Here Is How To Pay For That Expensive Home Renovation With A HELOC

Dated: October 3 2019

Views: 233


heloc-renovation


Oh, the things you could do with your home if only you had the money. Remodel the kitchen, overhaul that ugly bathroom, or just fix the roof. But who has thousands of dollars just lying around to be funneled into a renovation project?


Well, if you own your home and have built up equity by faithfully making those mortgage payments over the years, perhaps you do. A home equity line of credit, or HELOC, lets homeowners borrow money by using their home equity as collateral.


“A home equity line of credit is one of the most versatile lending facilities to have in your financial arsenal,” says John Cindric, a financial adviser with BlueShore in North Vancouver, British Columbia.


Interested? To qualify, banks expect homeowners to have 10% to 20% equity in their financed home after taking out the HELOC. In addition, homeowners are required to provide proof of income and have steady employment and a good credit score.


Ideally, of course, the improvements made with the borrowed funds will increase the home's value, which makes it appealing to owners fixing to put their home on the market. But a HELOC-funded renovation can also benefit homeowners who just want to make the most of their space.


Either way, here are some tips on how to leverage a HELOC.


Use a HELOC like a credit card

Think of a HELOC as a cross between a mortgage and a credit card, Cindric says.


"It is similar to a credit card in that it is a revolving credit facility where you can use it, carry a balance, pay it off, and use it again," he says.


That means you get the flexibility of being able to borrow the amount you need, when you need it.


“As you repay your outstanding balance, the available credit amount is replenished. This means the amount you can borrow increases, up to your credit limit,” says Darcie Gore, senior lending manager at Chase Home Lending in New York.


Immediately pay contractors for big projects

That luxurious new master suite is going to require a lot of subcontractors—and they're going to want to get paid right away. A HELOC can come in handy if you need to pay contractors and manufacturers on the spot by check—especially considering many contractors do not accept credit cards for payment.


“Homeowners can access a HELOC by check and can use the checks to make payments as they see fit,” says Angela P. Dowd, vice president of retail product management at Comerica Bank in Troy, MI.


And if you find yourself longing for plastic, Dowd says some banks allow you to access your HELOC through a credit card.


Depending on your bank, you may also be able to transfer funds online to a checking or external account, or get a cash advance, Gore adds.


Save more green in the long run

Saving money is always a good thing, but it's especially important during an expensive remodel. Generally, a HELOC carries a lower interest rate than many types of credit cards and personal loans, says Gore. Therefore, using a HELOC may be more cost-effective for homeowners who need to carry a balance for a while.


And there are other advantages. Under the Tax Cuts and Jobs Act, homeowners may be able to deduct the interest on HELOCs from their taxes, but only if the funds are being used to buy, build, or improve their home. Of course, there is a limit to the deduction you can take. Any new loan taken out from Dec. 15, 2017, onward—whether a mortgage, home equity loan, HELOC, or cash-out refinance—is subject to the new lower $750,000 limit for deducting mortgage interest.


“When you use a home equity line of credit for home improvements, a portion of your interest may be tax-deductible. Because tax laws vary from state to state, I recommend homeowners talk with a tax adviser about what interest may be deductible based on your situation,” says Gore.


Source

Blog author image

Mark Ross

For Mark Ross, founder of Ross NW Real Estate and professional real estate broker, real estate has always been the career of choice. During his 30 years in the industry, Mark has gained experience in ....

Latest Blog Posts

6 Projects To Banish Boredom From Your Yard

We're all about indulging in Starbucks' latest seasonal concoction or this season's "it" bag. (OK, maybe a knockoff version of this season's "it" bag.) Trends are just plain fun — and they keep

Read More

How To Renovate Tight Living Quarters Without Cutting Corners

If you live in a small space, you’re used to having to come up with clever solutions to maximize your home’s potential. So whether you’re looking to renovate a studio apartment or small house,

Read More

Are You Making One Of These 7 Landscaping Mistakes

You can just picture it: a pretty cottage garden overflowing your front yard, with tons of heavy, scented blooms.Well, at least you can picture it with your eyes closed. With your eyes open all you

Read More

Fannie And Freddie Set Dates For Their New Refi Option

The Federal Housing Finance Agency didn’t have a set date for its new refi option targeted to low-income borrowers when it announced the program last week. But on Wednesday, both Fannie Mae and

Read More