Tips for Prioritizing and Funding Home Improvements

Guest post by Peter Lewis, NerdWallet

Ah, the joys of homeownership. Just when you thought you’d covered all the bases, there’s another hole to plug or amenity to buy.

istock_70841005_xlargeThere are all sorts of good reasons to keep up your home. But it’s also important to think through your projects. Here’s how to decide which ones to tackle — and how to pay for them.

Prioritize

Ask yourself where your home improvement project falls on the continuum between “It would be nice to redo the patio” and “If we don’t get a new roof before winter, we’ll be snowed on in our beds.” Even if they’re pricey, it’s a no-brainer to jump on projects that fix imminent threats to your safety or ensure the survival of your most valuable financial asset — a glitchy electrical system, serious leaks or failing ceilings or walls, for example.

You might also consider whether your project is likely to boost your home’s value. Not all work or remodeling will improve it equally, and you want to be sure that the money you pay doesn’t exceed what you can expect to get back when it comes time to sell.

Decide whether cheaper will do

If, like most people, you’re on a budget, you might want to consider less expensive options when you’re upgrading. You can often get comparable value for a lower investment.

For example, instead of a complete bathroom remodel, think about new sink fixtures and showerheads. Rather than spending six figures to build a new room, find out if you can add living space by knocking down a wall or eliminating a closet. And how about a fresh coat of paint and new cabinet knobs instead of a full kitchen remodel?

Figure out how to pay for it

When a project’s price tag exceeds your savings, you might need a home equity loan or home equity line of credit to complete it. Both typically carry lower interest rates than credit cards, are secured by the equity you have in your home and allow you to deduct the interest paid on your tax return.

But they differ in important respects. You receive funds from a home equity loan in one lump sum. Each one comes with a fixed interest rate and you pay it off over a specific period of time.

HELOCs are more like credit cards: Each provides a revolving line of credit, up to a certain limit. You borrow from the line as needed, and pay back — and pay interest on — only what you borrow. They also come with variable interest rates which can increase or decrease based on market conditions.

Shop around if you’re considering a loan, but know that borrowers are generally better off working with smaller institutions like Bank of American Fork. Why? These lenders tend to offer lower interest rates and are more likely to make lending decisions locally, without using rigid underwriting standards.

If you’re careful to think through your home improvement projects, you can add value and beautify your home, all without breaking the bank.

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