U.S. homeowners with mortgages have seen their home equity increase nearly 12 percent year over year, according to CoreLogic’s recent home equity analysis. That represents a gain of almost $871 billion since the third quarter of 2016. Most homeowners recognize that having more equity in their homes is a good thing, but do they know how to leverage it – and capitalize on it?
Savvy homeowners are leveraging this jump in home equity through home equity lines of credit, or HELOCs. A HELOC is a line of credit extended to a homeowner that uses the borrower's home as collateral. Borrowers are pre-approved for a certain spending limit based on the equity they have accrued in their home and can draw against this limit for various uses.
[Read: 5 Smart Ways to Use Your Home Equity.]
This kind of loan option is particularly popular for those who are financing home repairs after the long, harsh winter and for those who are looking to renovate their homes and outdoor spaces for the warmer summer months. In fact, TD Bank’s recent Spring Home Lending Survey found that property values have increased over the last 12 to 18 months for 69 percent of respondents, and close to half (42 percent) said that they are somewhat, very or extremely likely to apply for a HELOC within the next 18 months.
Compared to borrowing funds from short-term loans or using a credit card, one of the reasons HELOCs are attractive is because they’re one of the lowest-cost borrowing options for a homeowner. They also give borrowers the freedom to choose between a fixed or variable interest rate option.
A fixed-rate option can save customers money by not only dropping their interest rate, but also allowing them to pay off the debt in a time frame they choose. HELOCs can also be helpful in consolidating debt at a lower interest rate. Borrowers have immediate access to low-interest funds, which can be useful for those who are looking to pay off debt.
Putting Money Back Into Your Home
Following a tough winter, many homeowners are dreaming of updating their patio furniture, putting in a pool or adding a garden, and are leveraging the boom in home equity to do so. TD’s survey also found that the most popular uses for HELOCs were home renovations and repairs (53 percent), major home purchases like appliances (28 percent) and debt consolidation (26 percent). An added benefit for those financing a home renovation with a HELOC is that some of the costs may be tax deductible.
For those who are using a HELOC to finance repairs and renovations, the most common updates needed are window replacements (35 percent), and heat or air conditioning system replacements (33 percent), and structural repairs (32 percent). The top three cosmetic renovations are bathroom updates (37 percent), kitchen updates (36 percent) and exterior painting (26 percent).
HELOCs are also a sensible option for those looking to increase their home’s value to sell during the summer homebuying season. More than one-third of respondents looking to renovate said they’re doing so to increase the value of their home. Potential sellers should get smart on what can derail a home inspection, however, like a leaking water heater or a loose shingle on the roof, and consider leveraging a HELOC, which can then be paid off at the closing table during a sale.
Homeowners have seen equity increase, and home equity borrowing remains one of the lowest-cost borrowing options for homeowners looking to renovate their home, consolidate debt or accomplish what they most need. With the 2018 homebuying season well underway, now is the time homeowners should speak with their financial institution to gain an understanding of how to obtain and leverage a HELOC. Lenders can help homeowners understand the terms, features and multiple benefits of obtaining a HELOC, and find an option that best fits each homeowner’s unique financial situation and future goals.
Don't let your house fall behind.
Every homeowner knows that maintaining a house is hard work, and few have the time, money or willpower to keep their home looking perfect at all times. When it’s the peak of home selling season, it may seem like half the houses on your block are in pristine, market-ready condition, or they’re under construction and will look fresh and new in no time. How can you keep your house from becoming the worst-looking house on the block, or letting it fall behind on updates? It may seem like an impossible task, but it's one all homes face eventually.Take stock of your aging home.
Take stock of your aging home.
Even if it seems like every house in your neighborhood is getting a fresh interior, exterior or is newly built, the typical house has at least a few decades under its belt. “U.S. housing stock is aging, and especially in city centers and areas of urban density,” says Holly Tachovsky, CEO of construction information company BuildFax. So don't feel so bad about your chipping paint and dated entrance, but know that maintenance and renovations are key factors in ensuring your home will hold value and last for generations. Read on for tips on keeping your house updated as your neighborhood changes.Attend neighborhood open houses.
Attend neighborhood open houses.
