Do you know the return on investment (ROI) of your renovation project?
Some renovations can make your home more valuable. However, other projects may provide very little or no return. If you’re investing in a home renovation in hopes of recouping that money when you sell, it’s important to research and plan ahead before you begin to ensure you’re spending your money wisely.
Home renovation projects of all types are on the rise. In a recent study, 55% of homeowners reported renovating a part of their home in the past year.
But how many of these homeowners will see a return on their investment?
It depends. Getting a full recoup of remodeling costs isn’t very likely. And while smaller DIY projects probably won’t break the bank, homeowners should address whether a project is worth its weight in salt — especially before diving into large-scale remodels.
Keep in mind, though, that you can still potentially increase your home’s equity even if you don’t fully recoup the cost of certain improvements. Equity is the difference between your home’s current market value and the amount you owe on your mortgage. A home upgrade that doesn’t fully pay for itself dollar-for-dollar in terms of increased home value may still boost your home’s overall market value, thereby increasing your equity.
10 Home Improvements That Add Value
A way to determine whether a home improvement makes sense is to look at a project’s cost vs. its value assessment. This resulting renovation-to-resale value assessment number, “cost recouped,” can then be used to rank the financial benefit of comparable projects across the country.
Take a look at these popular home improvement projects and their ROI values. You may be surprised at what tops the list.
HVAC Conversion | Electrification
Job Cost: $17,747
Resale Value: $18,366
Cost Recouped: 103.5%
Garage Door Replacement
Job Cost: $4,302
Resale Value: $4,418
Cost Recouped: 102.7%
Manufactured Stone Veneer
Job Cost: $10,925
Resale Value: $11,177
Cost Recouped: 102.3%
Entry Door Replacement | Steel
Job Cost: $2,214
Resale Value: $2,235
Cost Recouped: 100.9%
Siding Replacement | Vinyl
Job Cost: $16,348
Resale Value: $15,485
Cost Recouped: 94.7%
Siding Replacement | Fiber-Cement
Job Cost: $19,361
Resale Value: $17,129
Cost Recouped: 88.5%
Minor Kitchen Remodel | Midrange
Job Cost: $26,790
Resale Value: $22,963
Cost Recouped: 85.7%
Window Replacement | Vinyl
Job Cost: $20,091
Resale Value: $13,766
Cost Recouped: 68.5%
Bath Remodel | Midrange
Job Cost: $24,606
Resale Value: $16,413
Cost Recouped: 66.7%
Window Replacement | Wood
Job Cost: $24,376
Resale Value: $14,912
Cost Recouped: 61.2%
Source
Pre-Renovation Checklist
Long before you start tearing down walls or ripping up floors, you should consider the following:
Have you budgeted for the renovation costs?
Is the remodel a temporary fix or a long-term lifestyle change?
How long do you plan to live in the home?
Can you afford the renovation without recouping a full or near-full ROI?
How long will the renovation last?
Will the improvements add value to your home equity?
Still unsure if your project is worth the cost? Here’s a more in-depth look at the questions above.
Don’t Guesstimate Your Renovation Budget
No matter how much you try to nail down a renovation budget, there will likely be unforeseen costs along the way. Plan ahead by getting a clear view of how much you can spend.
Talk to contractors, compare their rates and get your priorities in check. It’s easy to spring for granite countertops over laminate when you’re visiting the showroom, but if you need to rewire your electrical system to install the new kitchen appliances later, you might need more funds.
Quick Fix or Lifestyle Upgrade?
While the size of a project is largely dependent on budget, in some cases, a quick-fix repair may cost more money over time than a large-scale renovation that solves a major headache.
For example, if mold is growing on your first-floor ceiling due to a leak in an upstairs shower, you may consider replacing the grout as a short-term, low-cost solution. However, you should have the house inspected to determine the best way to address the issue — mold can be a more extensive problem than first meets the eye. Depending on the damage, you may need to completely redo the tile, drain and pipes and you could require professional mold remediation.
Getting professional advice now will help you pass an inspection later in case you decide to sell.
Will You Stay — A Forever Home or Prepping for a Sale?
If you’re preparing to put your home on the market, ensure your renovations appeal to buyers. One of the biggest misconceptions among homeowners is that major home improvements equate to more money in the final sale. That’s not always the case. If you’re planning to stay in your home for several years, make sure you can realistically live with the changes long term.
Research Your Project’s Regional ROI
It’s essential to consider the value of renovations in your region — not just on a national scale. In colder climates, energy efficiency projects may reap more value, while a swimming pool may dissuade buyers. On the other hand, in warmer regions, a pool may attract buyers to your home.
Adding additional rooms or square footage is one of the most impactful ways to increase your home’s value. An appraiser will be able to compare your home to those in your area who fall into the larger square footage category. Additional space can be used as an office, playroom or entertainment area, making it a worthwhile investment.
Considerations of Living Onsite While Renovating
Home improvement projects can get stressful and can’t always be completed over the weekend. Be sure to plan a realistic project timeline and make arrangements to get through the renovation chaos. With major renovations, it’s often pragmatic to set aside funds. If you’ll have to spend several hours away from home while the contractors complete their work, you may need to stay overnight in a hotel or plan a fun day out.
Also, be aware that when renovating or doing major construction on your home, you will be unable to refinance during that time. This is because an appraisal is typically required, and the home must be in safe and functional condition.
Increased Home Equity Benefits
Sometimes, home improvement projects solely benefit you — and that’s OK! Increasing your home’s value has several benefits. If you’re staying in your home, you might be able to apply the equity to secure a home equity line of credit (HELOC), a home equity loan (HEL) or even a cash-out refinance to help pay off debts, pay for college tuition or purchase a new car, for example.
If your home is on the market, your home improvements could help it sell faster and for more money. However, keep in mind that if you want to attract investors, most require a home listing to be off the market for a certain period of time before they can consider investing in it. Typically, this time ranges anywhere from six months to a year, even if the home was only listed on the market for one day.
Remodeling Mistakes to Avoid
When it comes to making home improvements, too often, homeowners rely on instinct rather than research to decide which projects to embark on. So, while converting the garage to an extra bedroom might seem like a good idea, the inconvenience of street parking isn’t likely to entice a potential homebuyer anytime soon.
Some other remodeling mistakes to avoid:
Underestimating project costs. It’s important to fully understand your project’s size, scope and complexity. Consider the supplies, skilled professionals, inspections and permits that may be required, and any systems, such as electrical or plumbing, that will be affected and impact your costs.
Not anticipating issues. Things don’t always go according to plan. Ensure you have a buffer of funds to manage unexpected issues that may arise.
Having an unrealistic timeline. Major gut renovations can take months to design and build, which leads to higher labor costs. Can you live in your home through the renovation if it takes longer than anticipated? Do you have a contingency plan?
Not doing your research. If you want to enhance your home’s resale value, do your homework to ensure your upgrades will help you maximize your investment.
Don’t Rely on Reality TV for Ideas
Did you know that one of the most valuable home investments is adding fiberglass insulation to a home’s attic?
Probably not. But watching contractors stuff the ceiling with insulation on popular home improvement shows just isn’t as interesting as watching designers discuss the layout of a total kitchen overhaul, complete with high-end fixtures, granite countertops and top-of-the-line commercial-grade appliances.
An overly pricey, sophisticated kitchen may backfire once a home is back on the market. A minor kitchen remodel, on the other hand, such as painting the cupboards or replacing laminate flooring with ceramic tiling, not only provides a more cost-effective solution for homeowners, but may also yield a higher return on their investment. Painting kitchen cabinets is an inexpensive cost to a homeowner because they can be painted on-site instead of at a warehouse and then shipped.
Make Your Home Improvement Plan
Whether you’re a first-time homebuyer with a growing family or a near-retiree looking to sell and downsize, it’s important to understand which home improvement projects make the most sense for you.
If you’re renovating with ROI in mind, consider how prospective homebuyers will view your interior, exterior, outdoor space and landscaping. Focus on projects that improve your home’s functionality and appeal to a wide range of buyers. And remember, even relatively small renovations can still increase your home’s value and equity.
Talk to a real estate agent to get their guidance on which projects may have the biggest impact on your home’s value. If you’re ready to begin your next exciting remodeling project, inquire about a home equity loan that turns your current home equity into cash. Reach out to a Pennymac Loan Expert and find the option that’s right for you.
A home equity loan allows you to borrow a lump sum against your home’s equity, usually at a fixed interest rate that’s lower than other forms of consumer debt.
The amount you can borrow with a home equity loan is based on the current market value of your home, the size of your mortgage and personal financials like your credit score and income.
Home equity loans are best used for five-figure renovation or repair projects — which can garner you a tax deduction on their interest — or to consolidate other debts.
Home equity loans drawbacks include putting your home at risk of foreclosure and their lengthy application process.
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What is a home equity loan?
A home equity loan is a type of second mortgage secured by the equity in your home. It offers a set amount at a fixed interest rate, so it’s best for borrowers who know exactly how much money they need. You’ll receive the funds in a lump sum, then make regular monthly repayments amortized over the term of the loan, typically as long as 30 years.
