Paying for Home
Renovations BY PAMELA BABCOCK
T
he pandemic brought a surge in home improvement projects that doesn’t appear to be waning. While the U.S. economy shrank by 3.5% in 2020, spending on home improvements and repairs grew more than 3%, to nearly $420 billion, as people modified living spaces for work, school, and leisure, according to “Improving America’s Housing 2021,” a report from the Joint Center for Housing Studies of Harvard University. According to the report, “the pandemic has in fact been something of a boon for the remodeling industry by forcing a variety of housing and lifestyle changes that encourage improvement spending.”
Finance Options for Your Clients Next Remodeling Project
The outlook for remodeling remains positive, particularly given the uptick in residential mobility. Many living in expensive metro areas are moving to lower their housing costs, which leaves more of their budgets available for remodeling projects. In addition, those who deferred projects at the height of the pandemic are moving forward with repairs and improvements. Replacement projects –upgrades to roofing, siding, windows, systems, and equipment–were the most popular in 2019, accounting for 46% of total expenditures, while spending on discretionary projects such as kitchen and bath remodels and room additions made up 29%, according to the report.
Saving and paying cash: If you can, saving cash is your best option, according to Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
Some use cash to pay, while others turn to lines of credit, conventional or government loans or credit cards. If all this sounds daunting, don’t worry. According to LightStream’s annual Home Improvement Survey, 62% of respondents said they get excited about home improvement projects but 61% said costs deter them from moving forward. The survey also found that while 43% of homeowners have some knowledge about financing options, 11% said they have “no knowledge” but want to know more.
Home equity line of credit (HELOC): A HELOC isn’t a loan but a variable-rate, revolving line of credit (usually up to 80% of your home’s value, minus the amount you owe on the mortgage) that allows you to borrow against the equity in your home. HELOCs come with a draw period and repayment period.
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Kiely knows paying cash isn’t an option for many, especially the younger generation that may be footing college bills and sapped from years of paying high apartment rents. “As a tax preparer, I see personally the finances for a lot of people. There are clients who have $75,000 in interest income and then I have clients that have $200 in interest income. Some people are naturally savers,” said Kiely.
For example, if your home is worth $500,000 and the outstanding mortgage is $200,000, a bank may give you
