Renovations and Your Home Equity

By Meiling Hunter
Mortgage Credit Problems Columnist

Long gone are the days of double-digit annual increases in home equity. Now, with a sluggish economy and slow home sales you may have to do some renovations or home improvements if you want to increase your home equity.

The best home equity builders

Your home is an important asset so maintaining and improving its value only makes sense. Here are some top home equity builders that generally provide the best return on home improvement investment:

• Kitchen upgrades- Whether you decide to upgrade your tile counters to granite, install new cabinets, or replace all of your appliances, these can be great equity builders. Even minor projects like new paint or replacing the hardware on your cabinets will probably add to your home value.
• Bathroom remodel or bathroom addition- Whether you decide to renovate an older bathroom with fresh paint or add an additional bathroom, bathroom renovations can offer a great return for your investment.
• Family room addition- This is a bit on the pricier side, but it will definitely increase your home equity and is a great option.
  

Good contractors vs. bad contractors

If you decide that your chosen project is one that you don't want to do yourself make sure you choose a good contractor. Just like the bank checks your credit before giving you a home equity loan, you need to check references and ensure necessary permits are obtained to complete the project. The contractors that you hire should be licensed and able to provide proof of insurance coverage-- including worker's compensation.

Financing the home renovation

If you don't have cash on-hand to finance your home improvements, you have a couple financing options. One is to get financing through the store where you buy your materials and appliances. Typically these types of credit can offer special financing terms-- no interest for six months or no payments for three months. However, understand the terms because sometimes the special financing can actually be a bad thing-- if you don't pay the entire balance after the six-months-no-interest period is up you will owe all of the interest for that six months (sometimes calculated at high rates) plus your principal balance.

Another financing option is getting credit through a home equity loan. Home equity loans typically carry lower interest rates than consumer credit cards and the interest you pay on your home equity loan may be tax deductible.

Sources
CNN Money

About the Author
Meiling Hunter has worked in the mortgage industry for four years. She graduated from the University of California, Davis, with a double major in Economics and Philosophy.

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