Unlocking Your Home's Potential: How to Use Home Equity for Upgrades

The kitchen you've been dreaming of...

The bathroom that needs a fresh look...

Or the outdoor space you keep saying you'll tackle someday...

What if you already have what you need to finally make those dreams a reality? A growing number of homeowners are discovering just that.

Homeowners are projected to spend over $522 billion on home improvements by the end of 2026. Many are not draining their savings accounts to fund these projects. Instead, they are tapping into their home equity.

If you've owned your home for over 10 years, you might also be able to use your equity for some upgrades. Let's break down what you need to know.

What Is Equity? And How Does It Help?

Equity is the difference between your home's value and what you owe on your mortgage.

According to Cotality, the average homeowner has about $313,000 in equity today. That's more than enough to finally check some projects off your list. More people are realizing they can use that equity to give their homes a little TLC.

Research from Meridian Link shows that home improvements are the top reason people are borrowing against their equity today.

Top Motivations for Equity-Based Borrowing

• Funding home improvements (45%)

• Paying down other debts / debt consolidation (16%)

• Investing in other properties (16%)

  
  

Maybe it makes sense for you to do the same. But here's the key: just because you can use your equity doesn't mean you have to. Not every project is worth the investment.

What Projects Are Actually Worth It?

If you decide to go this route, focus on upgrades that genuinely pay off. A good renovation should enhance your home's value. Even if you’re not planning to sell soon, you want to set yourself up for success when you do.

An agent is your best resource as you weigh your options. They know what other homeowners are doing and what buyers in your area prefer. This insight can be invaluable as you narrow down your project list. As the National Association of Realtors (NAR) puts it:

“Being able to help sellers prioritize home improvements and maximize their net on the sale is a key value real estate agents offer.”

Here’s a quick rundown of the projects with the best potential to recoup your costs according to NAR. While this list is a good starting point, remember that it can't match the expertise an agent can provide.

As you can see, there’s a wide range of projects on that list. Some are larger investments, like kitchens or bathrooms. Others are smaller updates with surprisingly strong ROI.

A new front door is a great project. However, it’s not something to use your equity for. Revamping your kitchen? That’s where your equity can come in handy.

Where To Go from Here

Whether the project you’ve been considering is on this list or not, it’s wise to chat with an agent. Make sure it’s worth the time, money, and effort before calling in any contractors.

The goal isn’t to do everything; it’s to invest where it counts.

If you plan to use your equity for a larger project, meet with a financial advisor too. You’ll want to maintain a good loan-to-value (LTV) ratio even after using your equity. This way, you have all the information needed to make an informed decision.

The Benefits of Using Home Equity

Using your home equity can be a smart financial move. It allows you to enhance your living space while potentially increasing your home’s value.

When you invest in your home, you’re not just making it more enjoyable to live in; you’re also setting yourself up for a better return when it’s time to sell.

Common Misconceptions About Home Equity

Many people think that using home equity is risky. While it does involve some level of risk, it can be managed effectively. Understanding your financial situation and working with professionals can help mitigate those risks.

Conclusion

Whether you’re planning to sell next year or just want to give your house some TLC, the right home improvements today can set you up for success tomorrow. And the best part? Your equity may be the key to making it happen.

What’s one upgrade you’ve been thinking about – and wondering if it’s worth it?

Let’s have a quick conversation about whether it’s the right decision for your home.