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Ready to Renovate Your Home?

Constructive feedback: Here’s how a HELOC can help


Home renovations are among the top priorities for many homeowners. From total fixer-upper to replacing a roof, it seems there’s always a home project that needs attention. Fortunately, there are many options for financing home renovations that homeowners might not realize are available.

As a homeowner builds equity in his or her home, he or she can use that equity to access cash. This cash availability accessed through your home equity is called a home equity line of credit (HELOC). 

If an individual wants to sell his or her home in the future, renovations and upgrades could be a way to add value.

Fortunately, a HELOC can be used to fund these improvements. 

HELOCs are advantageous because they may offer lower interest rates than a typical credit card and because the interest accrued on this type of loan may be tax-deductible (speak to your tax advisor for more detail). While these incentives are appealing, homeowners should do ample research and work with a financial advisor to ensure a HELOC is the best option for them. Financial advisors can check to make sure homeowners have the appropriate financial resources to complete projects in the most strategic way possible.

Individuals can typically borrow up to 80 percent of the value of their home. However, when determining the amount of credit available with a HELOC, consideration must be given to all mortgage balances tied to the home. Once available, this money can be used for everything from purchasing new windows to a total house renovation. 

If homeowners are comfortable with a line of credit and the accompanying payments, HELOCs are a great way to pay for large expenses, like remodeling or upgrades. 

Being aware of what potential future homebuyers want to see in a home will help homeowners decide which renovations can provide the most substantial return on investment. A majority of buyers are interested in open floor plans, energy efficiency and upgraded kitchens and bathrooms. 

Using a HELOC to fund renovations that complement the expectations of homebuyers will help increase the value of a home and may ultimately allow current homeowner to increase the home listing price when he or she decides to sell. 

​A house serves as collateral when people apply for a HELOC, but credit scores may also impact loan approval. To gain access to a HELOC, homeowners will need to have their home appraised and provide verification of income, along with other documentation. And, while the process is relatively simple, there can be a number of fees associated with getting a HELOC, so keep that in mind

When considering a HELOC to help fund home renovations, individuals should seek direction from their financial advisor. They can help navigate through all of the home equity options and help homeowners make educated decisions on the best options for their personal situation.

Alex Rasmussen is senior vice president, territory director of personal banking at UMB Bank in Colorado. He can be contacted at Alex.Rasmussen@umb.com.   

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