How Homeowners Are Funding Home Renovations

Secured financing is the key to how many homeowners are paying for home upgrades, according to a new survey from home remodeling website Houzz and Bank of America. Owners who used secured financing were able to fund much larger home improvement projects, too, at nearly three times the median spending of those who paid for renovations with cash only ($32,000 versus $13,000), the study showed.

Homeowners funding renovations

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More homeowners are turning to the equity they’ve accumulated in their homes. Those with mortgages have seen their home equity more than double since 2011. HELOCs—home equity line of credit—are the most common form of secured financing. HELOC originations totaled $157 billion in 2017, which is more than 60 percent of consumer real estate–secured financing, according to the study. Consumers surveyed said the top motivations for using a HELOC were ease of use (39 percent), low cost (38 percent), quick access to funds (30 percent), and tax deductions (29 percent).

“Recent record gains in home equity give homeowners greater confidence to invest in their home, spurring growth in the more than $300 billion home improvement market,” says Nino Sitchinava, Houzz’s principal economist. “Our study confirms that a meaningful share of homeowners are tapping into it to fund large-scale renovations, such as kitchen and bathroom remodels. Secured loan originations will likely continue to grow in the near term as homeowners increasingly find it advantageous to stay put and renovate rather than trade up to a nicer home in an environment of tight housing inventories and higher interest rates, among other factors.”

Generation Xers are the most likely to finance renovations with a secured loan compared with any other generation. They represent 40 percent of renovating homeowners. Gen Xers also spend the most on renovations, reaching a median of $38,000 in 2017. Millennials and baby boomers each spent a median of $30,000 in 2017 on their home renovations.

“Homeowners, and Gen Xers in particular, are comfortable using their home’s equity to make renovations that can have a significant impact on their lives, increasing their home’s value and improving their comfort,” says David Doyle, senior vice president at Bank of America. “Using responsible financing options … homeowners are updating aging housing stock and improving their home lifestyle while still balancing other financial obligations.”

The study also found that most borrowers intend to pay off their secured loans within five years. However, one-third of surveyed consumers said they preferred six years or longer for their payment plans.

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