Before You Renovate: What New Homeowners Should Consider First

As a new homeowner, you are now officially part of an elite group. Between 62% – 65% of people in the US are homeowners, and proudly so. It’s a distinguished club where membership is prized and long-term benefits can accrue.

For many people, homeownership is the crowning achievement of hard work, self-sacrifice, and dedication. It’s a leap of faith from renting to owning your home, because it entails dropping anchor and committing to a long-term goal.

Each homeowner is unique in their financial situation, preferred payment terms, and choice of home.

Before You Renovate – What to Consider

New entrants to the housing market are well advised to consider all possible options to ensure the best bang for their buck.

We are currently living through an era of high interest rates. This is spurred by an inflationary economic cycle and volatile market activity.

Homes tend to be the single biggest investment that anyone makes in their lifetime. National home prices often fall in the low-$400Ks, and new builds can push higher depending on the market.

That is a significant chunk of change, so to speak, and due diligence is imperative for all real estate transactions. For most people, mortgages span 15–30 years, with high interest payments in addition to the principal amount borrowed.

Often, a home is purchased because it has good bones and is in a great location with all the facilities, amenities, and services individuals or families require. Real estate agents routinely peddle the mantra – location, location, location as the number one selling point.

But for home buyers, it goes so much deeper than that. The purchase price is an important consideration, but renovations may be needed to customize the home to expectations.

The psychological transition from browsing homes to buying a home is an important threshold. Once that barrier is crossed, home buyers may adopt a laissez-faire approach to reckless expenditure. This is ill-advised as costs can rapidly spiral out of control.

How you Finance your Home Matters

Due to the high cost of home purchases, most people apply for mortgages. Traditional mortgages evaluate applicants based on debt-to-income ratio, earnings, ability to pay, credit score, asset portfolio, seasoned funds, etc.

It’s a rigorous process that is designed to protect the lender and the borrower from default.

Traditional banks and loan providers offer a wide range of options to homebuyers. These include fixed and variable interest rates, short-, medium-, and long-term mortgages, down payment options, and attendant PMI. Once eligibility for a home loan is established, checks and balances come into play.

Different categories of buyers may be eligible for tailored provisions in their mortgage offerings. For example, low-income, first-time buyers may qualify for certain government-approved savings, tax benefits, or deductions.

Similarly, members of the military and eligible family members may qualify for VA home loans through approved lenders. Each distinct category may have advantages or disadvantages for buyers, but the focus is on facilitating a seamless application process.

Once the mortgage is approved, homeowners can begin making regular monthly payments and building equity in their property.

Equity is the homeowner’s stake in the property, and it’s loosely defined as the difference between the property’s market price and the amount owing on it. This is a dynamic assessment subject to market fluctuations.

As a rule, long-term consistent payments on a mortgage tend to increase an owner’s equity in their property. A caveat is in order: property markets should ideally be stable and growing, not reversing.

High inflation has a negative effect on real equity, since it dilutes the purchasing power of capital. That being said, a veteran will seriously want to consider a VA cash out refinance solution when it comes to home renovations.

Many different types of renovations are possible, including accessible hallways, walkways, bedrooms, bathrooms, seamless floors, nonslip surfaces, and aging-in-place modifications. Viewed in perspective, these alterations are designed to create functional, aesthetically pleasing living spaces.

Cosmetic changes like paint colors and palettes certainly qualify as renovations and are often the first choice for new homeowners.

Why Tapping into Existing Mortgages Makes Sense

Home remodeling can cost thousands of dollars, and often this capital comes from savings or high-interest loans. Existing homeowners will do well to tap into their equity through a variety of refinance programs.

Not only can home equity-style loans and refinancing options be cost-effective, but they may also be a better natural option for homeowners to access. It’s possible to access up to 80% of home equity through these loans, with the right lenders.

Of course, it’s important to read all the associated terms and conditions to ensure compliance with requirements.

There are generally few restrictions (if any) on how home equity funding can be utilized. Often, this reinvestment in upgrading or remodeling the home pays dividends down the line.

The opportunity costs of using savings for remodeling are easily seen if an unexpected turn occurs. Some experts advise that savings are a bulwark against uncertainty, and ideally should be retained as such.

Once a mortgage is approved and equity is established, refinancing is a natural go-to solution for customizing the home.

Think Long-Term Value

You might be planning to stay in this home forever, but life has a funny way of changing plans. Jobs relocate, families grow, and circumstances shift. So even if you’re convinced this is your forever home, think about how renovations might affect resale value.

Some renovations give you a great return on investment. Kitchen and bathroom updates, adding energy-efficient features, and creating more usable space generally pay off.

Other renovations are purely personal and might actually hurt resale value. That super-specific themed room you love? Future home buyers might hate it. The pool you’re dying for? It could actually narrow your buyer pool depending on your market.

This doesn’t mean you can’t do anything personal or fun. It just means you should be aware of what’s an investment versus what’s purely for your enjoyment. And hey, if you’re doing something quirky that probably won’t help resale value, at least you’re going in with eyes open.

Take Your Time

Renovations are exciting, but they’re also a marathon, not a sprint. Taking time upfront to consider these factors will save you money, stress, and regret down the line.

Your home isn’t going anywhere. It’s better to plan thoughtfully and execute well than to rush in and make expensive mistakes. So take a deep breath, make your lists, do your research, and then when you’re ready, go create the home of your dreams.

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