How to Use a HELOC for Home Improvements That Add Value

Smart upgrades and improvements to your home not only make it a more comfortable place to live, they also increase the overall market value of your property.

Smart upgrades and improvements to your home not only make it a more comfortable place to live, they also increase the overall market value of your property. And, because improvements add value to your home over and above what you’re paying for through your mortgage, you’re also putting more money back into your pocket when it comes time to sell. 

But, did you know you can use money you have already spent on mortgage payments to fund projects that can further boost your home’s value?

A home equity line of credit (HELOC) from Foothill Credit Union lets you borrow against the equity you already own in your home to help pay for improvements to further increase its value.

Below, we’ll take a look at how HELOCs work, how you can get one, and how to choose smart projects to maximize your home improvement value boost. Read on to learn more.

Understanding Home Equity and HELOCs

Your home equity is the stake in your home that you actually own. It’s the current value of your home minus what you still owe on your mortgage. It includes not only what you have already paid on your mortgage but also any increase in the market value of your home since you bought it.

A home equity line of credit (HELOC) lets you borrow against the value of your equity without selling or refinancing your home. Instead, it allows you to draw what you need and repay it over time while continuing to build your equity by paying down your original mortgage.

Like your home loan or a home equity loan, your HELOC is secured by your home itself. Therefore, you’ll benefit from a much lower rate of interest than you would on a credit card, personal loan, or other forms of unsecured borrowing.

A HELOC works a lot like a credit card, letting you borrow money as needed and repay as you are able—making it especially convenient for funding ongoing upgrades to your home.

How Does A HELOC Work?

A HELOC lets you borrow against a set cash limit for a set period, typically anywhere from 3 to 15 years. During this “draw” period you can borrow as needed and are often only required to repay the monthly interest due on your balance. 

You usually need to own at least 20% equity in your property to be able to borrow against it. Most lenders will let you borrow up to 80% of the value of your equity, depending on your credit score, income, and other factors. This will determine the spending limit on your line of credit. 

Any outstanding balance at the end of this time, when your loan “resets,” is typically charged a much higher interest rate. Provided you can repay what you owe by the end of the draw period, you will enjoy easy access to affordable credit—but balances carried into the repayment period may be harder to repay.

Home Upgrades That Add Value

Using the money from your HELOC to fund home improvements lets you supercharge your property’s value by using your equity to build further equity. In some cases, interest payments on HELOC funds used to pay for improvements to your residence may also be tax deductible.

That said, some improvements will add far more value to your home’s bottom line value at sale time than others. While it’s tempting to add improvements that your family will enjoy, it’s important to ensure the changes you make enhance your home’s appeal to potential buyers.

Let’s take a look at some popular home improvements that add value. These upgrades provide the best value for money and return on investment in terms of increasing your property’s market value, while also making your home a nicer place to be.

Each year, Remodeling Magazine reviews the nation’s top remodeling projects by price, resale value, and return on investment (ROI). Here are some of the top projects savvy homeowners are choosing.

Bath Remodel

Cost: $24,606

Resale value: $16,413

ROI: 66.7%

A mid-typical bath remodel might include replacing the bathtub, toilet, sink, vanity, and fixtures as well as upgrading the floor and tile surrounds. It usually includes new paint and updated lighting to brighten up the space. A new, energy-efficient exhaust fan is always a winner. Go for clean, neutral colors and unfussy fixtures.

Why is this a smart choice? Updated bathrooms score high on most buyers’ practical requirements and add a huge feel-good boost to the bargain. While it doesn’t score as high on ROI as some other projects, it’s an easy win when it comes to spending money on your family but with an eye on the future.

Kitchen Remodel

Cost: $26,790

Resale value: $22,963

ROI: 85.7

A minor kitchen remodel is a great way to boost your home's value without breaking the bank. What is a minor kitchen remodel? It’s more of a facelift rather than a full-blown surgery and might include replacing old appliances, refacing cabinets, upgrading countertops, installing a new backsplash, updating the sink and faucet, or replacing flooring.

Why is it a smart choice? If you want to make a little money go a long way, investing it in your kitchen is a wise choice. You’ll immediately upgrade perceptions of your home when buyers walk into the kitchen and you’ll be making improvements that will benefit your family immediately and for every day you continue to own the house. 

Wooden Deck Addition

Cost: $17,051

Resale value: $8,553

ROI: 50.1%

Adding a wooden deck to your home increases your usable floor space while also adding value to your property’s outdoor areas. Add benches, steps, and appealing railings but be sure to invest in quality construction and the best materials you can afford.

Why is this a smart choice? This is a sure-fire family favorite with a decent return on investment too. Make time together more enjoyable and entertaining more fun by opening up your living area. Your buyers will feel the same way and a well-constructed and maintained deck adds to your home’s visual appeal too.

Manufactured Stone Veneer

Cost: $10,925

Resale value: $11,117

ROI: 102.3%

Manufactured or “faux” brick or stone veneer has improved greatly in recent years and now offers a smart way to improve the appearance of your home while adding protection from the elements for a fraction of the price of real brick or stone work. Quality veneers also last longer and are resistant to fading and cracking. Add them around your entrance, garage, or below window level.

Why is it a smart choice? Sure it's a lot less exciting than a new kitchen or bathroom but this is an improvement that is worth potentially more than you pay for it. You’ll boost curb appeal, set yourself apart from the neighbors, and get a healthy boost of pride in ownership every time you pull up outside your transformed home.

