Why Building Equity In Your Home Is Important

Why Building Equity In Your Home Is Important

Your home equity is the portion of your home that you own, calculated by subtracting your mortgage balance from the home’s market value. For example, say your home is worth $250,000, and you owe $150,000 on your mortgage. If you’re looking to take out a home equity loan or line of credit, it’s good to know how much equity you have because lenders set borrowing amounts based on the amount of equity you own. Generally, the more equity you have, the more money you can borrow. So knowing how to build equity helps you create a meaningful asset over time.

Building home equity is important for a few reasons. First, it can not only be a reliable way to build wealth but also help you maintain the home while you’re in it.

Building equity in a property means:

  • You can borrow equity for nearly any purpose. Homeowners can borrow against the value of their homes through home equity loans and HELOCs. With a loan, you receive all funds at once and immediately start paying them back over a period lasting up to 30 years. When you take out a line of credit, you have a draw period (often up to 10 years) when you can withdraw what you need when you need it and make interest-only payments. You then have a repayment period (typically 10 to 20 years) when you pay back interest and principal.
  • You will make a profit when you sell the home. You don’t want to find yourself “upside-down” in a home, owing more on the property than you can recover in a sale. When this happens, the only way to sell is by getting your bank to agree to a short sale. Building equity means you will sell the property for more than you owe. You can use the profits for another home, pay off other debt, or invest it elsewhere.
  • You can build long-term wealth. Building home equity can help you increase your wealth over time, especially if you purchased your home when the market was in buyers’ favour. A home is one of the only assets that have the potential to appreciate as you pay it down.

5 Home Improvement Projects That Build Equity

How do you build equity in a home while simultaneously enhancing your everyday life? By making home improvements that add value to your property. Not only will improving a home allow you to build equity quickly and efficiently, but it will also make your life more comfortable daily. Of course, you don’t want to improve or add just anything to your house. Instead, be strategic about the specific improvements you decide to make to your home. In other words: choose improvement projects that will give you the most bang for your buck when adding value to your property.

Fortunately, we’ve researched for you. If you’re looking to build equity in your home, and the property is lacking in these areas (think: a dated kitchen or lack of curb appeal), then these projects are an excellent way to add thousands upon thousands of dollars of value to your home. Here are five home improvement projects that will likely add value to your home. 

5 Home Improvements That Add Value To A Home

Landscaping

Ask any homebuyer what they look for in a home, and you’ll be hard-pressed to find one who doesn’t place value on curb appeal. After all, you can have the best interior in the world, but without attractive landscaping and front exterior, few buyers (if any) will be charmed. Even a simple, well-maintained lawn can go a long way in building equity in your home. However, Money Crashers warns that going overboard with landscaping (i.e. adding fountains, expensive plants, etc.) will not necessarily add value to a home. Instead, the website encourages homeowners to “wow potential buyers with a well-kept lawn, and some well-placed shrubbery or small trees.” These front yard house changes tend to “recoup a decent percentage,” according to Money Crashers.

Energy-efficient windows

Tired of living in a home with old, drafty windows? Fortunately, this is an easy fix. Simply replace your old windows with new, energy-efficient ones, and you’re sure to increase your home’s value (and decrease those monthly energy bills). While new windows aren’t cheap, they do end up saving you Money in the long run. They also make it easier and faster to heat and cool your home throughout the year, which means you can kiss those high utility bills goodbye. In fact, according to Money, “replacing old windows with newer, energy-efficient ones can save you anywhere from $25 to $450 a year in heating and cooling costs.”

Outdoor deck addition

Everyone (especially a homebuyer) loves having an outdoor deck for lounging, eating and grilling. According to Remodeling’s 2019 Cost vs. Value Report, adding a wood deck addition to your home yields a return of more than 75 per cent. The report notes that this return is for a 16×20 foot deck addition using pressure-treated joists. According to Money Crashers, the cost of adding a deck varies widely depending on materials and size. However, most decks cost anywhere from $1,200 to $10,000 or more. Though pricey, these decks will ensure you have plenty of outdoor space to enjoy while also building equity in your home.

Bathroom remodel

Having updated or new bathrooms in your home will go a long way in attracting potential buyers down the road. Since it’s a room you and guests use daily, many consider bathroom remodels well worth the Money, time and effort. According to Remodeling’s 2019 Cost vs. Value Report, a mid-range bathroom will cost you around $20,000. Therefore, when homeowners sell the home, they should recoup around 67 per cent of their investment. In many cases, you can remodel a bathroom for under $20,000 when you choose affordable and reasonable finishes from Home Depot and Lowe’s. 

Kitchen remodel

Kitchen remodels can either be extremely expensive or fairly affordable, depending on the finishes and appliances chosen. While it’s never cheap to redo a kitchen, it doesn’t have to break the bank either. Those that choose high-end, luxury finishes, such as marble countertops, custom cabinets and designer backsplashes, could end up paying upwards of $100,000 or more. However, those that choose less luxurious finishes can easily redo a kitchen for $40,000 or less. A spacious, practical, updated kitchen is at the top of their list of needs for many homebuyers, making this improvement a must. 

7 Home Improvement Projects To Increase Value

Are you thinking of adding a main bathroom with a separate tub and shower to your home? Maybe you’re ready to ditch those old kitchen cabinets and replace them with something fresh. Or maybe you’re eager to build that sunroom you’ve always wanted.

