How To Use Your Home’s Equity To Pay for Renovations

Published April 23, 2024
Quincy Bradley Jr
by Quincy Bradley Jr

Homeowners are often full of ideas for upgrading and renovating their living spaces — only to get hit with the reality of a tight budget. Whether you’re pricing out a big reno or figuring out how to pay for an expensive repair, making improvements to your home can get expensive fast. If you’re not interested in draining your savings account or maxing out a credit card, there is another option.

Enter the Home Equity Line of Credit (HELOC) — a versatile financial tool that allows homeowners to tap into the equity built up in their homes to fund improvements. If your home improvement dreams feel out of reach, a HELOC can help you turn them into reality.

Quincy on phone

What is a HELOC and how do I use it for renovations or other large expenses?

A home equity line of credit is a loan you can take from your home that typically has lower interest rates than personal loans and credit cards because it’s backed by your house.

It allows you to access your home’s equity in cash which you can then use to pay off high-interest debt, make a big purchase (like pay for a wedding or for college tuition), use as a down payment on another property, or fund renovations.

The best part is you only pay interest on what you withdraw, not the entire line of credit — and you can make interest-only payments for the first ten years. So, a HELOC is an attractive option for homeowners seeking to finance home improvement projects without bearing the burden of a lump-sum loan.

Quincy in front of home

How much can you borrow?

Lenders typically allow borrowers to access up to 90% of their home’s appraised value. Given that home appreciation is at an all-time high, this is an especially great time to consider a HELOC.

Clients come to me all the time with questions regarding how much they can borrow using a HELOC. Unlike traditional loans where you receive a lump sum upfront, HELOCs give you ongoing access to funds throughout the draw period. So, you can borrow only what you need when you need it.

Budgeting for your loan repayment

When considering a HELOC, it’s important to understand your financial situation, budgeting, and repayment plan. If you find yourself unable to pay back a HELOC, there are potential consequences that may vary depending on the terms of your agreement. Failure to make payments could result in late fees, increased interest rates, a hit to your credit score, and — in severe cases — foreclosure proceedings on the home your HELOC is secured by.

With that said, HELOCs can be incredible financial tools to strategically reduce debt, make investments, force appreciation on your home, and more. Most HELOCs actually allow you to pay only interest on the first five to ten years, so a little strategy can make a HELOC a smart financial decision.

Cash from your couch. Check your eligibility in as little as 3 minutes.

Maximizing your HELOC

If you’re using a HELOC to upgrade your home, it’s a good idea to speak to a real estate agent to figure out which home upgrades will create the best return for you. This way, you can prioritize projects beforehand and use your HELOC funds strategically.

You want to find a balance between quality-of-life upgrades and improvements that increase your home’s value. Whether it’s renovating outdated spaces, upgrading essential systems, or enhancing energy efficiency, investments in home improvements can yield substantial returns. By focusing on projects with tangible benefits, you can maximize the impact of your HELOC funds and position your property for long-term appreciation.

Quincy celebrating in front of home

Benefits of a HELOC

HELOCs are great because they typically have lower interest rates than credit cards and personal loans because they are secured by your home. They also give homeowners the flexibility to use the funds for a variety of purposes, such as home renovations, debt consolidation, or even funding education expenses.

During the draw phase, which often lasts for several years, you can only pay the interest. This helps you manage your cash flow better. Also, you can choose to pay off some of the principal during this time.

In many cases, the interest paid on a HELOC may be tax-deductible, offering homeowners additional financial relief. However, tax laws governing HELOC deductions vary, so it’s a good idea to consult with a tax advisor who can provide clarity on the implications of utilizing a HELOC for home improvements.

I have advised multiple clients in the past to really consider the option of getting a HELOC and walked them through the benefits — some have even saved thousands of dollars by utilizing the tax advantages of a HELOC — and they increased the value of their homes through renovations.

That said, cautious financial management and disciplined repayment are essential to safeguard against adverse outcomes when taking out a HELOC.

Quincy walking down stairs on cellphone

Transform your home with a HELOC

A HELOC is a valuable financial resource for homeowners seeking to improve their living spaces. By tapping into the equity in your home, you can access funds for renovations, repairs, and upgrades, even when traditional funding avenues seem unattainable.

However, strategic planning, diligent research, and responsible financial management are paramount to maximizing the benefits of a HELOC while mitigating associated risks. With careful consideration and informed decision-making, you can unlock the potential of a HELOC to transform your home into a personalized haven of comfort and functionality.

Cash from your couch. Check your eligibility in as little as 3 minutes.

Paid partnership with Better Mortgage.

Interested in more?

Sign up to stay up to date with the latest mortgage news, rates, and promos.

I'm buying a home

I'm refinancing