Financing Your Remodeling Project
Is your home feeling a little squeezed or out-of-date? You may want to join the millions of Americans who are turning to professional contractors instead of Realtors.
According to the National Association of the Remodeling Industry (NARI), home remodeling may be preferable to moving. Remodeling can be less expensive — the process of selling a home and moving can cost up to 10 percent of the value of your current home. Remodeling also enables your family to stay in a familiar neighborhood and school district. And though it can be stressful, remodeling is much easier than moving a household.
In addition, remodeling allows you to customize improvements based on your individual needs and lifestyle. There are many reasons people choose to remodel. You may wish to add more space, upgrade cabinets and countertops, or improve energy efficiency with new windows, doors and climate control systems.
Remodeling and increased home values Remodeling can also increase the value of the home. However, experts warn, a home’s value may not increase as much as you might have expected. In some cases, you may not even recover the costs of the renovation.
The Remodelers’ Council, a part of the National Home Builders’ Association, suggests remodeling projects that bring the value of your home up to the value of your neighbors’ homes. A good rule of thumb is to keep the total of the value of your home before remodeling and the value of the remodeling projects to within 10 to 15% above median sales prices for a home in your neighborhood. Avoid projects that make your home the most expensive in your neighborhood or “different” from the other homes, such as a large outdoor swimming pool.
Experts agree that kitchen and bath remodeling projects are the most likely to allow you to recoup their investments, possibly because homebuyers expect to spend a great deal of time in these areas of the house.
If increasing your home’s value is a key priority, keep in mind that your keenest competition at resale will be new homes. So get a sense of what these buyers want by looking at the features and amenities found in new homes, such as Great Rooms and high ceilings.
Financing your remodeling project: more options than ever Once you have decided on the remodeling project, it’s time to obtain financing. With today’s low interest rates and climbing home prices, homeowners have greater opportunity to borrow against their equity. They also face more choices for accessing equity, because lenders are offering greater options than ever before.
A key decision is choosing between a home equity loan or a line of credit. Although both borrow against the equity in your home, there are differences between them. A home equity loan is given as a lump sum and under preset terms is repaid over a fixed period of time, generally 15 years.
A revolving home equity line of credit, on the other hand, provides a credit limit or line, which you can draw on as needed, making regular payments. As you make payments, you can continue to borrow against the credit line during the draw period. Many homeowners enjoy the flexibility of a line of credit. To determine which option is best for you, sit down with your lender or financial planner.
Some lenders, such as Bank of America, the largest home equity lender in the U.S., are introducing features to make the process more convenient for customers.
New access options — Card access, such as the Bank of America Equity CreditLine® Visa®, which directly access a home equity line of credit, are growing in popularity.
Sandra Endsley, product manager, Equity CreditLine Visa, said that individuals reported in research that they enjoy the convenience of using a card without having to then write a check to transfer the charge. Although it can be carried in a wallet, the card has a distinctive design to distinguish it from other bank cards.
Cards that access a home equity line of credit benefit from low rates, payment schedules and possible tax advantages of the home equity line. (Potential borrowers should consult with their tax advisors regarding the deductibility of interest and charges for the line.) Whether you’re accessing the account through a check or card, the account is still a home equity line of credit and subject to the same terms and conditions. In addition, the Equity CreditLine Visa offers the same security features as other Bank of America cards, including zero liability from fraudulent use when the customer notifies the bank as soon as possible after a card has been lost or stolen, and a Photo Security option.
Line of Credit lock-in options — While a home equity loan is commonly available at a fixed rate, lines of credit typically are offered at variable rates tied to the prime rate. Variable rates have been popular recently because of low interest rates. However, as rates climb, the interest rate on a variable loan will increase.
Because many customers prefer the predictability of a fixed rate, many lenders now offer a “lock-in” option for already-advanced portions of our home equity lines of credit.
Primary mortgage tie-in options — Many new homeowners want to make improvements or enhancements to their homes right away. Lenders such as Bank of America often offer qualified customers the opportunity to secure a home equity line of credit when they close on a primary mortgage.
Technology process improvements — Because of breakthroughs in technology, many lenders can offer decisions nearly instantly. These advancements, which include electronic appraisal and online title verification, continue to decrease the time between approval and closing.
Properly planned, remodeling can transform the space in your home to meet your needs. In addition, today’s financing options make the process more convenient and flexible than ever before. So whether you choose to hire the experts — or you’re a do-it-yourselfer — now is a great time to get started.
Editor’s Note: For more information, visit www.bankofamerica.com.