Because your home is the collateral for the loan, the amount you’ll be able to borrow is related to its current market value. The interest rate you receive on a home equity loan (as with other loans) will vary depending on your lender, credit score, income and other factors.
Home equity loans in 2024
While the housing sales have cooled in some areas in recent months due to higher mortgage rates, housing prices have continued to post gains – good news for the net worth of American homeowners. According to the Board of Governors of the Federal Reserve System, U.S. households possess a collective $32.6 trillion in home equity as of the third quarter of 2023.
That’s a record high, and it means that the vast majority of homeowners are sitting on a huge pile of equity that they can leverage to access cash, including through a home equity loan. In fact, according to TransUnion’s latest “Home Equity Trends Report,”, the median amount of tappable equity per homeowner is $254,000, and some householders are in an even better position: 5.8 million of them have more than $1 million of available equity.
2023 saw a reversal in the demand for tapping all that equity. As rates jumped, the number of borrowers interested in home equity loans – along with HELOCs, their line-of-credit cousins – dropped in the back half of last year. TransUnion’s data shows that HELOC originations in the third quarter of 2023 fell by 28 percent versus the year before. Home equity loans were only down by 3 percent, though – perhaps a reflection of a homeowner’s confidence in the predictability of a fixed-rate home equity loan versus the volatility of variable-rate HELOC (more on that below).
10.16%
The average $30,000 HELOC rate as of the beginning of January 2024 — up from 7.62% in January 2023.
Source:
Bankrate national survey of lenders
As for 2024: The potential for Federal Reserve interest rate cuts could be good news for home equity loans. While the forecast doesn’t call for massive savings — for HE loans, anyway — any reduction in borrowing costs saves prospective borrowers some cash, and encourages them to turn to this financing tool.
What are average home equity loan interest rates?
As of late January 2024, home equity loan rates for the benchmark $30,000 loan are averaging just under 9 percent, within a tight range of 8.5 to 10 percent. While high compared to their average of six percent in 2022, that’s significantly lower than other forms of consumer debt. Credit card rates are lingering above the 20-percent mark, and personal loans can stretch into the 25–35 percent range for borrowers with less-than-perfect credit scores.
How does a home equity loan work?
When you take out a home equity loan, the lender approves you for a loan amount based on the percentage of equity you have in your home and other factors. You’ll receive the loan proceeds in a lump sum, then repay what you borrowed in fixed monthly installments that include principal and interest over a set period. Although terms vary, home equity loans can be repaid over a period as long as 30 years.
Since the loan is secured by your home, the property is at risk for foreclosure if you can’t repay what you borrowed. If that happens, it can cause serious damage to your credit score, making it harder for you to qualify for future loans.
You can use the funds from a home equity loan for any purpose, but there’s a possible tax benefit if you use the money to improve your home. You can deduct the interest (up to the limit) if the home equity loan is used to “buy, build or substantially improve” the property. To do this, you’ll need to itemize your deductions.
Home equity loan requirements
Lenders have different requirements for home equity loans, but generally, the standards include:
Credit score: Mid-600s or higher
Home equity: At least 20 percent
Employment and income: At least two years of employment history and pay stubs from the past 30 days
Debt-to-income (DTI) ratio: No more than 43 percent
Loan-to-value (LTV) ratio: No more than 80 percent
What should you use a home equity loan for?
Some of the best reasons to use a home equity loan include:
Upgrading your home: Whether you’re looking to remodel your kitchen, add an in-law suite or install solar shingles on your roof, a home equity loan can be a smart way to pay for the enhancements. You’ll be improving your home, which means you get to enjoy living there more; and when you’re ready to sell, the upgrade can potentially make it more attractive (and more valuable) to buyers. Plus, you can qualify for some tax benefits — a deduction on the interest — when you use a loan to invest in the property in this way.
Consolidating high-interest debt: If you’ve been struggling to pay off debts with high costs like credit cards, a home equity loan can make a big difference in the amount of interest you’re paying. However, if you’re considering this route, there are two important caveats. First, you need to have a real commitment to not build those credit card balances up again. Second, the amount of debt needs to be fairly significant. Credit card balance transfers can be a better option if you’re aiming to pay off less than $10,000.
Covering large medical bills: Health care can be incredibly expensive, and medical problems often arise unexpectedly. If you or a family member needs a procedure, treatment or long-term care that isn’t fully covered by insurance, a home equity loan could be a good way to handle the costs.
When you should avoid getting a home equity loan
If you’re thinking about using a home equity loan and any of these describe you, think again:
Covering discretionary spending: You don’t have to go on that pricey vacation for spring break (find something fun to do for a staycation). You also don’t have to host a wedding (go to the courthouse). While both of those kinds of big expenses can be fun, they are not reasons to hock your home. Save for longer, or find a more affordable way to make them happen.
Paying for college: You may find lenders who advocate paying college tuition via home equity, but this is a risky move. There is no guarantee that your child is going to graduate, but there is certainly a guarantee that you need to have a home. Look at taking out federal student loans in your child’s name instead: Their interest rates are lower, and they come with benefits like income-based repayment options.
Paying for a relatively small project: If you only need a small amount of cash – think less than $20,000 – you may be better off looking for other options such as a credit card with a long zero-percent APR period or simply taking longer to set aside some savings.
How much can I borrow with a home equity loan?
To figure out how much you might be able to borrow with a home equity loan, you first need to understand how much home equity you actually have. Your equity is the essentially difference between how much your home is worth and how much you owe on your first mortgage. For example, if your home’s current fair market value is $500,000 and you owe $250,000, you have a 50 percent equity stake.
Most lenders will let you borrow up to 80 percent of your equity stake (some let you go as high as 85 or even 90 percent). However, there’s another factor to consider: How much all your loans amount to or your combined loan-to-value ratio (CLTV). Most home equity lenders will cap your total amount of home-secured debt – including your first mortgage – at 80 percent of the home’s market value. So, in that case, you would likely be able to borrow up to $150,000, taking your total mortgage debt to $400,000 (80 percent of $500,000). Bankrate’s home equity calculator can help you estimate your exact borrowing power.
Home equity loan pros and cons
Pros of home equity loans
Attractive interest rates: Home equity lenders typically charge lower interest rates compared to the rates on personal loans and credit cards. This is because home equity loans are a type of secured debt, meaning they’re backed by some sort of collateral (in this case, your house) — which makes them less risky for the lender, compared to unsecured debt, which isn’t backed by anything.
Fixed monthly payments: Home equity loans offer the stability of a fixed interest rate and a fixed monthly payment. This might make it easier for you to budget for and pay each month. This also eliminates the possibility of getting hit with a higher payment with a variable-rate product, like a credit card or home equity line of credit (HELOC).
Tax advantages: You could be eligible for a tax deduction if you use the loan proceeds to substantially improve or repair the home. Check with an accountant or tax professional to learn more about this deduction and to determine if it’s available to you.
Cons of home equity loans
Home on the line: Your home is the collateral for a home equity loan, so if you can’t repay it, your lender could foreclose.
No flexibility: If you’re not sure how much money you need to borrow (you’re planning a big remodeling project, say), a home equity loan might not be the best choice. Because home equity loans only offer a fixed lump sum, you run the risk of borrowing too little. On the flip side, you might borrow too much, which you’ll still need to repay with interest (though you might be able to settle the debt early, if that’s the case).
Lengthy, costly application: Applying for a home equity loan is akin to applying for a mortgage; though somewhat simpler, it often means lots of paperwork, a long process and closing costs.
What’s the difference between a home equity loan and a HELOC?
A HELOC – short for home equity line of credit – is also secured by the equity in your home and has similar requirements to a home equity loan, it operates a bit differently. With a HELOC, you can borrow money on an as-needed basis, up to a set limit, typically over a 10-year draw period. During that time, you’ll make interest-only payments on what you borrow. This means that your payments may be smaller than a home equity loan, which includes both interest and principal. When the draw period on the HELOC ends, you’ll repay what you borrowed and any interest, usually over a repayment term of up to 20 years. Unlike home equity loans, HELOCs have variable interest rates, which means your monthly payments can change.
Other home equity loan alternatives
A home equity loan and a HELOC aren’t your only options for borrowing against your equity. Some other alternatives include:
Shared equity agreements: Investment companies like Unlock and Hometap offer shared equity agreements, which let homeowners access cash now in exchange for a portion of the home’s value in the future. These arrangements vary, but they all have one upside: You don’t have to make monthly payments, because the money is technically not a loan, but an investment — funds in exchange for a share in your home. However, they all have the same downside: You’re going to make a big payment eventually, and it will likely wind up coming out of the proceeds when you sell the home.
Cash-out refinance: Another option to convert a portion of your home equity into ready money is through a cash-out refi. Unlike a home equity loan, a cash-out refi replaces your current mortgage with a new one for a higher amount, with you taking the difference between the outstanding balance and the new balance in cash. You’ll need to think carefully about a cash-out refi based on the rate attached to your current mortgage. If you managed to lock in a super-low rate during the pandemic, a cash-out refinance is almost certain to lock you into a significantly higher rate.
