Four ways to pay for home renovations

After months of lockdown during the pandemic, many have become aware of the failings of their homes. Whether you want a cosmetic update or think your home may have a more serious problem, how to pay for a renovation may be your main concern.

We asked Todd Nelson of home improvement lender LightStream for suggestions on how to decide what projects to do and how to stretch your budget without derailing your long-term financial plans.

“Rather than procrastinate because you don’t know what to do first, it’s best to prioritize your projects,” wrote Nelson in an email. “If you’re not sure about the condition of your home, consider having your home assessed by a licensed home inspector. Tackle structural and mechanical system issues as soon as possible to ensure your home’s physical integrity and safety as well as to prevent costly repairs in the future.”

While hiring a home inspector may cost several hundred dollars, it could be a worthwhile expenditure if you purchased the house years ago and haven’t had any inspections since then.

Homeowners often delay their improvement projects because of a lack of funds, wrote Nelson, who suggests comparing and possibly combining the following payment options:

  • Savings: Tapping savings to pay for renovations is the least expensive option because you don’t need to borrow or pay carrying costs. In doing so, however, make sure to leave cash on hand to maintain an emergency fund, cover ongoing expenses, pay down existing debt and continue contributing to future goals such as retirement savings or college tuition, wrote Nelson.
  • Credit cards: Given the high interest rates often charged by credit cards, if you don’t know how or when you’ll pay off this debt, you can wind up paying significantly more for your projects, wrote Nelson.
  • Consumer loans: Online financing with a personal loan is a solution that can be used to completely pay for a home renovation or be combined with other options to make a budget go further. LightStream, for example, has an online process where you submit a brief application and, if approved, can receive funds as soon as the day you apply, at low fixed rates and with no fees, wrote Nelson.
  • Home Equity Line of Credit (HELOC): If you’ve accrued at least 15 to 20 percent equity in your home, you may be able to borrow against its increased value. A HELOC is a variable rate bank loan where the amount available is determined through an appraisal that assesses the current value of the home and what is owed on the property, Nelson wrote.

Compare the payment plans, fees and interest rates on all these options to determine which one or which combination of options will fit your budget best.

“No matter what type of work you’re considering, get written estimates from multiple licensed contractors,” wrote Nelson. “Execute a written contract outlining every aspect of the project, its costs and the timeline to complete the work. Make sure to receive written proof that the people you hire carry appropriate insurance. With prioritized projects, funding and contracts in place, 2020 can be the year to create the home you’ve always envisioned.”

Pandemic home remodeling is booming: Here’s what your neighbors are doing

There is a lot of activity in Justin Sullivan’s backyard, as workers hammer out his new deck, and jackhammers pound through the basement.

Concrete for the new pool has already been poured. The Sullivans had planned a renovation before the pandemic hit, but then suddenly it became a much bigger project.

“The pool, the home gym, the sauna — those are things that when you’re not able to go out, your house is an enjoyable space where you can live bunker-style and still be active, still feel comfortable, and still enjoy,” said Sullivan. “The kids will have spaces to make sure they can work from home, and when it gets really hot in the summertime, they’ll have a place where they can cool off.”

The Sullivans are far from alone in their desire to create a retreat, even if that retreat is in their own basement. Houzz, an online home remodeling platform, reported a 58% annual increase in project leads for home professionals in June.

Those working on outdoor spaces saw the biggest increase in demand, with searches for pool and spa professionals three times what they were a year ago. Not far behind, landscape contractors, deck and patio professionals all saw more than double the demand.

Pool demand is so strong that even Wall Street investors are taking note. Poolcorp, an international distributor of swimming pool supplies, parts and outdoor living products, hit an intraday all-time high this week and is up over 54% year to date. The stock is on pace for its best year since 2003.

Much like real estate agents, remodeling professionals are now adapting to a new world of social and professional distancing.

