How To Use A Home Equity Line Of Credit For a Home Addition and Build Value

How To Use A Home Equity Line Of Credit For a Home Addition and Build Value
  • Opening Intro -

    A home equity line of credit is also known as a HELOC.

    With this type of loan, your home equity acts as security.

    The loan may be payable monthly for a set period.


You’re required to provide proof of steady employment or income and a good credit score. The improvements made with these funds will build the value of your home, which will be convenient for homeowners who are planning to put their house on the market.

HELOC-funded home additions and improvements can also benefit homeowners who want to update their homes to the latest trends. Here’s a look at how you can use this type of loan for home addition and build value.

Set A Budget

Determine how much the project will cost before applying for a HELOC. You should compare the quotes of different service providers to arrive at a reasonable price.

Remember, the interest on these loans is variable, and payment terms will depend on the lender. Making a budget will ensure you use the loan appropriately.

Working with a budget also ensures you don’t overstep the limits of your available funds. It also helps you come up with a realistic repayment plan.

This way, you’ll not have trouble completing the home addition project and clearing your loan.

Choose the Room to Remodel

One of the best ways of using a home equity line of credit is to renovate your kitchen. According to a study conducted by Consumer Reports, one-third of people in their thirties looking for homes were interested in a modern and attractive kitchen.

Some of the fastest ways of updating your kitchen are through countertops, new flooring, and appliances. Apart from the kitchen, the other best rooms to remodel are the bathrooms and bedrooms. One study by Zillow established that a bathroom remodel can help you get a high return on your home remodeling investment.

kitchen appliance packagekitchen cabinet handles

      some kitchen remodeling ideas to consider      

Another way for adding value to your home is by additions like garages and storage units. You can also make your home attractive to buyers by creating additional living space.

For example, you can convert your basement into a bedroom. These projects require a little investment since the spaces are already in the house. All you need to do is add some insulation and lighting.

Use It Like a Credit Card

A HELOC is similar to a credit card. This means that it’s like a revolving credit facility that allows you to use it, maintain a balance, pay off your balance, and then use it once more. You have the flexibility of borrowing whenever you need money.

When you repay the outstanding balance, you’re able to replenish the credit amount. This means your credit limit increases every time you repay your outstanding balance. Therefore, you can make home additions by borrowing the same way you do with a credit card.

Pay Contractors For Big Projects

When making a home addition, you may require many subcontractors. These professionals may need to be paid immediately. A HELOC will be convenient if you want to pay manufacturers and contractors on the spot.

This will especially come in handy for contractors who don’t take credit cards but only cash or checks. HELOCs can be provided in the form of a check. You may also be able to send your funds online to an external account or to receive a cash advance. Whichever the case, HELOCs allow you to pay home remodeling contractors in time.

industrial style bathroom vanity lightsindustrial towel racks

      some industrial bathroom designs to consider      

Save Money

One of the best ways of using a HELOC is to save money. This is important if you’re investing in an expensive house renovation project. A HELOC has a lower interest rate when compared to personal loans and credit cards. Therefore, when you use a HELOC, it’s more cost-effective to deal with a project that needs incremental funding.

Another way to save money is through tax cuts. According to the Tax Cuts and Jobs Act, homeowners can deduct the interest on HELOCs from their taxes. This is only possible if the funds are used for buying, building, or improving your home. However, there’s a limit to the amount of interest that can be deducted.

Focus on Return on Investment

Any business person knows that a project is as valuable as its returns. Therefore, when using your Home Equity Line of Credit, make sure you can achieve a return on your investment. While home improvements can increase your equity, they may not necessarily result in returns on your investment.

other valuable tips:

For example, you may spend $40,000 on adding a store to your house, but this may increase your home’s value by $10,000. It would be best if you focused on these projections when using your HELOC.

Also, it’s essential to leave your current needs out of the project. Making improvements that are excessively based on your interests may not be appealing to a future home buyer. Try and balance your current needs of comfort and personal needs with the resale value of your home.

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