Personal loans: Personal loans can be a cost-effective route if your credit score is in 760-and-above territory. These are unsecured loans – meaning you won’t have to put your house on the line. However, borrowing limits tend to be lower, and the repayment period will be shorter than most home equity loans’.
Home equity loans FAQ
Taking on any form of debt, including a home equity loan, has an impact on your credit score. After you close on a home equity loan, your score might decrease temporarily. Over time, as you continue to make timely payments on the loan, you might see your score improve, as well.
It varies by lender, but most home equity loans come with repayment periods between five years and 30 years. A longer loan term means you’ll get more affordable monthly payments. That said, you’ll also pay far more in interest. If you can afford the higher monthly payments, selecting a shorter term maximizes overall cost. The ideal is to find a compromise between the two: the maximum manageable payments and the shortest loan term.
Fees for home equity loans vary by lender, which makes it very important to compare offers. Some home equity lenders require you to pay an origination fee and other closing costs, typically between 2 percent and 5 percent of the loan balance. You might also pay a home appraisal fee. Once the loan proceeds are disbursed to you, late fees could apply if you remit payment after the monthly due date or grace period (if applicable).
There are no restrictions on how you purpose your home equity loan. The most common uses include debt consolidation for high-interest credit card balances or other loans; home repairs or upgrades; higher education expenses and medical debts. Some choose to use the funds to start a business, purchase an investment property or cover another major purchase.
Back in August 2020, the Aspen Institute analyzed U.S. Census data to calculate that without “swift intervention” there might be an estimated 30 to 40 million people in America at risk for eviction, with 29 to 43 percent of renter households at risk of eviction by the end of 2020.
Here we are in early 2021, and some “swift intervention” has arrived in the form of an extension of a Centers for Disease Control and Prevention nationwide ban on “certain residential evictions.” The CDC order, which defines a temporary halt to residential evictions to prevent the further spread of COVID-19, went into effect on Sept. 4 and was to end on Dec. 31, 2020. It’s now in effect until March 31.
Aside from any federal rules, many states have put their own eviction bans in place. The NOLO legal information website has a list of state eviction protections. Princeton University’s Eviction Lab monitors weekly reports through its Eviction Tracking System with nearly real-time updates on states’ moratoria. For more updates, check with a legal aid organization where you live.
All good news but cold comfort if you’re one of the people who has already been evicted. Although it’s never a good time to leave your place of residence, to have to do so during a global pandemic adds an extra layer of fear and uncertainty. Aside from health worries, how do you get an apartment with an eviction? What happens to your credit? Will you be able to rent again?
What are the reasons for an eviction?
The following are some reasons you might face eviction:
Behind in rent
Won’t leave the property after the lease is up
Violated the terms of the lease
Engaged in illegal activity
Damaged the property
What does an eviction mean?
Landlords have to follow a series of legal steps before they can put you out. They can’t just change the locks while you’re not home.
Usually, but depending on local laws, the landlord has 30 days to notify you in writing that they’re terminating your lease. They must attend a hearing and make a case for why you, the renter, need to leave. If the landlord wins the case, and you don’t leave or make changes — by paying the back rent, for example — they will then contact law enforcement and schedule an eviction date. A sheriff or marshal will give you notice that law enforcement will arrive a few days hence to escort you off the premises.
You can, of course, defend yourself against an eviction if you believe it’s wrongful — a landlord’s illegal activity, the property is uninhabitable, the landlord is retaliating against you for demanding repairs.
Will eviction affect your credit?
An eviction shows up on your legal record, which future landlords will be able to access, and remains there for seven years. The eviction will not show up on your credit report, but it may affect your credit in these ways:
Your landlord may have sent unpaid rent information to a collections agency
If your landlord sues you in court for unpaid rent and wins, you’ll have a civil judgment against you. That civil judgment will show up on your credit history.
You can petition the court to expunge the eviction from your legal record. You can then contact the credit reporting agencies to remove the civil judgment from your credit report. Getting rid of the collections agency from your credit report will be more difficult.
If unpaid rent was the reason for your eviction, do all you can to make amends with your previous landlord or the collections agency. That includes paying back what you owe.
What steps can you take to rent again?
You may have trouble finding apartments that accept evictions. For one thing, many property owners require a background check, but it’s possible to find some private owners who ask only for reference letters or apartments with eviction forgiveness. So, check upfront about how they will vet you.
While you’re looking for an apartment that accepts evictions, spend time rebuilding your own personal portfolio to show future landlords you’re worth any perceived risk:
1. Rebuild your credit
If you were delinquent in rent and got backed up on other bills, you’ll have dings on your credit report. You may want to engage a credit counselor to help in consolidating debt and creating a debt-management plan. (Check the Federal Trade Commission website for information on credit counselors.)
Ultimately, you’ll need to make a commitment — and stick to it — to pay all bills on time every time. Reduce your credit card balances and don’t apply for new credit cards. Keep in mind, rebuilding your credit will take time.
2. Write a letter of credit
You’ve got to convince a new landlord that you’re creditworthy. Be transparent and honest about your credit history and let a prospective landlord know that you’ve learned from past mistakes and will move forward responsibly.
You can do this by phone or by writing a letter in which you explain your circumstances. Offer details about how those have changed, e.g. you now have a higher paying job and define how you’re working to rebuild your credit. Back up your claims with pay stubs and reference letters.
3. Have references ready
Perhaps you have previous rental experience in which you were never late on payments. Get that landlord to write a letter attesting to that. You can also get employers, business partners, family and friends to write letters on your behalf.
4. Sweeten the deal
If you can afford it, offer to pay upfront more than what might be asked of you. Perhaps you can swing first and last month’s rent. Or, offer to pay a higher security deposit. Have a co-signer ready to help back your lease agreement. This makes you less of a risk.
You can find apartments that accept evictions
You want to make a good impression when you meet a prospective landlord to make your case. Dress neatly, stay calm, be honest and focus on your positive attributes. Although it might seem like it, an eviction is not the end of the world. Stay positive and spend time researching and preparing for how to get an apartment with an eviction.
Stacey Freed is an award-winning writer and former senior editor for Remodeling, a trade publication focused on the business of the remodeling and construction industry. As an independent writer, she continues to write about the building, design, architecture and housing industries. Her work has appeared in Better Homes and Gardens and USA Today special interest publications, Realtor magazine, This Old House, Professional Builder and online at AARP, Forbes.com, House Logic and Sweeten.com among other places.
Your first home has served you well, but now you’re ready to move on. What can you expect as a second-time homebuyer? Whether it’s been years or decades since you bought your home, you’ll find some aspects of the home buying process similar and others quite different.
With this guide, you’ll dive into the world of second-time home buying so you can feel confident taking the next step in your homeownership journey.
Defining a Second-Time Homebuyer
So, who exactly is a second-time homebuyer? A second-time homebuyer is someone who has previously owned a home and is purchasing another one. They may be moving with the desire to upsize, downsize, relocate or enhance their lifestyle. Or they may be interested in buying an investment property or vacation home.
Benefits of Being a Second-Time Homebuyer
Second-time homebuyers enjoy several advantages, including the following:
They may have a clearer understanding of the home buying process.
The sale of their current home may provide a source of down payment funds on their second home.
They may have a more established financial situation and credit history, potentially increasing their loan options.
When Are You Considered a First-Time Homebuyer Again?
It’s important to note that not all previous homeowners are considered second-time homebuyers. If you’re applying for a conventional loan, you could qualify as a first-time homebuyer if you meet the following criteria:
You have not owned a principal residence in the last 3 years.
You have not owned a home jointly as a married couple within the last 3 years (if you owned a home but your spouse hasn’t, you can still qualify).
You’re a single parent who has only owned a house with a former spouse while married.
You have only owned property prior to applying that didn’t comply with building codes.
You have only owned property that didn’t have a permanent foundation.
First-time homebuyer status could give you access to certain programs that offer closing cost aid, down payment assistance, tax benefits and other types of support.
If you currently have a Federal Housing Administration (FHA) loan, you may be able to take out another FHA loan for a new primary residence.
The Mortgage Process
The mortgage process for a second-time homebuyer generally follows the same steps as a first-time homebuyer. As with your first mortgage, a lender will evaluate the following during the underwriting process:
Credit score
Liquid reserves
Available funds for down payment
Proof of income
However, if you haven’t applied for a mortgage within the last 15 years, you may notice some differences:
Depending on the loan program, the credit score requirements may be more stringent.
More documentation may be required.
There may be more rigorous underwriting practices to evaluate a borrower’s creditworthiness, financial stability and ability to repay the loan.
Much of the application process can be conveniently conducted entirely online.
Potential for No Down Payment
While most mortgages require a down payment, you may qualify for a zero-down payment VA loan if you’re a veteran, service member or military family. With a VA loan, there are:
No down payment on home purchase loans*
Lower closing cost limits
Lower interest rates
Relaxed credit requirements
No monthly mortgage insurance premiums
Already have a VA loan for your first home? As long as your new home will be your primary residence, you may be eligible for another VA purchase loan.
