How Sellers Use HELOCs to Increase Sale Value

Your home is more than just the place where you live and raise a family, it’s also an investment. Whether you are in need of sudden repairs or you want to increase your home’s future sale value, homeowners have the advantage of being able to use their home’s equity to secure the funds needed for any project.

Once you’ve reached at least 20% equity in your home, you’ll have the option to explore both home equity loans and HELOCs (home equity lines of credit). Although both have their advantages, a HELOC offers homeowner’s the unique ability to utilize an interest-only payment period called a draw period.

If you’re looking to eventually sell your home and you’d like to keep your renovation payments low while you’re preparing it to hit the market, a HELOC might be worth exploring.

How Does a HELOC Work?

Much like a credit card, a home equity line of credit allows you to use only the funds that you need and to pay them back only when you spend them. However, HELOCs are different from credit cards because your home’s equity is used as collateral. As a result, the available line of credit is usually much higher and HELOCs offer an interest-only payment period that allows you to carry a balance without having a huge payment.

How Long is a Draw Period?

Although it varies from lender to lender, the typical draw period is 10 or 15 years. During those years, some lenders allow you to pay only the interest due on your HELOC. Because it’s such a lengthy period, it’s a great opportunity for homeowners to use a HELOC to borrow funds for any projects, repairs, and upgrades that could increase a home’s sale value.

If you sell your home before the draw period closes, you may be able to use the lower interest-only payments to keep costs down, then pay off the HELOC with the proceeds from your home’s sale.

How to use your HELOC for home renovations

A HELOC can be used for everything from a dream vacation to putting a down payment on a new home. There are no restrictions on the ways you can spend funds from a home equity line of credit. For those looking to take advantage of the draw period and reap the best return on their investment (ROI), here are some of the most common ways to put a home equity line of credit’s draw period to work:

Kitchen Renovations – Kitchen renovations might be a little more costly than other remodels, but it has one of the highest ROIs of all. A HELOC is perfect for tackling such a huge project while increasing your home’s value.

Roof Replacement – New roofs can be expensive, but they instantly add curb appeal and value to your home. In fact, it’s one of the easiest ways to see a 60% return.

Bathroom Remodels – Bathroom remodels aren’t as expensive as kitchen remodels, but they can make or break a home sale. Utilizing funds from your HELOC for a remodel cam be a great way to ensure your home won’t have a “For Sale” sign sitting on the lawn forever.

 Increase Energy Efficiency – When you use your HELOC to increase your home’s energy efficiency, you’re also increasing its value. In addition, you may be eligible for a tax deduction for installing energy-efficient updates.

Taking advantage of the interest-only payment period (draw period) of a HELOC is a smart way to increase your home’s future sale value. Regardless of the improvements or renovations you choose to undertake, you’re sure to reap the benefits of lower monthly payments.

Another unique aspect of a HELOC is that you may qualify for tax deductions on any interest paid toward the loan when the funds go towards home improvements. This pairing of benefits makes HELOC’s a perfect way to renovate with secured funding, deduct taxes on the interest you pay, and pay off the HELOC through your home sale.

Once your home hits the market and sells, you’ll have the option of paying your HELOC back or continuing to make payments as best fits your budget.