Despite economic upheaval due to the coronavirus, the U.S. is experiencing a strong seller’s market for residential real estate, with mortgage interest rates at a 40-year low, and a limited supply of houses on the market.
If you’re thinking of selling your home, making a few upgrades could help move you to a higher asking price. And if you do it smartly, you could save money and reduce your spending as you do it. Here are some strategies to consider.
Before you begin
Take into account how much you can realistically afford to spend on home improvements. Then, figure out which projects will really help improve your home value, and by how much. Avoid spending money on anything that won’t at least pay for itself in terms of higher asking price when you sell.
How much a project will increase your home value depends on your house and the real estate market in your area. Check with a local real estate agent for advice specific to your area, and avoid renovations that won’t return a high ROI, unless you’re planning on staying in your home long enough to recoup the expense in personal use and enjoyment.
Ways to increase your home value
Given the strong seller’s market at the moment, you might not need to do more than a few cosmetic touches to improve your chances of a faster sale or higher price. Even with a relatively small budget, you can give your home a targeted makeover by updating things like:
- Paint, wallpaper, trim
- Carpet, tile, flooring
- Window treatments
- Light fixtures and faucets
- Front and backyard landscaping
How to use rewards cards wisely for home improvements
Whether you’re staying in your home or selling, putting your home improvement expenses on a cash-back rewards credit card* could help you put a little dough back in your pocket. There are two types of cards you can use that offer you some type of reward:
1. Retail credit cards
Retail credit cards are issued by the retail store you’re buying from and can only be used at that store, which makes their use more limited than a regular credit card. Most major retailers have their own branded credit card, and may offer benefits like a discount on purchases, cashback on purchases, or special financing terms.
Let’s say you want to give your kitchen an upgrade by installing a new countertop and backsplash, which you’ve estimated will cost about $4,000. If you buy the materials from a home improvement store like Lowes, Ace Hardware, or Home Depot, and the store card offers 5% off purchases, you could save $200 on a $4,000 purchase.
Be sure to understand the store rewards before you buy. For example, at time of writing, Home Depot provides only a one-time cashback reward when you open a card. Home improvement store Lowes offers a rewards card with either 5% off on every purchase, or 6 months special financing, and Ace Hardware’s card gives 2% cash back on most purchases. Since terms can change, take a few minutes to research your options before you choose a store to buy from, and read the fine print on limitations of the offer, including the interest rate and any interest-deferral period.
2. Major credit cards
Since credit cards issued from companies like Visa, MasterCard, American Express, and Discover can be used at a wide range of stores and often have higher credit lines, they may offer more flexibility than a retail credit card. What’s more, during the pandemic, some major cards have increased rewards on home-related purchases.
Using our countertop and backsplash example, let’s say you decide to purchase the countertop from one store, the backsplash materials from another, and then hire a contractor to install everything for an additional $700. You put all three purchases on your Visa card, which offers 5% cashback. Your total cost is now closer to $4,700, with a possible savings of $235—and you had more choice about where you purchased your materials.
With major credit cards, look for offers that give you a no-interest or low-interest introductory rate. If you do have to pay interest, this may cancel out your cashback savings, so do the math to see if it is better to put the purchase on a card, or save up in advance for the purchase.
How to finance larger home improvement projects
Sometimes, simple upgrades aren’t enough to get your place ready to sell. If your home needs repairs in order to pass an inspection or be appropriately valued, then you’ll need to get those taken care of before you sell. These big-ticket items, like a new roof or a major plumbing upgrade, aren’t usually something you can put on a rewards credit card. The good news is, there are other financing options.
If you have equity in your house, you may be able to get a second loan and use that money to pay for the home repairs. If you take this route, it’s important to make sure that the sale price of your home will pay off this loan in addition to your original mortgage, hopefully with a little profit left over.
Also, be sure you have a way to make the monthly payments on the loan until you sell the house. Take out only as much as you need to do the repairs, even if you have the opportunity to get a higher loan amount. The bigger the loan, the bigger the monthly payment and the more you take away from the profit on your sale.
Home equity line of credit (HELOC)
Think of a HELOC as a credit card that is secured by the equity in your home. Once approved, you’ll have a certain credit limit, but it’s important to only spend what you truly need.
The amount of your monthly payments will depend on the balance you owe. The more you spend, the more you’ll pay in interest and the bigger the monthly payments. And just like a credit card, if you only make minimum payments, you’ll pay more in interest.
Another way to finance larger home repairs is with a personal loan. Unlike a home loan or HELOC, a personal loan isn’t secured by your home, but it may come with a higher interest rate. If you’re going to use a personal loan to fund your home improvements, make sure that the sale price of your house will increase the home value enough to pay off the personal loan when you sell.
Reduce your debt before starting your home improvement
Making upgrades to your home requires some room on your credit cards and the ability to pay off your purchases. If your credit cards are already close to maxed out, or you don’t have the cash to spend, consider how to reduce your debt before you investing in home renovation. Check out our free How to Manage Debt Guide now to help you understand ways to manage your debt and finances, get on a path to a brighter financial future — and maybe even a new home.
- The 3 Most Unexpected Costs of Owning a Home (Freedom Debt Relief)
- 7 Smart Ways to Use Your Credit Cards in a Recession (Freedom Debt Relief)
- Don’t waste your money on these 5 popular home renovations (USA Today)
*Freedom Debt Relief does not specifically recommend or endorse any of the retailers or credit issuers mentioned in this article, and has no affiliate relationship with them. Our purpose in mentioning them is as examples that readers might consider when doing research on credit terms and pricing before making a purchase or applying for credit to fund home improvements.