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Your home’s value is more than just a theoretical number. Increasing your home value can bring a number of benefits — though paying for it is an important consideration.
Home value is a measure of how much you’d be able to sell your home for if you put it on the market. One of the key benefits of homeownership is that this value can go up over time — but it may increase even more if you invest in improvements.
We’ll go over some projects that may get you the most bang for your buck and review some options you may have to pay for it all.
- Why does my home value matter?
- 6 projects that may increase your home value
- How can I pay for home improvements?
Why does my home value matter?
Your home value is important for a number of reasons. If you want to sell, the value of your home helps the lender determine how much the buyer’s loan amount should be. It’s also important if you want to refinance your mortgage. If your home value has decreased, you may find it difficult to refinance.
And if you want to take out a home equity loan or home equity line of credit, the loan amount may be based on your home equity. Equity is the difference between what your home is worth and how much you owe on any home loans. More equity could mean more borrowing power.
It’s usually a good thing if your home value increases, but there’s a trade-off: Property taxes are typically based on the value of your home. Higher values generally mean higher taxes.
Nationally, the value of a single-family home has increased an average of 39% per decade over the last 30 years, according to research from the National Association of REALTORS®.
6 projects that may increase your home value
Home renovations can have a big impact on home value. One of the best places to start your research is a 2021 cost vs. value report from Remodeling that ranks projects that may increase the value of your house.
You’ll find several projects that repeatedly show up as popular options.
1. Improving curb appeal
Some comparatively small projects may really help to increase your home’s value. One of those projects — top on the Remodeling report — is replacing your garage door. This typically costs about $3,900 and may increase your home value by nearly $3,700, so you could recoup about 94% of the cost.
Replacing windows and your front door can also add value to your home by improving curb appeal.
2. Securing your home with exterior upgrades
Adding new siding and a new roof are other exterior projects that can increase your home’s value. Roof replacement shows up twice on the Remodeling report — once for asphalt shingles and once for a metal roof.
Updating your home’s siding to either fiber-cement boards or vinyl also can pay dividends.
3. Renovating a kitchen
Kitchen renovations are popular: After all, you’ll often hear a kitchen described as the heart of the home. A full kitchen remodel earned the top “joy score” from the National Association of REALTORS® in its latest study on the impact of remodeling, with virtually all homeowners surveyed saying their project increased their satisfaction of living in the home.
You’ll want to take into account your local real estate market and what type of finishes make sense for your neighborhood to avoid “over improving” your space.
In general, a minor kitchen renovation returns more money than an upscale one, according to the Remodeling report.
4. Improving a bathroom
Bathrooms are also a popular home improvement. They show up several times on the cost vs. value report, and the National Association of REALTORS® says bathroom remodels generally cost around $35,000 and deliver added home value to the tune of $20,000.
Adding universal design principles to make your bathroom accessible to all people can be a particularly smart investment.
5. Adding square footage
Putting an addition on your home is a major project, but it can also have a big impact on your home value. Most home appraisal methods consider the square footage of the home when putting a price tag on its value. That means increasing the square footage of your home will likely immediately add to the value of your property.
It will come with a cost, though. For example, adding a midrange primary bedroom costs upward of $156,000, according to the Remodeling report, with a return of 54.7% to the value of your home.
6. Low-maintenance features
Little, modern additions can give your home a “wow” factor that will impress buyers walking in the door, increasing the value of your home. Energy-efficient upgrades are in particular demand at the moment. You may consider projects like:
- Upgrading storm doors. If you have an older exterior door, a storm door can help you save energy by improving insulation and preventing air leakage. If you have a new, quality door, a storm door may not be a good investment.
- Installing a smart thermostat. Smart thermostats can allow you to adjust your home’s temperature via your mobile device, and some models can learn your routines and program themselves to be more energy-efficient and reduce your utility bills.
- Switching to energy-efficient appliances. Refrigerators, washers, dryers and other appliances account for roughly 15% of your home’s energy costs, so switching to more eco-friendly versions can save you a significant amount of money. This may translate to a higher home value.
- Adding solar panels. Solar panels can add as much as $15,000 to the resale value of your home, according to the federal Office of Energy Efficiency and Renewable Energy. However, depending on where you live, they may not give you as big a benefit.
How can I pay for home improvements?
If you don’t have cash on hand you want to use, you may consider using a home improvement loan or another form of financing to pay for your improvements.
- Home equity loan — A home equity loan allows people to borrow against the equity in their homes. Home equity is the difference between what you owe on your mortgage and what the home is worth. Home equity loans are typically paid back at fixed rates, and you receive the money as a lump sum.
- Home equity line of credit — HELOCs function more like a credit card: Lenders give people a maximum amount they can borrow, and they draw on that account over time. Borrowers generally pay an adjustable rate. Keep in mind that with both home equity loans and HELOCs you run the risk of losing your home to foreclosure if you fail to make your payments because your home is collateral.
- Cash-out refinance — If you’re approved for a cash-out refinance, you take out a new mortgage loan that replaces your old one and is larger than the amount you owe on your current mortgage. The difference is paid to you as cash. You can then use this money to pay for home improvements (or another financial goal). Since your new loan is larger than what you owe, your monthly payments are likely to go up.
- Credit cards — Using an existing credit card may be a convenient way to make payments, but keep in mind that cards can have high interest rates that make borrowing money expensive. Some credit cards may offer 0% interest for a period of time, which may help you finance your home project cheaply.
- Personal loan — Personal loans are typically fixed-rate, unsecured loans that you can use for a variety of purposes, including home improvements. The amount you may be able to borrow and your interest rate are based on factors such as your credit and income. Since you don’t typically need to put up collateral, you may pay higher interest rates than other financing options.
What’s next? Moving forward with a home improvement project.
There are plenty of ways to estimate how much a home improvement project might cost you. Sites like HomeAdvisor and Houzz can give you ballpark figures for how much your project might cost.
For large projects, getting quotes from multiple contractors is a good idea. You can ask friends and neighbors for referrals to quality contractors or use sites like Angi to help connect with contractors in your area.
© 2021 Zonda Media, a Delaware Corporation. Complete data from the Remodeling 2021 Cost vs. Value Report can be downloaded free at www.costvsvalue.com.