How to use a HELOC for home updates (without breaking budget)

Transform your home with a HELOC. By accessing the equity in your property, you can fund renovations with financial flexibility.

Making renovations a financial reality

HGTV, TikTok and Instagram make renovating your home seem like a breeze, but in reality, it takes a lot of hard work and money to give your home a facelift. If you want to freshen up your space without setting you back financially, consider how to use home equity and planning to your advantage.

Start by setting your home renovation budget

Before you take on any project, establish your budget. Keep in mind that you don't need to spend a lot to make a huge difference in the space. A gallon of paint or new artwork can be very affordable and can dramatically change a room.

Ask yourself what you want in your space. Are you looking for a more modern look, or something cozy and chic? Try to outline your vision and work within those boundaries, whether it's specific color palettes or furniture designs. Consider setting up a Pinterest board to organize the designs and decorations you appreciate the most. You can also use these for inspiration as you work toward your unique style.

Set aside only the amount you are comfortable spending, and make sure you give yourself a little wiggle room in case something goes over budget.

Cut expenses to save

If you want to accomplish more than just changing the paint colors in your home, look at your monthly expenses and see if you can cut back somewhere so you can stash cash in service to your updates. You could cook more meals at home, cut some subscriptions or pick up a second income to save money for a more significant home project. Or see if you have monthly subscriptions you are no longer using that could save you a little every month as you budget for your next project.

Benefits and considerations for using a HELOC

A home equity line of credit (HELOC) is a common tool to explore if you want to tackle a more extensive (and expensive) home improvement project. A HELOC is a line of credit that borrows against the equity in your home, which gives homeowners access to a line of secured debt that is usually larger than other financing options-distinguishing it from other loans, while offering unique benefits.

Whether you're putting the finishing touches on your home or making strategic investments for the future, a HELOC can help achieve your goal with the following advantages.

Pay with a HELOC card or check

Because HELOCs are revolving lines of credit (similar to credit cards), they allow you to draw and repay funds, and you can make purchases with a HELOC access card (unless you live in Texas, per state law) or check. You can use the access card or check like any other bank account card or checking account, and it can be an easy, efficient way to pay for needed items.

Long-term accessibility and payment

Because it's a line of credit, you don't need to spend your entire HELOC right away. And, that also means you aren't expected to pay back the entire amount right away. Instead, during your "draw period," which is the time set for spending your HELOC funds, you can carry and pay on a monthly balance like a credit card. Depending on your HELOC provider, your repayment term may be as long as 20 years. As you spend, keep tabs on your balance.

Financial flexibility

The home equity line can be accessed as many times as needed during the draw period, so long as the credit is available. And while the equity can be spent on expenses beyond your home - from medical or educational expenses to consolidating debt - it's important to remain disciplined with your spending. While the interest rates may be lower than a typical credit card, they are often variable rates, meaning they can change over time higher or lower. And, crucially important is understanding that HELOCs are secured by your home. Therefore, the wisest way to use a HELOC may be for home upgrades and investments that help retain or add value‡.

Ways to use a HELOC to transform your interior

You might decide to go room by room in your home and make a list of things you want to update. Inside your home, you might be able to work on:

• Painting rooms or adding wall décor
• Taking down walls to create an open floor plan
• Installing new flooring
• Finishing your basement
• Updating your bathroom fixtures
• Updating light fixtures throughout your home

Depending on your home and its finishings, these projects can cost from a couple hundred to several thousand dollars. A HELOC can help you tackle some of the projects on your list and add additional value to your home.

Creating curb appeal

You can accomplish several projects to help add value and curb appeal to your home.

• Landscaping
• Repainting or touching up your exterior
• Updating garage doors
• Adding energy-efficient panels
• Updating your backyard space by adding a new patio, re-staining the deck, installing lights, etc.
• Replacing or repairing your roof

These are just a few examples of projects you can tackle. And, with the financial help of a HELOC, you can avoid dipping into your savings account.

Is now the right time for a HELOC?

When considering whether now is the right time for a HELOC, it's important to assess the current market and rate environment. Interest rates can fluctuate, so if rates are currently low, it might be the right moment to secure a HELOC. However, rates can change, which could impact your future financial commitments.

Analyze your financial situation carefully, including your income stability, existing debt, and long-term financial goals. Balancing your immediate and long-term home improvement needs with your overall financial health is crucial.

Remember, a HELOC is a secured debt against your home, so make sure you can manage the payments in both favorable and less favorable economic conditions. Consulting with a financial advisor can provide additional insights tailored to your specific situation.

What are the downsides to a HELOC?

While a HELOC can be a valuable financial tool, it comes with potential downsides that you should carefully consider. One potential significant risk is a variable interest rate, which could result in higher payments if interest rates increase over time. Before you apply for a HELOC, shop around for competitive rates and review promotions that could include special offers like a fixed interest rate.

Additionally, because a HELOC is secured by your home as we've mentioned above, failing to make repayments could lead to foreclosure, putting your property at risk. It's also essential to be mindful of overborrowing; accessing large amounts of credit can be tempting, and it could lead to debt that might be difficult to manage.

Other considerations are fees associated with opening and maintaining a HELOC, including home appraisal fees, application fees, and any potential annual account fees, which can add up and negate some of the financial benefits. Understanding these potential drawbacks and planning accordingly can help you make a more informed decision regarding using a HELOC.

Next steps

Making changes in your home can be a great project help you fall in love with your space again. A UMB banker would be happy to discuss other savings strategies for you to consider as you prepare for your project. The UMB Financial Education Center is another valuable resource that can help you learn a few tips and tricks to make your next home project a reality.

UMB personal banking solutions offer convenience and simplicity to meet all your financial needs. From home loans to auto financing and everything in between, see how UMB personal banking can work with you to find the right products for your life and lifestyle.

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