Using a home equity line of credit to increase home value

Home renovations are among the top priorities for many homeowners. From appliance upgrades to replacing a roof, it seems like there’s always a home project that needs attention. Fortunately, there are many options for financing home renovations that homeowners might not realize are available.

As a homeowner builds equity, he or she can use that equity to access cash to make purchases. This cash availability accessed through your home equity is called a home equity line of credit (HELOC). If you want to sell your home in the future, renovations and upgrades could be a way to add value. Here are some examples of how a HELOC can be used to fund these improvements.

Individuals can typically borrow up to 85% of the value of their home‡. However, when determining the amount of credit available with a HELOC, consideration must be given to all mortgage balances tied to the home. A HELOC is usually capped by the amount of equity you have in your home, though the state where you live may limit this cap to a percentage of your home’s value. Once available, this money can be used for everything from purchasing new windows to a total house renovation.

HELOC benefits

HELOCs are beneficial because they may offer lower interest rates than a typical credit card and it’s possible that the interest accrued on this type of loan is tax-deductible, depending on your circumstances (you should consult your tax advisor with questions regarding whether interest on your loan may be tax deductible).

While these incentives are appealing, homeowners should do ample research and work with a financial advisor to ensure a HELOC is the best option for them. Financial advisors can help you determine if you have the appropriate financial resources to complete home improvement projects in the most efficient and strategic way possible.

If homeowners are comfortable with establishing a line of credit and the affordability of the accompanying payments, HELOCs can help you pay for large expenses, like remodeling or home upgrades.

Know what will improve your home’s value

If you consider what potential future homebuyers want to see in a home, it can help you decide which renovations may provide the most substantial return on investment. Make sure to take your geographic region, neighborhood and the prior condition of your home into consideration. While preferences vary widely, buyers are typically interested in open floor plans, energy efficiency and upgraded kitchens and bathrooms. Updating your home’s curb appeal can also increase your property value.

Smart upgrades can help increase the value of a home and may ultimately allow the homeowner to increase the home listing price when he or she decides to sell.

Applying for a HELOC

​A house serves as the collateral when applying for a HELOC, but credit scores may also impact loan approval. To gain access to a HELOC, homeowners will need to have their home appraised and provide verification of income, along with other documentation. And, while the process is relatively simple, there can be a number of fees associated with getting a HELOC. Those terms and fees are determined by the lender, so it is important to carefully review and compare between lenders.

When considering a HELOC to help fund home renovations, check in with your financial advisor for information and strategy. They can help navigate through all of the home equity options and help you make educated decisions for your unique situation.

Review the Home Equity Loans and Home Equity Lines of Credit playlist on the UMB Financial Education Center. For more information, visit our Home Equity Line of Credit (HELOC) calculator to determine how much you could borrow.

Learn more about UMB home equity solutions and other loan options that can play a part in helping you finance your dreams.