Keep in mind that the less you put down, the greater your monthly mortgage payment will be, and you’ll be paying more in interest over the long term.
Selling Your Current Home and Buying a New One
While it is common to sell your current home and buy your new one simultaneously, you may choose to do one transaction before the other.
Selling Before Buying Pros and Cons
Most people choose to sell before buying, which offers the following benefits:
You can access the equity and any profits from your current home to buy your next home, without having to include a contingency clause.
A contingency clause in the purchase contract allows you to back out of a contract if the sale of your current home doesn’t go through within a specified timeframe.
Coordinating this can be tricky, however. If your home fails to sell, your new home closing may be affected.
You won’t be responsible for paying two mortgages at once.
You can take your time negotiating with prospective homebuyers.
There are a few drawbacks to be aware of, including:
You’ll require temporary housing and storage.
Interest rates could rise as you search for your new perfect place.
You’ll need to pay for moving costs twice, once to your temporary home and storage, and again to the new home.
Buying Before Selling
If you choose to buy your new home before selling your current one, you will:
Avoid paying for temporary housing or an expensive storage unit
Usually have up to 60 days after closing to move in, so you can take your time furnishing and remodeling
Be able to act fast when you find your ideal home
Some of the disadvantages of taking this route include:
If your current home doesn’t sell quickly, you run the risk of having to carry two mortgages at the same time.
Purchasing a new home while carrying your current loan without selling makes it extremely difficult to qualify for a mortgage. Since you are carrying two mortgages, your debt-to-income ratio can be very high.
Other home expenses, such as property taxes, utilities, homeowners insurance and often costly homeowners association (HOA) dues, will also continue until you sell.
You won’t be able to use your home’s sale proceeds for your purchase and may need other financing, such as a bridge loan or home equity loan.
Best Practices on How to Sell Your House
Whether you sell or buy first, you’ll need to get your current home market-ready. Here are some best practices and tips for home-selling success.
Research the housing market. The housing market plays a significant role in the home-selling process. It impacts your pricing strategy, potential time on the market, competition and negotiating power.
For example, in a buyer’s market, homes tend to remain listed for longer and may sell at a lower price. This is great for you as a buyer but not as a seller. You’ll want to price your house competitively, make necessary repairs and stage your home to attract buyers. You may also need to offer buyer incentives, such as paying for some closing costs.
On the other hand, during a seller’s market, strong demand for homes can create bidding-war conditions. You may attract eager buyers willing to pay a premium for your home. Plus, you may sell quickly, providing the down payment funds to purchase your new home soon.
Find a reputable and licensed real estate agent. While you may have used a real estate agent to find your first home, hiring one to sell your current house is a good idea. Selling a home involves many moving parts, and a real estate agent can guide you through the process. They are knowledgeable about market conditions, marketing, negotiating and the steps required to achieve a positive outcome.
Locate a lender. Secure an experienced lender that can help you with your mortgage once you’re ready to purchase a new home. You’ll want to find one that offers a range of loans and competitive rates, as well as a written commitment to lend you a specific amount of money, subject to certain conditions. This type of certification, such as a Pennymac BuyerReady Certification,* demonstrates that you are a serious buyer and can give you the confidence that you’ll be able to obtain the funding you need.
Deep clean, declutter and stage your home. Present your home in its best light by deep cleaning, decluttering and staging. These three steps enhance the visual appeal of your home, create a welcoming atmosphere and allow buyers to envision their belongings in the space.
Make repairs and updates. Potential buyers will be looking for a home in good condition. Make sure your exterior and landscaping are well maintained. Fix broken fixtures, give walls a fresh coat of paint and verify your plumbing, HVAC and electrical systems are all working properly. Consider getting a home inspection before putting your home on the market to identify priority projects. Your real estate agent is also an excellent resource for determining which repairs and updates you should focus on.
The Home Buying Process the Second Time Around
The second-time home buying and mortgage process is similar to that of a first-time homebuyer. You’ll need to:
Prepare financially
Search and find a property
Make an offer and negotiate
Get a home inspection
Finalize the mortgage
Close and move in
But while the process is basically the same, some other factors, such as those below, may have changed and will influence your next home purchase.
Financial Aspects to Consider
As you navigate the second-time buying process, take into account the following financial considerations:
Shifted market conditions. The real estate market might have changed dramatically since your first home purchase. For example, if you purchased your current home in a buyer’s market, you perhaps had a lot of options and negotiating power. If it’s a seller’s market now, you might encounter tight inventory. Listed homes will sell rapidly, and you may need to be prepared to pay more and forego contingencies to get the home you want.
Your financial situation. How has your financial status evolved over the years? Has your income increased? What expenses do you have now that you didn’t have when you bought your home? Your current financial health will play a role in what loans you will qualify for.
Mortgage underwriting changes. Over the past 15 years, mortgage qualifications have become more stringent and interest rates may have changed significantly. However, if your financial circumstances have improved, you may have increased financing opportunities.
Down Payments and Benefits
As a second-time homebuyer, you can take advantage of all that equity you have built over the years and put it toward your new home. After closing, you’ll receive the proceeds from your home sale minus any outstanding mortgage balances and transaction costs. You can use those proceeds, as well as any additional savings, for a down payment.
Exploring Second-Time Homebuyer Programs
While there are many programs to help first-time homebuyers, there are some that assist individuals in purchasing their second home. Visit the U.S. Department of Housing and Urban Development (HUD) or a local government website to explore options in your area. And remember, if you meet first-time homebuyer criteria, don’t rule out first-time homebuyer programs.
In terms of mortgages, second-time homebuyers have numerous options, including conventional, FHA and VA loans. A Pennymac Loan Expert can help you compare loans and work with you to find the one that best fits your needs.
Key Differences Between First and Second-Time Buying
The main differences between first-time and second-time home buying are typically related to mortgage considerations, market conditions and experience.
The Requirements and Challenges
As a second-time homebuyer, you will not be eligible for grants and other initiatives that aim to assist first-time buyers in obtaining down payment funds. This means that you will likely need some down payment. If you are selling your home, you can use the sale proceeds for your down payment.
Today’s stricter underwriting practices, including more stringent credit standards, are aimed at protecting consumers and the housing market. However, individuals with credit challenges may find it more difficult to qualify for a favorable home loan.
Experience Factors
You can leverage your prior experience as a second-time homebuyer. You’ve been through the home buying and mortgage process and may be familiar with the documentation required and the timeline involved. And while the process and market have evolved over the years, your knowledge can equip you with valuable insights and confidence throughout the journey.
Frequently Asked Questions (FAQs)
Check out these FAQs for answers to some of the most common questions that second-time homebuyers have about mortgages.
Can a Second-Time Home Buyer Get an FHA Loan?
Yes, Federal Housing Administration (FHA) loans are available to qualified homebuyers who wish to put less than 20% down on their home purchase. Income, debt and credit history requirements are more flexible than conventional mortgages.
FHA loans are also a great option for borrowers who may want to put more than 20% down. They allow for a 580 credit score, whereas conventional loan pricing gets expensive the lower the credit score is.
What Are the Common Requirements for Second-Time Buyers?
Common requirements for second-time homebuyers depend on the type of loan, but a lender will consider your credit score, income, debt and down payment when evaluating your mortgage application.
Are There Specific Programs or Grants Available for Second-Time Buyers?
Yes, Federal Housing Administration (FHA) loans and VA loans are available to second-time buyers. States and local governments may also offer programs to help second-time homebuyers. Check the U.S. Department of Housing and Urban Development website or your local government website to explore available options in your area.
Make the Move to Your Next Home With Confidence
Moving to your next home is exciting, but being prepared before diving into the home-selling and buying process is essential. Reach out to a Pennymac Loan Expert who will help guide you through the mortgage process, answer your questions and discuss a variety of competitive rates and loan options.
*As long as the sales price does not exceed the appraised home value.
**Customers with a Pennymac BuyerReady Certification prior to locking any Pennymac purchase loan get $1,000 applied as a discount off total closing costs and/or principal curtailment, subject to investor guidelines. Excludes Jumbo, refinance, third-party and in-process loans. Offer subject to change or cancellation without notice.
Landlords or property managers are essential people in the apartment or home rental process. They help you sign and understand the lease, fix and address issues within your apartment, ensure the apartment and complex remain safe and clean and are your go-to person for any problems.
But, it’s important to know the boundaries of what a property manager can and cannot do. Read on for more information about landlord-tenant law and your rights as a renter. Knowing these 10 things a landlord cannot do will help you feel safe in your home.
1. Enter without proper notice
Your landlord is not allowed to enter your apartment without giving proper notice.
In many states, the landlord may not enter without first giving 24-hours notice. The format of notice may vary from place to place. Some apartment contracts state that notice must come in written or electronic form. Double-check your lease before moving in so you can know what to expect.
Once the landlord has permission, the tenant must let them into the apartment. Property managers usually enter to make repairs, to show the apartment to future tenants or to perform a routine check.
