The housing market has been kind to home values over the past few years, giving the average homeowner $200,000 in equity by June 2023, according to a new report from Black Knight Inc. With a home equity line of credit, it can be tempting to spend it in a number of ways.
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But a smart way to use your money is to reinvest it in your home to increase its value so that in the future, if you want to sell, or refinance, you will have more money in your home. There could be even more equity in the settlement. Real estate experts suggest six best ways to use your equity to improve the value of your home.
Invest in High ROI Upgrades
If you’re going to put your equity into an upgrade, Rod Khalife, a real estate investor and podcast host, suggests making renovations that provide a higher return on investment (ROI). “The kitchen and bathroom are often the best places to start. Upgrading appliances, countertops and fixtures can significantly increase the value of your home, Khalife said.
Another area of investing in your equity that benefits you in the short term, and potential buyers in the long term, especially with the peak of the growing season, is energy efficiency. “Invest in energy-efficient upgrades like insulation, HVAC systems, or solar panels,” Khalife said. These not only improve the value of your home but also save you money in the long run
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Improve curb appeal
According to Willie Smith, real estate industry professional and founder of Smith & Associates Real Estate Solutions, when it comes to homes, first impressions absolutely count. “Invest in landscaping, a new front door or exterior paint to make your home stand out in the neighborhood,” Smith said.
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add extra living space
If your home is small, to begin with, converting an attic or basement into a living area or adding a room can significantly increase the value of your home, Smith points out. Just make sure you get the proper permits so that when it comes time to sell you can legally count the extra space in your square footage.
Invest in technological upgrades
According to Colby Hager, licensed Realtor and owner of Capstone Homebuyers, more and more buyers are seeking technology upgrades that will increase the value of your home. “As smart homes become more mainstream, installing integrated home automation systems (like advanced security systems, smart thermostats and voice-controlled lighting) can attract tech-savvy buyers and increase your home’s value ,” Hager said.
Consider roof replacement
Your home may be spacious and modern, but if your roof is nearing the end of its life, according to Lenka Fridrich, real estate agent and owner of Italica Rental, “a new roof can prevent potential problems and increase the value of the home. Can increase.” You typically need to replace a roof every 12 to 30 years, depending on the type of roof you have.
Now, if you’ve decided you’re ready to dip into that equity in the form of refinancing your current mortgage loan, there are a few things you need to keep in mind to get the best deal, Khalife explained:
Rate of interest. Keep an eye on interest rates, Khalif said. “If you can secure a lower rate than your current mortgage, it could save you money in the long run.” If the rates are higher than what you’re already paying for, it’s probably worth waiting until they drop.
Length of Loan: If you’re going to refinance your mortgage loan to take out equity, pay attention to the length of your refinance loan and what it means for your financial goals, Khalife said. “The monthly payment may be higher in a shorter loan tenure but in the long run you can save on interest. Monthly payments will be lower in the long run but may result in higher overall interest costs.
fixed vs adjustable rate:There are also different types of mortgages to consider, Khalif explained. “Fixed rate mortgages offer stability with consistent monthly payments. Adjustable rate mortgages may start out with low rates but come with the risk of future rate increases. Choose one that suits your financial strategy and risk tolerance.”
Home Equity Line of Credit
According to Jonathan Faccone, managing member and founder of Hello Homebuyers, other ways to access your credit include taking out a Home Equity Line of Credit (HECL), which can be used to finance improvements and renovations to your home without taking out a loan. Is. , “HECL is secured by the equity in your home, so you need to make sure you have enough to pay it back if circumstances change unexpectedly.”
It’s also important to note that using an equity loan or HECL can increase risk, Faccone said, so make sure you do your research and work with professionals who can help guide your decisions. “With careful planning and preparation, you can use your equity wisely to improve and maximize the value of your home.”
Whatever route you choose, make sure you’re clear how high your mortgage payments will be, and how much interest you’ll pay over time. There’s no point putting yourself in financial difficulty for the promise of equity in the future. You can always wait until later.
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This article originally appeared on GOBankingRates.com: Housing Market 2023: Average homeowner has $200K equity; 6 Ways to Use It to Increase the Value of Your Home