{"id":13949,"date":"2021-04-12T10:00:13","date_gmt":"2021-04-12T17:00:13","guid":{"rendered":"https:\/\/canary.kcprod.info/blog\/?p=13949"},"modified":"2022-01-11T17:12:16","modified_gmt":"2022-01-12T01:12:16","slug":"questions-to-ask-before-starting-a-home-renovation","status":"publish","type":"post","link":"https:\/\/canary.kcprod.info/blog\/questions-to-ask-before-starting-a-home-renovation\/","title":{"rendered":"Questions To Ask Before Starting a Home Renovation"},"content":{"rendered":"\n

You love your house, but maybe you hate your kitchen. Or your flooring. Or that one bathroom. If you own your home and you\u2019re eager to spruce it up, you\u2019re not alone. Home renovations were especially popular in 2020<\/a> as people spent more time at home because of the pandemic. They\u2019re also a big financial commitment. Before you take a sledgehammer to the tile that\u2019s always bugged you, here are some questions to ask first.<\/p>\n\n\n\n

How will you pay?<\/h2>\n\n\n\n

Renovating your home can be quite expensive, and one of the biggest decisions you\u2019ll need to make is how to pay for it. If you can use cash without dipping into your emergency fund<\/a> or other funds set aside for long-term goals, that\u2019s likely your best bet. However, if you recently bought your home, you might have spent the bulk of your cash on your down payment already. The good news is that you have a number of other options when it comes to financing home renovations. <\/p>\n\n\n\n

One of the first options you might consider is a HELOC<\/a>, or home equity line of credit. This is essentially a line of credit secured by the equity you have in your home. If you\u2019ve owned your home for long enough to make a dent in your principal balance, this can be a good way to pay for renovations. Just keep in mind that there are limits to how much you can borrow, and it can take weeks (and a lot of paperwork) to get approved and receive the money. Most lenders will cap your debt on the home at 85%<\/a> of its pre-renovation value \u2013 and that debt includes whatever you already owe on the home. For example, if your home is worth $1 million and you owe $800,000 on it, you could likely borrow up to $50,000 using a HELOC. Currently, average interest rates<\/a> for HELOCs are between 4.28% and 6.95%. <\/p>\n\n\n\n

If you just bought your home, this might pose a challenge because you probably haven\u2019t paid off much of the principal yet. As you likely know, early on in your mortgage, your payments will primarily consist of interest<\/a>. If you\u2019re a brand new homeowner, you\u2019ll probably need at least a year of payments to get enough equity in your home for a HELOC to be a decent option. <\/p>\n\n\n\n

Luckily, there\u2019s another good borrowing option: a portfolio line of credit, which allows you to borrow against the value of your investment account for any number of reasons. You can invest in securities, make a down payment, cover a tax bill, or even pay for a renovation. With Wealthfront\u2019s Portfolio Line of Credit<\/a>, you borrow up to 30% of the value of your taxable Investment Account and get the money the next day. There\u2019s no application process \u2013 if you have $25,000 in your taxable Investment Account, you automatically qualify. You don\u2019t have to disrupt your investments by liquidating them, and you get to borrow at a low interest rate \u2013 currently, between 2.40% and 3.65% (far below the average rate for a HELOC) depending on your Investment Account balance. The whole process takes just a few taps on your phone, and you can pay it back on your own schedule. For more help choosing between a HELOC and a PLOC, check out our blog post on the subject<\/a>.<\/p>\n\n\n\n

How will each project impact your home value?<\/h2>\n\n\n\n

Are you taking on a renovation that may increase your enjoyment of the home but might hurt its resale value down the road? It\u2019s important to understand what type of return on investment you can expect before undertaking any large renovation. Removing a bedroom may negatively impact your home\u2019s value whereas adding a bathroom will likely have a positive impact. This is a big factor to consider before you commit to any type of large-scale project on your home.<\/p>\n\n\n\n

Spending $10,000 to improve your kitchen doesn\u2019t necessarily mean you\u2019ll get that $10,000 back when you sell your home. But some renovations costs are easier to recoup than others. For example, you may be surprised to find that you\u2019ll likely recoup more of a minor kitchen remodel than a deck addition. Having issues with your garage door? That\u2019s actually one of the best renovations you can make in terms of return on investment, according to Zillow\u2019s sellers guide<\/a>. A few renovations that won\u2019t necessarily add value are swimming pools, luxury upgrades (granite countertops, etc.) and fancy landscaping. <\/p>\n\n\n\n

You should also be mindful of renovating your home to the point that it becomes the most expensive house in the neighborhood. If you do this, it\u2019s unlikely you\u2019ll be able to get back what you spent on improvements when you sell your home. According to Zillow<\/a>, you shouldn\u2019t take on renovations that increase the value of your home by more than 10% of your neighborhood\u2019s average home cost. <\/p>\n\n\n\n

How will a project impact your taxes? <\/h2>\n\n\n\n

Some renovations can help you save money on your taxes. When you install certain kinds of energy-efficient equipment like solar panels, solar water heaters, and geothermal heat pumps you may be eligible to claim a tax credit for up to 22% of the cost<\/a>. Of course, these projects can have financial benefits beyond the tax credit. Installing solar panels, for example, can also reduce your monthly electricity bill. To claim a residential energy credit, fill out and file a Form 5695<\/a> with your federal tax return. For more information on energy tax credits, you can check out this helpful guide from TurboTax<\/a>.<\/p>\n\n\n\n

When considering renovations, you might want to prioritize projects that can reduce your taxes. Of course, the tax code can change from year to year, so don\u2019t wait too long to get started. Currently, this tax credit is set to expire in 2022. <\/p>\n\n\n\n

There\u2019s no place like home<\/h2>\n\n\n\n

Home renovations are a big commitment, and you shouldn\u2019t undertake them lightly. However, done correctly, they can make owning your home even more rewarding. Hopefully you now have a good sense of the questions to ask yourself before taking on a big home improvement project. For even more help navigating the financial ins and outs of homeownership, check out Wealthfront\u2019s home planning guide<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

You love your house, but maybe you hate your kitchen. Or your flooring. Or that one bathroom. If you own your home and you\u2019re eager to spruce it up, you\u2019re not alone. Home renovations were especially popular in 2020 as people spent more time at home because of the pandemic. They\u2019re also a big financial […]<\/p>\n","protected":false},"author":10000,"featured_media":13952,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[1278,1279],"tags":[2230,2231,2089,2233],"coauthors":[1266],"class_list":["post-13949","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-planning","category-real-estate","tag-heloc","tag-home-equity","tag-home-ownership","tag-ploc"],"acf":[],"yoast_head":"\nQuestions To Ask Before Starting a Renovation | Wealthfront<\/title>\n<meta name=\"description\" content=\"Home renovations were especially popular in 2020 as people spent more time at home because of the pandemic. 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