Landscaping, New Roofs, and HELOCs: Oh My!

 Couple Deciding how to use their HELOC on Home Improvements

Having a bit of home equity is a great thing! This means that when the time comes for a major home improvement project like a landscaping project or new roof, you can keep your liquid money in savings and tap your house-sized piggy bank instead. Home Equity Lines of Credit are flexible, affordable and attainable sources of funding for those changes you’ve had on your mind since you moved into your house or the ones that sneak up on you after a decade of being ignored.

What Can a HELOC Buy?

When you think about a HELOC, it should bring to mind a credit card of sorts. That’s essentially what these are, except you’re borrowing the money from your home’s equity, with a little interest going to the bank. You have a limit on how much you can charge, but you can also pay those charges down and charge again. You can choose to not use all of your allotted funds. It’s all up to you!

That being said, you can also buy anything you want with a HELOC. Just because you can, though, doesn’t mean you should. Spending HELOC money on vacations and luxury goods could be a recipe for disaster if the value of your home dropped sharply. This is why most of the spending from HELOCs tend to focus on home improvements -- it’s not because you can’t spend it otherwise, it’s just not usually the best choice.

Using Your HELOC to Improve Your Loan to Value Ratio

Taking out a HELOC immediately causes your home’s loan to value ratio to spike. You’ll have a harder time borrowing more against it until the HELOC is paid off, but you can sort of hedge your bets by using that HELOC money to make your home worth even more. Is it magic? Nah. It’s simple math.

Let’s say your $20k HELOC was used to install new stone siding on your home. Maybe that increased your home’s value by $15k, so really, you’re only down $5k in the grand scheme of things. That’s awesome, right? Well, that’s not the only project you can do to make that HELOC sing for its supper.

Example 1: Improving Curb Appeal With Landscaping Updates

Hey, grass is nifty, but haven’t you always thought that your house needed a little bit more than that to make it pop? The good new is that according to a National Association of Realtors report, landscaping upgrades are generally an excellent investment. Most of the time, money that you put into a home improvement is only returned by some fraction of the whole amount, but landscaping projects overall return their full investment and sometimes a little more.

Not only do you make your home better reflect your personality, when that HELOC’s paid off, you’ll have a bunch of equity for the next project (assuming you have an appraisal to update your home’s value). Sounds like a total win-win. Looking for a landscape upgrade for your front yard? Check out how these projects will return for you:

  • Overall landscape upgrade. With an estimated cost of $4,750 and estimated cost recovery of $5,000, an overall upgrade is worth 105 percent of what you’ve spent. It also makes your house look like it belongs in Better Homes and Gardens.
  • New patio. What can’t a new front porch or patio do? With a cost of $6,400 and a return of $6,525, they can’t sink your ship, that’s for sure. Not only can you sip tea and watch the cars pass, you’ll see a 102 percent gain.
  • Softscape. Softscape, also known as plants and stuff, are favorites for so many reasons. That’s why it’s great to report that the NAR’s estimates say that you’ll return exactly as much as you invest in lovely plants, edging and border accents. Make your front garden come alive guilt-free!

Example 2: Paying for that Unbudgeted Roof Replacement

When you bought your house a decade ago, you knew the roof couldn’t hold out forever. But secretly, you kinda hoped it would. Because of that, you may have neglected to plan for this eventual and expensive replacement. There’s no world in which your roof won’t wear out, especially if it’s among the 90 plus percent of asphalt shingled roofs in the US, unfortunately.

This year, a new roof installation will range from about $5,115 to $9,762, with a national average of $7,268. That’s a lot of marbles, but the good news is that you have plenty of home equity to cover the cost. Although a mid-grade roofing replacement will only return about 68.4 percent of your investment if you were to sell, you get the additional benefit of not having rain happen inside the house. That’s pretty cool, if you think about it.

HELOCS: Mortgage Chameleons

HELOCs are the ultimate chameleon of the mortgage industry. As long as you have a house with a decent amount of equity (usually 20 percent or so) and the ability to repay the loan, they’re very straightforward to process and quick to fund. You can use them like a credit card to buy supplies or pay for services as you need them, pay those balances down and then do it all again!

If you love HELOCs, contact us at Home.Loans so we can continue to gush about them, or at least answer your questions and help you find the best HELOC for your goals.