Opinion: Financing a big-ticket home remodel

In 2018, Forbes named Springfield a Best Buy City because of its urban feel and affordability – a pair of attributes that can be hard to come by these days. Truly, Springfield is an up-and-coming city for business owners and entrepreneurs.

The Forbes article also reported that homes in Springfield are undervalued by 17% compared with the ratio of home price and local income, making our city an excellent location to invest in a home.

Those familiar with Springfield know it to be a community with availability of diverse home types – from older, well-loved homes with character to new developments with modern flair and amenities. However, according to the Missouri Realtors Association, the average number of residential properties sold in Missouri in August was down by 23% compared with a year ago. Nationally, home sales rose by 1.3% during the same month-to-month comparison.

The decrease in home sales could be attributed to a number of factors, one of which is the popularity of remodeling. According to the National Association of Realtors’ 2019 Remodeling Impact Report, $400 billion is spent on home remodels in America each year. And this money is well spent, with 74% of homeowners reporting they were pleased with the renovation outcomes.

Remodeling can add value to a home before selling it or make it more livable for its current owners.

Regardless of the intention behind a home remodel, these projects require intense financing and many layers of planning.

A knowledgeable loan officer is an important member of a home renovation team to walk through the financing options, which can be a stressful part of the process.

Two of the most popular methods of financing home improvement projects are home equity loans and home equity lines of credit. These two options are not made equally, though. There are some important differences between home equity loans and lines of credit.

Home equity loans may be good options for those looking to receive a lump sum of cash to spend on their renovation. The rate for this type of loan is usually fixed, and the consumer repays principle and interest each month as a fixed payment.

A home equity line of credit, aka HELOC, is a good choice for those who prefer to have access to a revolving line of credit over an extended period of time. The customer does not pay interest until some or all of the cash is actually withdrawn, and the monthly payment then fluctuates with the market. The funds can be disbursed and used as needed.

With both of these options, your home is the collateral used to secure the financing. That’s why you will want to explore all options carefully.

Additionally, before making a decision between a home equity loan and a HELOC, customers should review repayment terms that best fit their abilities without causing them financial struggles. They also should keep in mind that failure to make the required payments could result in negative information being disclosed to the credit reporting agencies, not to mention the potential loss of their home. Although these financing options sound safe on paper, there are risks involved.

So, whether your goal is to add a deck, a porch or a pool to your home to boost its resale value, to add bedrooms for additional children, or simply to update the interior or exterior of your home, consider the benefits of a home equity loan or HELOC, freeing up the need to pull from cash savings or over-extending your credit cards. You may find that your dream home in Springfield is a little easier to achieve than you think.

Debbie Bills is a vice president/consumer lending sales manager for Arvest Bank in Springfield. She can be reached at dbills@arvest.com.