The only time the landlord may enter without notice is if there is a true emergency.
2. Force a tenant to leave
While evicting a tenant is legal, doing it without going through proper legal channels is not. This means that the landlord must give the tenant notice before evicting them.
The amount of notice does vary from place to place — ranging anywhere from days to months. If the landlord evicts a tenant without doing it properly, they can face serious consequences.
They also cannot turn off the tenant’s utilities without notice, especially if the apartment is in an area with extreme weather.
3. Raise your rent randomly
Once you sign a lease, it is a legally binding contract. This means that the landlord can not randomly raise the rent without cause.
There are a few instances where the rent can go up —some of these include the addition of a pet or significant remodeling.
The other time rent can go up is if the apartment is within the city’s rent control area. These usually state that landlords can raise the rent only by a certain percentage as specified. This is something you’ll want to check before signing a lease. However, outside of these situations, the rental rate negotiated in your initial lease holds strong.
4. Discriminate against a tenant
Landlords can not discriminate against current or future tenants. According to the Fair Housing Act, landlords cannot discriminate based on nationality, gender, race, disability or family status.
The Fair Housing Act also states that the landlord cannot say that an apartment is not available when it is, can’t harass you and can’t end a lease due to race, gender or family status.
5. Prohibit service animals
If you have a trained service animal according to the Americans with Disabilities Act, a landlord must rent to you even if there is a “no pet” rule.
Service animals, such as seeing-eye dogs, are exempt. You’ll likely have to show paperwork about your service animal, but, you will be able to rent an apartment with one under the law.
6. Allow lead content
Landlords are not allowed to rent apartments that contain lead-based paint or any lead content. This is more common in older homes or apartments but it is still something to consider.
They are responsible for checking the lead content, making repairs and ensuring they do not rent dangerous apartments with lead exposure to people.
7. Use a security deposit for wear and tear
Security deposits are part of almost every leasing contract. They are typically held for the duration of the lease and given back when the lease is over.
The landlord is not allowed to keep the security deposit to recover things such as normal wear-and-tear.
The only time they can keep it is if there are unusual repairs that aren’t normal wear-and-tear or if you break a lease early. They also aren’t allowed to charge a security deposit that is over the state’s limit. This changes from state to state so make sure to double-check what your state limits it at.
8. Refuse to make reasonable repairs
A landlord’s job is to make sure that your apartment is safe and livable. Refusing to make reasonable repairs could end in legal action against them.
Things such as removing mold or lead paint or fixing the utilities are something the landlord must help with. These are repairs that could endanger the tenant.
It is also illegal for landlords to ask tenants to make major repairs such as fixing the balconies or stairs.
9. Use your space
As per your leasing agreement, it is the renter’s right to the space you’re leasing. This means that the landlord cannot withhold space that is legally yours.
Spaces such as parking garages or storage units cannot be used for the landlord’s personal use.
10. Change the locks
Your landlord is not allowed to change your locks without letting you know. If they want to remove you from the apartment, they must go through legal channels to do so. Changing your locks without notice could end in serious legal troubles for the landlord.
What to do if your landlord breaks these rules
If you find yourself with a landlord that breaks any of these laws, you have some options. First, file a claim with the Department of Housing and Urban Development.
Make requests in writing and photograph any damage if your landlord refuses to make repairs. Should your landlord continue to neglect the problems, then you can call your local department of health and report the problems. If your landlord changes the locks without telling you, you can call the police. The landlord does not have the right to refuse you access to your apartment, even if they want to evict you. If you ever file a legal claim against your landlord they are not legally allowed to retaliate against you.
Know your rights
It is so important to know your renters’ rights. There are landlord-tenant laws in place for this very reason. Your landlord can not take advantage of you when renting an apartment. Make sure to do your research on landlord-tenant law and know exactly what a landlord cannot do so you’re not taken advantage of. With this knowledge, you’ll be better served and ready to rent an apartment.
Ashley Singleton is a writer who loves following and writing about current lifestyle, DIY and home improvement trends. You can read some of her other work on the Lady Spike Media website. In her spare time, she performs stand-up comedy in Los Angeles.
Home renovations can be expensive. But the good news is that you don’t have to pay out of pocket.
Home improvement loans let you finance the cost of upgrades and repairs to your home.
Some — like the FHA 203(k) mortgage — are specialized for home renovation projects, while second mortgage options — like home equity loans and HELOCs — can provide cash for a remodel or any other purpose. Your best financing option for home improvements depends on your needs. Here’s what you should know.
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What is a home improvement loan?
A home improvement loan is a financial tool that allows you to borrow money for various home projects, such as repairs, renovations, or upgrades.
Unlike a secured loan like a second mortgage, home improvement loans are often unsecured personal loans, meaning you don’t have to put up your home as collateral. You get the money in a lump sum and pay it back over a predetermined period, which can range from one to seven years.
Now, you might be wondering how this is different from a home renovation loan. While the terms are often used interchangeably, there can be subtle differences.
Home improvement loans are generally more flexible and can be used for any type of home project, from installing a new roof to landscaping. Home renovation loans, on the other hand, are often more specific and may require you to use the funds for particular types of renovations, like kitchen or bathroom remodels.
How does a home improvement loan work?
So, you’ve decided to spruce up your home, and you’re considering a home improvement loan. But how does it work? Once you’re approved, the lender will give you the money in a lump sum. You start repaying the loan almost immediately, usually in fixed monthly installments. The interest rate you’ll pay depends on various factors, including your credit score and the lender’s terms.
Be mindful of additional costs like origination fees, which can range from 1% to 8% of the loan amount. Unlike a credit card, where you can keep using the available credit as you pay it off, the loan amount is fixed. If you find that you need more money for your project, you’ll have to apply for another loan, which could affect your credit score.
Home improvement loan rates
Interest rates for home improvement loans can vary widely, generally ranging from 5% to 36%. Your credit score plays a significant role in determining your rate—the better your credit, the more favorable your rate. Some lenders even offer an autopay discount if you link a bank account for automatic payments.
You can also prequalify to check your likely interest rate without affecting your credit score, making it easier to plan for the loan purpose, whether it’s a new kitchen or fixing a leaky roof.
So, whether you’re dreaming of solar panels or finally fixing up your master bedroom, a home improvement loan can be a practical way to finance your projects. Just make sure to read the fine print and understand all the terms, including any potential autopay discounts and bank account requirements, before you apply.
Types of home improvement loans
1. Home equity loan
A home equity loan (HEL) is a financial instrument that lets you borrow money using the equity you’ve built up in your home as collateral. The equity is determined by subtracting your existing mortgage loan balance from your current home value. Unlike a cash-out refinance, a home equity loan “issues loan funding as a single payment upfront. It’s similar to a second mortgage,” says Bruce Ailion, Realtor and real estate attorney. “You would continue making payments on your original mortgage while repaying the home equity loan.”
Check home equity loan options and rates. Start here
This kind of loan is particularly useful for big, one-time expenditures like home remodeling. It offers a fixed interest rate, and the loan terms can range from five to 30 years. You could potentially borrow up to 100% of your home’s equity.
However, there are some cons to consider. Since you’re essentially taking on a second loan, you’ll have an additional monthly payment if you still have a balance on your original mortgage. Also, the lender will usually charge closing costs ranging from 2% to 5% of the loan balance, as well as potential origination fees. Because the loan provides a lump-sum payment, careful budgeting is necessary to ensure the funds are used effectively.
As a bonus, “a home equity loan, or HELOC, may also be tax-deductible,” says Doug Leever with Tropical Financial Credit Union, member FDIC. “Check with your CPA or tax advisor to be sure.”
2. HELOC (home equity line of credit)
A Home Equity Line of Credit (HELOC) is another option for tapping into your home’s equity without going through the process of a full refinance. Unlike a standard home equity loan that provides a lump sum upfront, a HELOC functions more like a credit card. You’re given a pre-approved limit and can borrow against that limit as you need, paying interest only on the amount you’ve actually borrowed.
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While there’s more flexibility because you don’t have to borrow the entire amount at once, be aware that by the end of the term, “the loan must be paid in full. Or the HELOC can convert to an amortizing loan,” says Ailion. “Note that the lender can be permitted to change the terms over the loan’s life. This can reduce the amount you can borrow if, for instance, your credit goes down.”
The pros of a HELOC include minimal or potentially no closing costs, and loan payments that vary according to how much you’ve borrowed. It offers a revolving balance, which means you can re-use the funds after repayment. This kind of financial instrument may be ideal for ongoing or long-term projects that don’t require a large sum upfront.
“HELOCs offer flexibility, and you only pull money out when needed, within the maximum loan amount. And the credit line is available for up to 10 years, which is your repayment period.” Leever says.
3. Cash-out refinance
A cash-out refinance is a viable option if you’re considering home improvements or other significant financial needs. When opting for a cash-out refinance, you essentially take on a new, larger mortgage than your existing one and then pocket the difference in cash.