If so, you’re not alone. Plenty of homeowners are tackling home improvement projects this year, a trend that’s only grown during the COVID-19 pandemic. Houzz, an online home remodelling service, said that home renovation professionals saw an increase of 58% in project leads in June.

But which home-improvement projects make the most financial sense? Which bring the greatest increase in sales price when you are putting your home on the market?

Replace The Garage Door

Curb appeal matters when you’re selling your home. The more appealing your home’s outside, the greater the chance it makes a good first impression with your buyers. A new garage door can help, especially if your home’s garage faces the street. If buyers see a clean, modern garage door, they might instinctively think that the rest of your home follows suit.

Install Manufactured Stone Veneer

A home with stained aluminium siding or peeling paint won’t impress anyone. You can provide an instant boost to your home’s exterior, though, by installing manufactured stone veneer either as your home’s main exterior surface or as an accent piece. As the name suggests, stone veneer is a manmade material designed to look like real stone. It’s a result, and it’s a good way to add beauty to your home’s exterior without the higher cost of real stone. Remodelling magazine’s 2020 cost vs. value report ranked manufactured stone veneer as the most cost-effective home renovation. According to the report, installing a manufactured stone veneer will bring a return on your investment of 95.6% – tops in the survey — and will add an average of $8,943 to your home’s resale value.

Implement A Minor Kitchen Remodel

Buyers focus on kitchens. A modern, airy kitchen can help your home sell faster and for a higher price. Major kitchen remodels, though, are expensive. If your budget is tighter, consider a more limited remodel, perhaps replacing countertops, cabinets and flooring and upgrading to newer energy-efficient appliances. Remodelling magazine ranked the minor kitchen remodel as its third most cost-effective renovation in 2020, bringing an average return of 77.6% when buyers sell.

Remodel The Bathroom

The bathroom is another key room when selling your home. Buyers like large, bright bathrooms. So you’ll you’ll boost your chances of a quick home sale if your bathroom is spacious and features larger tubs or shower spaces. You can make your bathroom more appealing, too, by upgrading vanity countertops, replacing dull lighting and adding modern-looking tile. As with your home’s kitchen, main bathroom remodels – or adding an entirely new bathroom – can be costly and will generate a lower return on investment. However, a more modest renovation can add new life to your bathroom and generate a higher return for a far smaller investment.

Replace The Siding

Again, you only get one chance to make a first impression with potential home buyers. That’s why you want your home’s exterior surfaces to look clean and inviting. An affordable way to do that is to replace your home’s old aluminium siding with new vinyl or fibre-cement siding. Both options can give your home a clean appearance. However, suppose buyers see that your siding is dirty, covered with mould, cracked or damaged. In that case, they might wonder if you’ve been lax in caring for your home’s electrical system, appliances, floors and other materials.

Upgrade Your Windows

New windows can dramatically lower your home’s energy bill. They can also make your home more comfortable, shielding you from cold drafts during the year’s more frigid months. Homebuyers understand this. If you replace old, drafty windows, then you’ll boost the odds of selling your home quickly and for a higher price. A good upgrade option: Low-E windows – windows manufactured with insulated glazing. , they typically cost about 10% – 15% more than regular windows but can reduce energy loss in your home by 30% – 50%.

Add A Wooden Deck

Another way to add resale value to your home is to add a wood deck. A wooden deck can enhance your home’s outdoor space. Potential buyers might look at a deck and imagine themselves hosting barbeques or spending quiet summer evenings in the outdoors with their family. But, then, adding a wooden deck makes it more likely that buyers will make an offer when they’re touring your home.

Benefits and advantages of a home equity loan 

A home equity loan can be a good option if you need to cover large expenses associated with home renovations, college tuition, consolidating debt, or other types of major expenses. Because you can borrow against the value of your home, a home equity loan may also be easier to qualify for than other loans because your house secures the loan.

Fixed-Rate

Home equity loans typically carry fixed interest rates that are often lower than credit cards or other unsecured consumer loans. In addition, in a changing rate environment, a fixed-rate loan can simplify budgeting because your monthly payment amount remains the same over the life of the loan and will never increase.

Lump-Sum

The amount you borrow with a home equity loan is provided to you in one lump sum. This offers you the flexibility to cover large expenses. You pay back the loan amount with regular monthly payments toward accrued interest and principal for the agreed-upon number of years. Just remember, a home equity loan must be paid in full if your house is sold.

Tax Deduction

A tax deduction may be available for the interest you pay on a home equity loan if the loan was used specifically for home renovations. We encourage you to consult a tax professional or visit irs.gov for more information.

Is a home equity loan right for me?

Suppose you are a responsible borrower with a steady, reliable income. In that case, a home equity loan can be a great option because it offers flexibility in what costs it can help cover, especially with larger expenses. There may also be rate and fee benefits.

As you consider your loan options, you may come across a Home Equity Line of Credit (HELOC). Home equity loans are often used interchangeably with HELOCs. While both loans offer flexibility in the type of expenses it can cover, with a HELOC, you are approved for a maximum loan amount and only withdraw what you need, similar to a credit card. A HELOC also tends to have variable interest rates, which means your monthly payment may increase or decrease if the rate index increases or decreases.

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