For your house to increase in value along with other houses being built or renovated in the neighborhood, it needs to be on par with the updates. An easy way to know what you need to do to keep up with the Joneses is to attend open houses when a nearby property goes on the market. Listing agents expect curious neighbors to pop in, and it’s a great opportunity to see what the interiors look like and compare them to your home. If houses selling for top dollar in your neighborhood have new kitchens and master suites, you may want to put kitchen and bathroom renovations on your to-do list.Get a green thumb.
Get a green thumb.
Don't let your house get a reputation as the worst on the block by neglecting its curb appeal. Keep the siding clean and consider repainting, and maintain the grass and landscape to keep the house looking fresh from the road. Kris Kiser, president and CEO of the Outdoor Power Equipment Institute, says relandscaping your yard also gives you the opportunity to select flora that work best for the climate, your property and the amount of time you have to maintain it. “Put the kinds of plantings in place that will hold your dirt in place, that will grab and capture and filter rainwater, and put in flowering plants,” he says.Make minor updates.
Make minor updates.
Keeping up with other houses in the neighborhood doesn’t mean every project has to be a big one. Small updates to keep your home looking well-cared-for, like fresh paint in each room or new doors on cabinets, can make a big difference. Dan Tarantin, president and CEO of Harris Research Inc., the parent company of N-Hance Wood Refinishing and Chem-Dry, notes that refinishing hardwood surfaces can achieve a new look at a far more affordable price than replacing materials throughout the house every time you want to update. “That is a way to allow people to be able to do all the projects at once, because of the cost and the convenience,” he says.Maintain, maintain, maintain.
Maintain, maintain, maintain.
The key to keeping your house from being a teardown candidate when you decide to sell is to maintain the basic systems, care for the property and ensure it runs properly. Tachovsky says regular maintenance is necessary to keep houses from falling apart: “They constantly need that upgrade, and if they’re maintained well over the life of a structure, the structure can be useful for a long time.” From the roof to siding, electric and plumbing, keep an eye on the age of systems and have them serviced regularly. Otherwise, she says, your home is “going to show its age pretty profoundly.”Get the most out of what you have.
Get the most out of what you have.
With proper care and maintenance, you should be able to get the full life out of major appliances and systems, such as your HVAC, and the same goes for floors, cabinets, outdoor walkways and furniture. Have your carpets cleaned, consider placing a rug over hardwood floors that get the most foot traffic, pull weeds around the driveway and sidewalk and clean your furniture regularly so the natural oils from people and pets don’t set in and cause long-term damage. Even if you’re sick of your kitchen's appearance, you don’t have to demo the entire thing. Consider quartz countertops to replace laminate, or put a new finish on existing cabinets to can make them look new. With a little work, “we’ve seen people fall in love all over again with their kitchens,” Tarantin says.Don't be afraid to freshen what you've updated.
Don't be afraid to freshen what you've updated.
Especially if you’re planning to remain in your home for 10 years or more, even the most on-trend master bathroom or living room can look completely dated when you sell. Investing in a bathroom update now will likely give you years of use, but don’t be afraid to update again as your needs change or the space’s age starts to show. Kiser points out that making changes over and over again is particularly easy with landscaping. “You can move this and move that” until you achieve the look and functionality you’re hoping for, he says.Improve for more than ROI.
Improve for more than ROI.
Don’t spend all your savings trying to match new builds or flipped houses if you can’t enjoy the updates. Plenty of homebuyers are planning to make changes to a house they buy anyway. From 2010 to the start of 2017, post-sale home remodels increased by 54 percent compared to the previous seven-year period from 2002 to 2009, according to BuildFax. Tarantin says hardwood floors, for example, are often a preference among homebuyers, but they're only worth the money if you’ll enjoy the look as well. “If you’re thinking about selling your home in the near future, and you’re thinking of installing hardwood floors because of saleability, our customers tell us it’s not worth it,” he says.Read More
Based in Mount Laurel, New Jersey, Mike joined TD Bank in September 2005. He is also currently on the advisory board for the National Federation of Credit Counselors and the client advisory board for Equifax.
Devon Thorsby | June 5, 2019
Homeowners should not fret, as long as they're prepared for the possibility of a downturn.