This cash comes from your home’s value and can be used for various purposes, including home improvement projects like finishing a basement or remodeling a kitchen. However, the money can also be used for other things, like paying off high-interest debt, covering education expenses, or even buying a second home. Importantly, a cash-out refinance is most beneficial when current market rates are lower than your existing mortgage rate.
Check your eligibility for a cash-out refinance. Start here
The advantages of going for a cash-out refinance include the opportunity to reduce your mortgage rate or loan term, which could potentially result in paying off your home earlier. For instance, if you initially had a 30-year mortgage with 20 years remaining, you could refinance to a 15-year loan, effectively paying off your home five years ahead of schedule. Plus, you only have to worry about one mortgage payment.
However, there are downsides. Cash-out refinances tend to have higher closing costs that apply to the entire loan amount, not just the cash you’re taking out. The new loan will also have a larger balance than your current mortgage, and refinancing effectively restarts your loan term length.
4. FHA 203(k) rehab loan
The FHA 203(k) rehab loan is backed by the Federal Housing Administration that consolidates the cost of a home mortgage and home improvements into a single loan, which makes it particularly useful for those buying fixer-uppers.
Check your eligibility for an FHA 203(k) loan. Start here
With this program, you don’t need to apply for two different loans or pay closing costs twice; you finance both the house purchase and the necessary renovations at the same time. The loan comes with several benefits like a low down payment requirement of just 3.5% and a minimum credit score requirement of 620, making it accessible even if you don’t have perfect credit. Additionally, first-time home buyer status is not a requirement for this loan.
However, there are some limitations and downsides to be aware of. The FHA 203(k) loan is specifically designed for older homes in need of repairs, rather than new properties. The loan also includes both upfront and ongoing monthly mortgage insurance premiums. Renovation costs have to be at least $5,000, and the loan restricts the use of funds to certain approved home improvement projects.
According to Jon Meyer, a loan expert at The Mortgage Reports, “FHA 203(k) loans can be drawn out and difficult to get approved. If you go this route, it’s important to choose a lender and loan officer familiar with the 203(k) process.”
5. Unsecured personal loan
If you’re looking to finance home improvements but don’t have sufficient home equity, a personal loan could be a viable option. Unlike home equity lines of credit (HELOCs), personal loans are unsecured, meaning your home is not used as collateral. This feature often allows for a speedy approval process, sometimes getting you funds on the next business day or even the same day.
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The repayment terms for personal loans are less flexible, usually ranging between two and five years. Although you’ll most likely face closing costs, personal loans can be easier to access for those who don’t have much home equity to borrow against. They can also be a good choice for emergency repairs, such as a broken water heater or HVAC system that needs immediate replacement.
However, there are notable downsides to consider. Unsecured personal loans generally have higher interest rates compared to HELOCs and lower borrowing limits. The short repayment terms could put financial strain on your budget. Additionally, you may encounter prepayment penalties and expensive late fees. Financial expert Meyer describes personal loans as the “least advisable” option for homeowners, suggesting that they should be considered carefully and perhaps as a last resort.
6. Credit cards
Using a credit card can be the fastest and most straightforward way to finance your home improvement projects, eliminating the need for a lengthy loan application. However, you’ll need to be cautious about credit limits, especially if your renovation costs are high.
You might need a card with a higher limit or even multiple cards to cover the costs. The interest rates are generally higher compared to home improvement loans, but some cards offer an introductory 0% annual percentage rate (APR) for up to 18 months, which can be a good deal if you’re sure you can repay the balance within that time frame.
Check home improvement loan options and rates. Start here
Credit cards might make sense in emergency situations where you need immediate funding. For longer-term financing, though, they’re not recommended. If you do opt for credit card financing initially, you can still get a secured loan later on to clear the credit card debt, thus potentially saving on high-interest payments.
How do you choose the best home improvement loan for you?
The best home improvement loan will match your specific lifestyle needs and unique financial situation. So let’s narrow down your options with a few questions.
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Do you have home equity available?
If so, you can access the lowest rates by borrowing against the equity in your home with a cash-out refinance, a home equity loan, or a home equity line of credit.
Here are a few tips for choosing between a HELOC, home equity loan, or cash-out refi:
Can you get a lower interest rate? If so, a cash-out refinance could save money on your current mortgage and your home improvement loan simultaneously
Are you doing a big, single project like a home remodel? Consider a simple home equity loan to tap into your equity at a fixed rate
Do you have a series of remodeling projects coming up? When you plan to remodel your home room by room or project by project, a home equity line of credit (HELOC) is convenient and worth the higher loan rate compared to a simple home equity loan
Are you buying a fixer-upper?
If so, check out the FHA 203(k) program. This is the only loan on our list that bundles home improvement costs with your home purchase loan. Just review the guidelines with your loan officer to ensure you understand the disbursement of funds rules.
Taking out just one mortgage to cover both needs will save you money on closing costs and is ultimately a more straightforward process.
“The only time I’d recommend the FHA203(k) program is when buying a fixer-upper,” says Meyer. “But I would still advise homeowners to explore other loan options as well.”
Do you need funds immediately?
When you need an emergency home repair and don’t have time for a loan application, you may have to consider a personal loan or even a credit card.
Which is better?
Can you get a credit card with an introductory 0% APR? If your credit history is strong enough to qualify you for this type of card, you can use it to finance emergency repairs. But keep in mind that if you’re applying for a new credit card, it can take up to 10 business days to arrive in the mail. Later, before the 0% APR promotion expires, you can get a home equity loan or a personal loan to avoid paying the card’s variable-rate APR
Would you prefer an installment loan with a fixed rate? If so, apply for a personal loan, especially if you have excellent credit
Just remember that these options have significantly higher rates than secured loans. So you’ll want to reign in the amount you’re borrowing as much as possible and stay on top of your payments.
How to get a home improvement loan
Getting a home improvement loan is similar to getting a mortgage. You’ll want to compare rates and monthly payments, prepare your financial documentation, and then apply for the loan.
Check home improvement loan options and rates. Start here
1. Check your financial situation
Check your credit score and debt-to-income ratio. Lenders use your credit report to establish your creditworthiness. Generally speaking, lower rates go to those with higher credit scores. You’ll also want to understand your debt-to-income ratio (DTI). It tells lenders how much money you can comfortably borrow.
2. Compare lenders and loan types
Gather loan offers from multiple lenders and compare costs and terms with other types of financing. Look for any benefits, such as rate discounts, a lender might provide for enrolling in autopay. Also, keep an eye out for disadvantages, including minimum loan amounts or expensive late payment fees.
3. Gather your loan documents
Be prepared to verify your income and financial information with documentation. This includes pay stubs, W-2s (or 1099s if you’re self-employed), and bank statements, to name a few.
4. Complete the loan application process
Depending on the lender you choose, you may have a fully online loan application, one that is conducted via phone and email, or even one that is conducted in person at a local branch. In some cases, your mortgage application could be a mix of these options. Your lender will review your application and likely order a home appraisal, depending on the type of loan. You’ll get approved and receive funding if your finances are in good shape.
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Home improvement loan lenders
When considering a home improvement loan, it’s necessary to explore various lending options to find the one that best suits your needs. The lending landscape for home improvement is diverse, featuring traditional banks, credit unions, and online lenders. Each type of lender offers different interest rates, loan terms, and eligibility criteria.
It’s advisable to prequalify with multiple lenders to get an estimate of your loan rates, which generally doesn’t affect your credit score. This way, you can compare offers and choose the most favorable terms for your renovation project.
Among the popular choices in the market, Sofi and LightStream stand out for their competitive rates, easy online application, and customer-friendly terms. Both are equal housing lenders, ensuring they adhere to federal anti-discrimination laws. In addition to these, other lenders like Wells Fargo and LendingClub also offer home improvement loans with varying terms and conditions.
How can I use the money from a home improvement loan?
When you do a cash-out refinance, a home equity line of credit, or a home equity loan, you can use the proceeds on anything — even putting the cash into your checking account. You could pay off credit card debt, buy a new car, pay off student loans, or even fund a two-week vacation. But should you?
It’s your money, and you get to decide. But spending home equity on improving your home is often the best idea because you can increase the value of your home. Spending $40,000 on a new kitchen remodel or $20,000 on finishing your basement could add significant value to your home. And that investment would be appreciated along with your home.
That said, if you’re paying tons of interest on credit card debt, using your home equity to pay that off would make sense, too.
Average costs of home renovations
Home renovations can vary widely in cost depending on the scope of the project, the quality of the materials used, and the region where you live. However, here’s a general idea of what you might expect to pay for various types of home renovations.
Renovation Type
Average Cost Range
Kitchen Remodel
$10,000 – $50,000
Bathroom Remodel
$5,000 – $25,000
Master Bedroom Remodel
$1,500 – $10,000
New Roof
$5,000 – $11,000
Exterior Paint
$6,000 – $20,000
Interior Paint
$1,500 – $10,000
New Deck
$15,000 – $40,000
Solar Panel Installation
$15,000 – $25,000
Window Replacement
$5,000 – $15,000
The information is based on data from HomeGuide.com and is current as of August 2023.
