No longer does a potential home buyer (or move-up buyer) have to decide between buying a new home or renovating their existing one. Now they are choosing both, renovating their newly purchased home. Renovation Lending plays a big role in providing homeowners with the funds needed to make those improvements.
The initial impact of the pandemic caused the renovation market to crash before it bounced back stronger than pre-pandemic times. The renovation resurgence started when people found themselves in their homes a lot more due to remote working and learning and caused the spending for home improvement to increase to $420 billion in 2020.
It’s forecasted that 2021 will have a 9% growth in the home renovation market and another 4% the following year.1
A home renovation loan is based on one key factor: the after-renovation value. Renovation loans use a home’s ‘estimated after improvement value’ instead of its current home value to calculate how much a homeowner can borrow.2 This gives homeowners the credit upfront for the increase in home value from the proposed renovation.
In addition to the home renovation loan, there are other financial products that are commonly used to pay for renovations:
- Cash-out refinances
- Home equity loans (or a home equity line of credit)
However, neither of these loans are specifically designed for the sole purpose of home renovations.
Before getting a renovation loan, you should find out whether your renovation project will either reduce your long-term maintenance costs or increase the value of your property. Some home improvement projects can increase your property value by a greater amount than what you spend on renovations. Attic insulation, basements, and bathrooms top the list for valuable improvements.3
1Paul Emrath, vice president of surveys and housing policy research at the National Association of Home Builders.
2Rich Garner, RenoFi Rundown Newsletter
3Chris Moon, ValuePenguin