes to plumbing or electrical systems often come with higher costs. If you're considering a home that may need this level of work, it’s wise to budget accordingly and consult with your lender early in the process to ensure your financial plan supports these potential upgrades,” says Lisa. When you understand your finances, you can make well-informed decisions about which projects are worthwhile.  

This is another area where speaking with a mortgage representative can help. A conversation with one of these professionals will give you a sense of how much you may be eligible to borrow. “Get a general idea of what’s available,” says Chip. “Then you can tackle the costs attached to the projects you want.” 

3. Whether you will hire a contractor 

Some small projects are easily handled yourself. For many home improvements, though, you will need to work with a contractor to get the job done. “Speak to a contractor very early on,” says Chip. Starting the conversation with a contractor early will provide you with an idea of how much various improvements will cost. You will also have plenty of time for negotiations and changes along the way. Giving yourself this flexibility is especially important during times of high inflation, when prices can change rapidly. 

If you will be borrowing money, is it best to speak with a contractor or with your lender first? “Take a two-pronged approach,” says Chip. “Begin speaking with us about your opportunities for borrowing and speaking with your contractor at the same time.” 

4. How long you plan to stay in your current home 

If you plan to sell your home at some point, “maintaining consistency with prevailing market trends is key,” says Lisa. In other words, the value of your home should be consistent with the value of other homes in your area. A home that is worth significantly more or less than the surrounding homes can be more difficult to sell. 

A conversation with a real estate professional can help you understand your local housing market and the value of your home. “With 16 years of experience as a real estate professional in New York, I bring a deep understanding of both market trends and the underlying factors that drive them — past and present. This perspective allows me to offer informed insights into how different home improvements may impact your property’s value now and over the long term,” says Lisa. 

A real estate agent or broker can also advise you on which features homebuyers are looking for. You might assume a home with a swimming pool would be worth more than a home without one. A buyer, though, may not be interested in paying for the necessary upkeep. “Installing a feature like a backyard waterslide does not necessarily translate into a proportional increase in property value. Enhancements should be evaluated based on market demand and long-term return on investment,” says Lisa.