Please note that these are just average figures, and the actual costs can vary. For instance, a high-end kitchen remodel could cost significantly more, especially if you’re planning to use custom cabinetry and high-end appliances. Similarly, the cost of a new deck can vary depending on the size and type of materials used.
Home improvement loans FAQ
Check home improvement loan options and rates. Start here
What type of loan is best for home improvements?
The best loan for home improvements depends on your finances. If you have accumulated a lot of equity in your home, a HELOC, or home equity loan, might be suitable. Or, you might use a cash-out refinance for home improvements if you can also lower your interest rate or shorten the current loan term. Those without equity or refinance options might use a personal loan or credit cards to fund home improvements instead.
Should I get a personal loan for home improvements?
That depends. We’d recommend looking at your options for a refinance or home equity-based loan before using a personal loan for home improvements. That’s because interest rates on personal loans are often much higher. But if you don’t have a lot of equity to borrow from, using a personal loan for home improvements might be the right move.
What credit score is needed for a home improvement loan?
The credit score requirements for a home improvement loan depend on the loan type. With an FHA 203(k) rehab loan, you likely need a good credit score of 620 or higher. Cash-out refinancing typically requires at least 620. If you use a HELOC, or home equity loan, for home improvements, you’ll need a FICO score of 680–700 or higher. For a personal loan or credit card, aim for a score in the low-to-mid 700s. These have higher interest rates than home improvement loans, but a stronger credit profile will help lower your rate.
What is the best renovation loan
If you’re buying a fixer-upper or renovating an older home, the best renovation loan might be the FHA 203(k) mortgage. The 203(k) rehab loan lets you finance (or refinance) the home and renovation costs into a single loan, so you avoid paying double closing costs and interest rates. If your home is newer or of higher value, the best renovation loan is often a cash-out refinance. This lets you tap the equity in your current home and refinance into a lower mortgage rate at the same time.
Is a home improvement loan tax deductible?
Home improvement loans are generally not tax-deductible. However, if you finance your home improvement using a refinance or home equity loan, some of the costs might be tax-deductible.
Disclaimer: The Mortgage Reports do not provide tax advice. Be sure to consult a tax professional if you have any questions about your taxes.
Shop around for your best home improvement loan
As with anything in life, it pays to compare all your options. So don’t just settle on the first loan offer you find.
Compare lenders, mortgage types, rates, and terms carefully to find the best loan for home improvements.
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Southern California’s luxury real estate market never sleeps. But this past year, it collectively caught its breath.
Luxury sales slowed down in 2023 — a combination of soaring interest rates, a newly introduced “mansion tax” and an inevitable drop-off from a pandemic market when megamansions flipped like hotcakes.
In 2022, there were 17 home sales above $50 million and 48 over $30 million in L.A. County, according to the Multiple Listing Service. In 2023, there were only five sales over $50 million and 23 over $30 million.
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But even in a down year, there were still plenty of headlines. Jay-Z and Beyoncé set the all-time price record in the state of California, while other celebrities sold homes and left L.A. just in time to avoid paying taxes under Measure ULA.
Here are the top sales of the year.
$200 million
History was made in May when Jay-Z and Beyoncé shattered California’s price record, paying $200 million for a concrete compound in Malibu.
The L-shaped house, which topped the previous record of $177 million, looks more like an airplane hangar or supervillain’s lair than a home. It was built by Tadao Ando, a decorated Japanese architect who also designed a home for Kanye West a few miles down the coast. Ando brought in 7,645 cubic yards of concrete to erect the 40,000-square-foot home.
It never officially hit the market, so photos are scarce. The property is perched above Malibu’s Paradise Cove and features concrete hallways and walls of glass that open to a swimming pool and lawn overlooking the ocean.
$60.85 million
Another power couple — Jennifer Lopez and Ben Affleck — claimed the second-highest home purchase of the year when they shelled out $60.85 million for a five-acre spread in Beverly Crest. High interest rates weren’t a problem; they didn’t need a 30-year-fixed. The pair paid in cash.
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The deal marked the end of a year-long house hunt for Lopez and Affleck, and the house boasts an array of amenities that few other mega-mansions can match. Across 38,000 square feet are 12 bedrooms, 24 bathrooms, 15 fireplaces, a movie theater, wine cellar, nail salon and sauna, as well as a 5,000-square-foot sports facility with a boxing ring and pickleball court.
The $60.85-million sale actually came at a discount; the home originally hit the market with a gargantuan price tag of $135 million.
$55 million
Some scratched their heads when Mark Wahlberg unloaded his Beverly Park mega-mansion for $55 million in February. The movie star spent years designing the French-inspired palace, and he originally asked $87.5 million when he first listed it in 2022.
But Wahlberg was a motivated seller. He moved to Nevada last year, and by selling the home in February, he avoided Measure ULA, a transfer tax that took effect April 1 and would’ve charged a 5.5% tax on the sale. At $55 million, Wahlberg’s tax bill would’ve been more than $3 million.
The European-inspired showplace is truly one of a kind, featuring amenities such as a five-hole golf course, driving range, grotto-style swimming pool and skate park. Wahlberg, a native of Massachusetts, also added a Boston Celtics-themed basketball court during his stay.
$52.056 million
Malibu’s second entry on this list comes via attorney Stuart Liner and his wife, Stephanie Hershey Liner, who sold their beach house on Point Dume for just over $52 million.
The Liners have made a fortune flipping houses over the years, including doubling their money on a house they bought from actor Danny DeVito. They scored a hefty profit here as well; records show they paid $21.758 million for the oceanfront home in 2020 before extensively remodeling the place.
The 6,000-square-foot house comes with a swimming pool and tennis court. It sold to Tom van Loben Sels, a partner at Bay Area tax firm Apercen Partners.
$52 million
For years, Villa Firenze was a cautionary tale, an extravagant reminder that while fortunes can be won in Southern California’s lucrative real estate market, you have to be strategic in how you sell to truly cash in.
Hungarian billionaire Steven Udvar-Hazy was not. The airplane mogul built the Italian-inspired mansion in 1998 and listed it for $165 million in 2017, which at the time was one of the most ambitious asking prices in California history.
Clearly overpriced, the house sat on the market for years until it was auctioned off for $51 million in 2021 to biotech entrepreneur Roy Eddleman, who, for some reason, tried the same thing as Udvar-Hazy.
Eddleman quickly attempted to flip the house for a massive profit, putting it back onto the market for $120 million just a year after he bought it. Unsurprisingly, there were no takers, and he died before it sold.
His estate slashed the price on the luxurious villa, which features 40-foot palm trees, 20-foot ceilings and a two-story library complete with a secret passageway that leads to a bedroom and bar.
After a year of price cuts, it finally sold in February for $52 million, just $1 million more than Eddleman paid for it at auction two years prior.
If you own a home, you probably always have a list of improvements you’re considering. Maybe you desperately want to replace those dated kitchen appliances that scream year 2000, or you want to focus on ways to lower your energy bills, whether that means some strategic air sealing or adding solar panels.
Chances are, you also want any upgrades you pay for to increase the value of your home. You want to know that if and when it comes time to sell your place, you’ll recoup a good percentage of what you invested.
So, whether you have the cash saved up for home investment or you are looking to borrow for your next home project, consider these wise investments.
1. Improve Your Attic Insulation
We get it: You’re not going to invite friends over to see your new attic insulation.But it’s one of the best ways to increase your home’s energy efficiency.
You’ll not only profit when it’s time to sell, but you’ll also see immediate savings from the ongoing energy efficiency this upgrade provides. A properly insulated attic, combined with sealing air leaks throughout your home, cuts an average of 15% off your heating and cooling costs, allowing you to pocket the savings month after month. And who doesn’t want a lower energy bill?
Cost: $600 to $1,200 for blown-in insulation for a 1,000-square-foot attic. You may also need to rent the machine that blows in the fiberglass if you’re a DIY type. If you hire a pro, labor will run about $40 to $70 an hour. 💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.
2. Treat Yourself to New Windows
New windows can do double duty. Not only do they update a room’s tired appearance, they can also have energy-efficiency benefits. Depending on how many windows you replace, this can be a very big-ticket item. The average cost for a vinyl window replacement is $850, and a whole-home job can ring in at $20,091, according to Remodeling magazine. (Wood windows are pricier still.)
But here’s some good news: Replacing those windows adds value to your home. Typically, to the tune of 69% of the cost of the window-replacement project.
Cost: Anywhere from $850 per vinyl window to $20,000+ for the whole house. Again, if you go for wood vs. vinyl windows or need custom size ones (or several French doors), the price can ratchet up significantly. In that case, you might want to look at home improvement loan options.
3. Build a Deck
You and likely anyone who might buy your home in the future will love what a deck can do, lifestyle-wise. Weather permitting, you can have your AM coffee there, type away on your laptop during the day, and host friends, read, or just listen to the birdsong during off-hours. Here’s another nice thing about adding a deck: Your ROI is typically around 68% of the money you pay.
