How to budget for a home renovation and get the best ROI

Whether you’re building your dream home or just adding value to your property, renovations can transform a house.

Why it’s important: In Charlotte’s competitive real estate market, renovations can help buyers see more possibility in the limited inventory.

Okay, but: Home renovations are often expensive and difficult to budget for. So we asked John Cross, Consumer Lending Mid-Atlantic Region Executive at Bank of America, for his expert advice.

Which home renovations have the best (and worst) ROI?

Typically: Investments in kitchen upgrades, installing new hardwood floors and creating outdoor living projects are improvements that may provide a good return in value when selling.

What advice do you have for people who are trying to save up for a renovation?

Try to establish a savings plan that links to your overall “Life Plan” and be consistent with your regular deposits into the savings vehicle that you select.

What’s a common mistake homeowners make when budgeting for renovations?

It’s very common to underestimate the total expense of your project or to be unable to anticipate the rising costs of materials (especially now).

It’s also easy to get caught up with the emotions of enhancing your home and continually add to your upgrade list. This often results in overspending.

Are there any rules of thumb to keep in mind when renovating?

Here are three:

1. Be realistic with your budget.
2. Secure multiple estimates.
3. Be willing to compromise as you scope out the project.

What’s the difference between a home equity loan and a home equity line of credit?

A Home Equity loan is essentially borrowing against the equity of your home value. You receive the loan proceeds all at once, typically at a fixed rate.

A Home Equity Line of Credit (HELOC) is also borrowed against the equity in your home, but it’s more similar to a revolving line of credit (like a credit card) with a variable interest rate.

• You can draw on the line as needed for home renovations, and you only pay interest on the portion of the line used, so it’s ideal when the costs of your project are unpredictable or irregular.

Which would you recommend?

HELOCs are typically the best tool to support clients’ life priorities with home improvements because they offer the following benefits:

• No application fees or annual fees are charged for a Bank of America HELOC, and most borrowers pay no closing costs
• HELOC interest rates are lower than many revolving credit products clients might consider to fund their home improvements.
• You can easily transfer funds from a HELOC to another account with just a few clicks and no hidden fees.
• You can convert part or all of your HELOC balance to a fixed-rate term loan to set predictable monthly payments.
• With Pay Plan, you can automate your HELOC payments, or you can simply transfer funds using digital banking to make a payment.

No matter what kind of renovation you have in mind, Bank of America can help you get it done.

This content was produced in partnership with Bank of America.