Garage Door Replacement

Cost: $4,302

Resale value: $4,418 

ROI: 102.7%

Replacing your garage door is a great practical upgrade that also has an outsized impact on your home’s curb appeal. It’s also usually a pretty quick fix. Replace an outdated door with a new, lighter model with improved fittings and a better motor and electronics. Plus, the latest models link to your favorite cell phone security app so you can open your door remotely for deliveries.

Why is it a smart choice? Because it’s a minor upgrade with a major impact on home value. While you can’t take a cozy bath in your garage, it’s an affordable upgrade that delivers while helping to protect your car, tools, or recreation equipment. Other smart and cost-effective upgrades include HVAC upgrades, vinyl siding replacement, and new windows.

At the same time, it’s best to be sensible about upgrades that might have huge appeal to you—but might be seen as unnecessary or a maintenance headache for future buyers. This includes upgrades such as in-ground pools, hot tubs, and outdoor entertainment areas. 

Also, be very cautious about making changes to your home that will reduce usable space or the number of bedrooms your house is considered to have. Depending on zoning laws, simply turning a bedroom into an office space could end up costing you plenty.

Using a HELOC For Renovations

It’s important to take the long view when planning home improvements. Projects that offer the highest ROI are often ones that add appeal to buyers but don’t offer much for your value. These make the most sense if you expect to sell your home soon.

On the other hand, while the returns on a new bathroom or kitchen or a finished basement might be less, these offer real benefits to you and your children—and grandkids for that matter—if you’re in it for the long haul. With more children living with parents for longer in their lives and more elders aging in place, it’s important to consider the “generational” impact of projects too.

That’s what makes a HELOC from Foothill Credit Union ideal for your home improvement budget. With cash on tap for several years, you’ll have the money you need for major upgrades like a new bathroom as well as smaller add-ons like new windows or a better heat pump. You’ll be able to make the changes you want, knowing that your home equity is working as hard as you are.

Using Your HELOC Responsibly

HELOCs offer a ready source of credit at rates far lower than you will get using your credit card or a personal loan but need to be used carefully to avoid racking up unmanageable balances that can turn into long-term debt. 

Here are good questions to ask before taking out a HELOC:

Do you need funding for just one small project or are you planning on taking on a major renovation or several updates over time? 

The cost involved in setting up a HELOC might not make it economical to fund, say, a garage door replacement, but ready financing is invaluable if you’re a busy DIYer with a long to-do list.

How much equity do you have in your house? How long before you may want to sell? 

It’s unwise to borrow against all your equity, especially if you’ve just bought the home. A large balance on your HELOC may wipe out any equity you were hoping to take out of your home if you need to sell early.

How good are you at managing debt? 

HELOCs are designed to provide limited amounts of cash as you need it and work best when you borrow smaller amounts and repay them well above the minimum interest-only monthly rate. If you struggle to keep track of spending or have a history of running up high credit card balances, then a HELOC may not be best for you.

Remember, unlike credit cards or personal loans, a HELOC is secured against your home. Not only must you be able to afford your HELOC payments but you must also be able to continue to pay down your mortgage. Defaulting on either payment could cost you your home.

Getting A HELOC

Getting a HELOC is pretty straightforward but because it’s secured against your home, it involves many of the same steps as applying for a home loan or refinance. Here are the typical steps involved in taking out a HELOC:

  1. Checking your equity and credit: Work out how much equity you have by subtracting your mortgage balance from your home's current market value. Most lenders will not fund owners with less than 20% equity. You’ll also need average to good credit.
  2. Review your financial health: Gather your financial documents including recent pay stubs, federal tax returns, and statements for all of your bank and investment accounts, to prove your income and assets. 
  3. Shop around for lenders: Research various lenders to compare interest rates, fees, loan terms, and closing costs. As member-owned financial cooperatives, credit unions like Foothill Credit Union often offer fewer fees and better terms than banks or online lenders. 
  4. Submit your application: Choose the lender that offers the best terms for your needs and submit a formal application. You'll need to provide personal information, details about your home, and the required financial documents.
  5. Appraisal: The lender will order a home appraisal to establish the current value of your property. This will determine the maximum amount you will be able to borrow through your HELOC.
  6. Underwriting: After the appraisal, your application will go through the underwriting process when the lender checks your financial information and evaluates the risk of lending to you.
  7. Close on the HELOC: Once approved, you'll receive final loan documents to sign. After signing, there is typically a three-day “cooling off” period, after which the HELOC will be officially open and you can start drawing funds as needed.

Foothill HELOCs: Put Your Equity To Work 

It’s true—your house can help you borrow money at truly terrific rates. And, putting that money right back to work by spending it on smart upgrades on your home puts it back to work for you as equity. That means more security for you and your family while you live in the home and more money in your pocket at sale time.

At Foothill Credit Union, we’ve been helping our members get more out of their homes by putting more into it for years. Our flexible, generous HELOCs offer:

  • A home improvement fund you can tap into time and time again
  • Low rates, plus an extra low 3-month introductory rate
  • Interest-only payment option for qualified borrowers
  • Borrow for up to 10 years, and repay over up to 15 years.

A Foothill Credit Union, a HELOC also gives you easy access to the cash you need through checks, online banking, or at our neighborhood branches. 

So, whether you’re looking to build a value-boosting accessory dwelling unit—or just tick off home improvement upgrades—a Foothill HELOC can help make it happen. Click below to get started.

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