Homeowners naturally want to put their home’s best face forward when listing it on the market, but that has many wondering how much to invest in their house’s improvement. In fact, would it behoove them to take out a loan to make some strategic home upgrades that could improve their chances of making an advantageous sale?
There are many variables to consider when contemplating a loan for home upgrades with the expectation of selling your home. For instance, what types of upgrades warrant this step? Why types of loans are good options? What are the risks? Use the following information to help you decide if a loan is a right choice for your real estate situation.
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Before you invest in upgrades for your house, talk to your real estate agent and get several estimates for your home’s current market value. You have to know what you stand to make on it if you were to list it as is so you can gauge how much certain upgrades could improve its value. As you take stock of your home’s value, be sure to examine what similar houses in your area have sold for to determine if major home upgrades that require a loan make fiscal sense.
If your home is in the same general price range as the other homes in the area, look deeper into the amenities that each of the surrounding homes has. Do they have a swimming pool? Have they redone their back yard and added in landscaping or turf? What about updated images that show new flooring, smart home technology, upgraded granite countertops or even something as big as a sun/great room addition.
What Types of Upgrades Should You Seek a Loan for?
Certain upgrades are associated with increased home value. Remember, though, that there’s no guarantee that sellers will make up the cost of their upgrades at sale time, so it’s essential to consider the risks. Typically, the ‘safest’ upgrades that come with a solid return on investment at sale time include new roofs, kitchen upgrades, bathroom upgrades.
However, be realistic if you do choose to make these upgrades. You could actually outprice your area with the money you put into your home. You could also risk losing money at sale time if you cannot get your asking price. You should be very particular in determining what home upgrades will yield the highest return on investment.
What Types of Loans Should You Apply for?
Using credit cards to pay for home upgrades is not usually a good idea as interest rates tend to be higher with these. Credit card debt can also dampen your chances to get a good interest rate on your next mortgage. Some people opt for personal loans, but just remember that putting your house up as collateral can have complications. For instance, if you sell your house but it’s associated with collateral on an unpaid loan, it can spell trouble if you’re unable to make your loan payments. This financial situation could actually warn off prospective buyers because it could possibly involve property liens.
Some homeowners opt for a home equity loan. These are good options typically because they tend to have low-interest rates. If you can get a home equity loan that doesn’t increase or substantially increase your monthly mortgage payment, you’re can probably head into the process feeling pretty safe. However, if the loan substantially exceeds your current mortgage and you struggle to pay it, it’s going to affect your credit and could put your house in jeopardy.
Determining Risk versus Reward
It’s not easy to determine how much money to put into a house you intend on selling within the next few years. That’s why it makes sense to discuss your unique situation with someone who is more vested within the local real estate market. In some cases, a loan is a gamble that can pay off substantially when you do sell your house, but there’s no guarantee. You have to do your homework to see if this type of risk makes sense for your situation.
On the flip side, making minor home renovations and upgrades could be a huge payoff when your house actually does hit the market. Buyers love to see home upgrades and things that have already been completed because that means they no longer have to worry about those improvements and can put their own personal style first once they take possession on the property.
Featured image source: Freepik