“Over the past year we’ve made many significant additions and improvements to how our platform helps homeowners find and connect with the right professional for their project — enabling people to directly schedule video meetings with pros through Houzz Pro is just one example — and we’re really seeing the impact of those investments in the number and quality of connections we’re making,” said Liza Hausman, vice president of industry marketing at Houzz.

Kitchen and bath have always been popular remodeling choices, but even those saw a 40% jump in demand in June compared with a year ago. More people are cooking and eating at home, and kitchens are now even more the center of family life.

Home extensions and additions jumped 52%, and security and privacy also saw much greater demand with interest in fence installation and repairs up 166%.

Homeowners are likely getting extra incentive from the record high amount of home equity they now have. Home prices continue to gain, despite the economic downturn, as demand for housing soars.

Just over 15 million residential properties were considered equity-rich in the second quarter, meaning mortgages on those properties was 50% or less than the value of the home, according to ATTOM Data Solutions. That is 27.5% of all mortgaged homes in the U.S., up from 26.5% in the first quarter.

“Homeowners saw their equity rise far and wide throughout the United States during the second quarter of this year in yet another sign of the housing market punching back against the Coronavirus pandemic,” said Todd Teta, chief product officer with ATTOM. “More property owners rose into equity-rich territory and escaped the seriously underwater lane, putting more money into the average household.”

5 HOME REMODELING TIPS FROM THE PROS

With the extra time many Americans have spent at home over the past few months, there have been plenty of opportunities to think about how that living space could be improved.

While this may not be the ideal time to tackle a full gut and renovate project, it may still be possible to do some smaller scale remodeling projects that update and improve your home. For example, simple cosmetic repairs like painting and replacing vanities can make a noticeable difference with minimal work or investment. Or if you’re hesitant about bringing contractors into the house, outdoor projects like replacing fencing, adding paver stones or constructing outdoor living spaces may be a benefit for your family.

Before you take on a project, consider these tips from Robi Kirsic, MCKBR, UDCP, chairman of the board of the National Association of the Remodeling Industry and co-CEO of TimeLine Renovation & Design.

Define the Purpose

The first consideration whether you’re making changes for yourself or for future resale is the purpose of your project. This determines everything from the budget to the materials you select. Remember projects in the kitchen and bathroom typically bring the greatest return on investment.

It’s also a good idea to plan how you’ll use the renovated area. When possible, incorporate elements of universal design that don’t change how the space looks but will change how it works. For example, in the bathroom, install a curbless shower, taller toilet and block in walls to allow future installation of grab bars.

Stick to a Budget

Another early decision is your budget. It’s fruitless to spend time looking at materials and making design decisions based on products that exceed your budget or, conversely, fall below the quality level you prefer. Having a professional involved can help keep you from overspending and identify areas you may want to splurge or pull back.

Select a Remodeler

Friends and family can be great resources when it comes to choosing a remodeling contractor since they’re likely to give detailed and candid opinions about their experiences. When you begin interviewing companies yourself, verify they’re licensed and insured, and ask what they offer above those minimum requirements. Are they certified or accredited? Do they specialize in the type of work you’re considering? Also be sure to request and check references and search online for reviews.

Conduct Virtual Meetings

While some projects may require an in-person assessment, many planning sessions can be conducted virtually. You can even shop products to be used in your project virtually since online catalogs typically show a variety of colors and finishes along with prices. For items you need to see or feel to choose, like flooring, request samples to test in your home. To make your virtual meetings most productive, prepare by providing a detailed scope of work and be ready to provide measurements and show the space cleared of clutter.

Keep it Safe

For some families, sticking to outdoor projects may be more comfortable in the short term. For those who are ready to bring contractors inside, there are numerous steps you can take to create a safer working environment. Examples include asking everyone involved to wear face masks and gloves and using plastic at doorways to keep the work area separate from the living area. Regular disinfecting and a thorough cleaning at the end of the project are also important preventive steps.