Homeowners across Colorado have seen massive increases to the value of their property over the past five years, and that boost could prove valuable in more ways than one.
The housing market across the Front Range has been red hot in recent months, which has translated into a boom in home prices. For owners, that’s meant a sharp rise in property value and, for many, a lot more equity.
While the cost of construction and home improvement has followed the upward trend of other goods and services in the wake of inflation, supply chain factors and other issues, homeowners can harness the power of their property and their equity to make those longed-for improvement projects more attainable over the summer months.
According to Jen Ammerman, construction loan officer for First National Bank of Omaha (FNBO), homeowners have plenty of options when it comes to financing a new kitchen remodel, spiffed-up bathroom design, new mudroom or added wing. Some of the best choices are a home equity line of credit (HELOC), or a home equity loan, both of which work on leveraging the value of a property.
“Either one of those basically accesses the equity in your current house,” Ammerman said. “The home equity line and the home equity loan use your existing appraised value to determine what the loan amount can be. That’s a little bit limiting, just because you’re using today’s appraised value for that.”
Even so, those options, which essentially function like a second mortgage, can be a valuable option for smaller projects – retiling a kitchen or putting new sinks in a bathroom, for example. The home equity credit and loan can be up to about 90 percent of the appraised value; lenders subtract the current home mortgage from that total, and the remainder is the total amount available for the loan.
While some of the loan and financing options were temporarily waylaid by the COVID-19 pandemic, the full menu of loan choices has largely opened back up for those homeowners looking to tap into the monetary potential of their property.
“Everything has pretty much come back,” she said. “Anything that was put on pause, has pretty much been reinstated.”
For those homeowners looking to venture into a bigger project on their home, taking out a construction or remodel loan could be a less constricting option. This loan functions on the future appraised value of a home.
“With that, we’re saying, ‘We need your budget plans and specs.’ You’re planning on doing a major overhaul of your house – maybe you’re adding square footage, adding rooms … I’ve even had it where people are scraping the majority of the house, maybe leaving one wall standing,” Ammerman said. “We can use that future appraised value. The appraiser is going to look at that plan and say, ‘When the house is done, this is what we think the value will be.’”
For example, if a proposed construction project would boost the value of a $500,000 home by $400,000, the lenders would look at that ultimate, final figure in calculating the loan.
As the past several years have shown, property values and mortgage rates are fluid. Historic low rates from the past months have recently started to rise. Forecasters have pointed to a relative cooling of the market; those giant leaps in home values may be starting to ebb.
Even so, Ammerman said there are measures to take for those looking to take out a loan and find some measure of stability in their future plans. For example, for those looking to take out a remodel loan, Ammerman’s institution offers an extended lock option for mortgage rates up to 12 months. This applies to the time of the origin of the loan to the completion of the work. In other words, since a homeowner’s first mortgage is essentially being paid off with the remodel loan, the new loan may reflect higher rates. But Ammerman said the extended lock is a way to create some predictability.
“It still won’t be the rate that you might have been in pre-COVID, it still may not be that low,” she said. “But we can use an extended lock option to protect your rate from the time that we close until the remodel will be complete.”
For more information on home improvement loans, visit your local First National Bank of Omaha or go online to: fnbo.com/mortgage
By Adam Goldstein, At Home Colorado