Cost: A new wood deck will cost on average $16,766. A composite one can cost more; on average, these are $22,426.
Read Next: How to Create a Renovation Plan to Match Your Budget
4. Refresh Your Bathroom
Who doesn’t love a beautiful new bathroom, whether your style is sleek and all white or if you prefer a warmer country cottage vibe? A bath remodel will cost, on average, between $6,627 and $17,494, according to Angi, the home renovation site. While an updated bath can definitely add to your home’s value, keep in mind that the sky’s the limit with the price tag. If you move the fixtures around and add one of those egg-shaped soaking tubs or a spa shower that has half-a-dozen mist settings, you may go well beyond the average range of costs.
Also, keep in mind that if you do something really singular (say, you pick tile in a super-bright shade), it may be harder to get your money out if and when you sell your property.
Cost: The average cost is $11,944, with cabinets and shelving accounting for 25% of the total, the shower and tub eating up 22% of costs, and your contractor’s fees usually being about 13% of your total expense. Of course, you can do a small bathroom remodel, perhaps repainting, adding some new artwork and a fresh shower curtain. 💡 Quick Tip: Home improvement loans typically offer lower interest rates than credit cards. Consider a loan to fund your next renovation.
5. Cook up a Cooler Kitchen
If you’re stuck with outdated appliances or hideous cabinets, a kitchen remodel is likely high on your list of improvements. It’s a great way to refresh your kitchen’s style and function.
But increasing home value with a new kitchen can fry your bank account: A remodel typically runs $14,612 and $41,392 according to Angi, but can cost much more if you move appliances’ position, opt for marble countertops, or fall in love with custom cabinetry. On average, you’ll recoup about 60% in ROI.
To update for less and wow your kitchen in a weekend, make some wallet-friendly upgrades: fresh paint, a new faucet, updated lighting (pendant lights are a good choice), and new cabinet pulls.
Cost: While you could just swap out cabinet pulls, which start at about $2 each, and repaint (plan on around $200), a larger kitchen remodel averages $26,849. Again, however, it’s worth noting you could spend multiples of that, depending on how large a project, how luxe the details, and where you live (cost of living can impact the price of goods and services in your area).
Recommended: Secured vs. Unsecured Personal Loans
The Easy Way to Finance HGTV-Worthy Upgrades
Even budget-friendly home improvements can set you back quite a bit. If you haven’t set aside the budget to bring more value to your home, you don’t necessarily have to dip into your retirement account or pay less on your student loans each month. You might want to consider a personal loan.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.
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Seems like a simple thing — to measure the square footage of a house. Just multiply the length by the width of each room and add up all your numbers. Not so fast. First of all, what’s a “room”? Do closets count? Basements? And why does accurate measuring even matter? There’s a lot to unpack.
What’s so important about getting square footage right?
If you’re moving into a new home and you want to know if your California king is going to fit into the primary bedroom, it’s nice to know the room’s square footage.
But there’s more riding on how to calculate the square footage of a house than just being able to fit your stuff. The square footage of a house determines its value. Lenders rely on square footage for mortgage calculations, tax assessors rely on square footage for assessments.
So, if you’re renting a house now but thinking of buying, it’s important to understand your current square footage so you can make a good comparison when house hunting.
What’s included in a house’s square footage?
There are several different answers to this question. First, here are a few terms to understand:
GLA (gross living area) is a home’s finished livable space above ground. And, if any part of the finished space is below grade, the entire area is typically known as below grade. GLA calculates when appraisers measure the home’s exterior. It goes in public records and is often important for tax purposes.
TLA (total living area) is like GLA but it includes finished basement space or possibly an accessory dwelling unit (ADU).
Living space is determined by American National Standards Institute (ANSI) Z765, which is a voluntary guideline for describing, measuring, calculating and reporting area for single-family homes.
Living space generally refers to “anything that is under the roof, within the house that is finished and heated — space heaters don’t count,” said Bryan Reynolds, a Certified General appraiser in Kentucky and Tennessee and president of the National Association of Appraisers.
Rooms to measure when calculating the square footage of a house
You might be surprised by which rooms are included — and which are not — when determining how to figure out square footage:
Bedrooms
Bathrooms
Kitchens
Hallways
Finished closets
Areas that don’t count towards the square footage of a house
There are plenty of rooms or spaces in your home that would qualify as “living space,” but don’t get counted in the total square foot calculation:
Finished basement: Say you have a ranch home with 1,000 square feet above ground and a 1,000-square-foot finished basement. An appraiser would say it’s 1,000 square feet of above-grade space and 1,000 square feet below grade. A real estate agent might say that there are 2,000 total square feet.
Enclosed porch: “If it’s unheated or used seasonally and there’s a separate door to the livable area, then it’s not included,” Reynolds said. But “if it’s finished in similar quality to the rest of the home, functional in design and has a heat source that is permanent in nature, then it can be included.”
Garage: The normal garage storage space doesn’t count. However, a bonus room above the garage might count. Only if it’s heated and 100 percent finished to a similar quality as the house. And, if it’s directly accessible from the inside of the house though.
Accessory Dwelling Unit: Unless it’s actually part of the house, it’s considered a separate entity.
Then, if you want to really get into the weeds, what about the sort of dead space under the stairs? According to Reynolds, ANSI says to include it, but AMS (American Measurement Standard) allows you to remove it from the square footage equation.
And, if you’ve got a bay window with a bench under it, one could argue that if you were to take the bench away, there would be useable floor space and that should come with the square footage.
How to figure out the square footage
Now that you know what to measure, here’s how to measure. But first, remember the aforementioned ANSI Z765?
For a room to make it in a home’s total square footage, the ceiling must hit a certain height — seven feet or higher or six feet four inches if there are beams or soffits. Plus, no portion of the finished area can have a ceiling height of less than 5 feet.
Let’s say you’ve got a Cape Cod with a sloped ceiling and knee walls. That portion under the sloped ceiling (if it’s five feet or less) is not counted in the square footage (see image). In addition, the rest of the ceiling must hit at least seven feet for at least half of the room’s floor area.
Photo source: AccurateHomeMeasuring.com
Keep in mind that an appraiser will, hopefully, look around inside the house but will measure the house from the exterior — unless there’s that pesky sloped ceiling situation, in which case they will have to go inside or the square footage will be off.
According to Hamp Thomas, certified residential appraiser and author of “How to Measure a House Using the ANSI Standard,” the pros use a 100-foot tape measure to do their job. Certainly, a shorter tape measure would work. However, there is a lot of stopping, starting and adding that can lead to inaccuracies.
Measure around the outside of the house above the foundation. Multiply the length by the width of each rectangular space. If you’ve got a second story and can’t reach a corner on the exterior, for example, measure from the inside and then add the width of the exterior walls.
Know why you’re measuring
It’s likely that, if you’re reading this, you’re not a professional appraiser. If you’re interested in getting a general sense of how much footage you have in your house, grab a measuring tape and measure each room’s length and width and multiply those numbers. Then add all the square footages together. “Don’t forget to include any outside walls thickness, or just measure from the exterior,” Reynolds said.
If a room isn’t a nice rectangular shape and has jogs and bumps, create rectangles, measure and multiply the length by width. Then, add up all the bits and pieces.
And if old-school tape measures aren’t your thing, there are lots of free measurement apps that you can download to your phone. You can also put the information into Calculator Soup’s square footage calculator, which can help you figure out the square footage of differently shaped rooms.
Measure on.
Stacey Freed is an award-winning writer and former senior editor for Remodeling, a trade publication focused on the business of the remodeling and construction industry. As an independent writer, she continues to write about the building, design, architecture and housing industries. Her work has appeared in Better Homes and Gardens and USA Today special interest publications, Realtor magazine, This Old House, Professional Builder and online at AARP, Forbes.com, House Logic and Sweeten.com among other places.
Plunk, an AI-powered home analytics platform, announced a proptech partnership with BHR, a housing data aggregator.
Through this collaboration, BHR’s RealReports platform will integrate Plunk’s proprietary AI technology, making property data even more accessible to real estate professionals. Property research, comprehensive valuation and remodeling insights will all be available in one place.
BHR’s flagship product, RealReports, gathers property data, ranging from climate risk to property valuation, in one place. RealReports pulls information from over 30 data providers. The tool also comes with an AI-powered assistant, Aiden, which can answer questions about a property.
“In this current market, the more insight you have into a property, the more competitive you can be. Plunk’s real-time valuation and AI-powered remodel recommendations are a powerful layer of insight for agents using RealReports and their clients to drive more informed decision-making,” James Rogers, co-founder and CEO of BHR, said in a statement.
In an environment in which agents increasingly have to demonstrate their value, having a clear understanding of data and trends will be a competitive advantage for real estate professionals.
Plunk has been widening its presence in the real estate space.
In September, it announced a partnership with Local Logic, a location intelligence platform, to empower end-users with the technology and insights they need to inform their home-purchase decisions.
Plunk also partnered with two real estate industry marketing companies, Union Street Media and Realforce, to scale its real-time data and analytics across multiple digital channels.