Banking

As More Homeowners Plan Renovations, Advisors Offer Wise Counsel

The past 19 months have led many homeowners to rethink how they live. That has led to a rush of home renovation projects.




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Because remodeling is a costly endeavor, advisors often enter the picture. Clients may check with their advisor before they make significant home improvement investments.

Some advisors propose the best ways to fund the project given the client’s cash flow and long-term financial plan. Others dig deeper, sharing advice and resources to facilitate the project and guide homeowners through the process.

“A lot of people saved money over the last year and a half that they’re now using for home improvement projects,” said Richard Osman, a certified financial planner in Severna Park, Md. “If they are planning on selling their house, we look at priorities, such as kitchen and bathroom remodels, that will add more value than other areas” of the home.

Others don’t intend to move. They’re renovating so that they can enjoy the enhancements for years to come.

Regardless of their motivation, homeowners might ask their advisor for guidance on how to pay for it. Osman walks them through a range of options such as a construction loan, a home equity line of credit or tapping cash reserves to cover the cost.

“A lot of times, they think a construction loan is quick and easy to get,” he said. “But these loans take time. It’s a process. You have to get approved,” so establishing a longer time frame from the outset helps with planning and setting expectations.

Match Homeowners With The Right Lender

Clients sometimes ask Osman about selling soaring stocks to pay for home remodeling. He discusses the pros and cons of each funding mechanism and uses it as a chance to educate homeowners about their options.

If retirees are weighing whether to refinance their home loan to pay for renovations, for example, they may wonder if lenders will consider their investment holdings rather than their current income. The answer varies by lender, so an advisor may suggest that a client apply for loans with a few different companies to qualify for the best loan terms.

In some cases, advisors identify a particular lender or loan product that’s ideally suited for their client.

Patrick Schaecher, an advisor in Indianapolis, recently worked with a client who sought $50,000 to add a home office. The homeowner was five years into a 30-year mortgage.

“At first, they looked into a home equity line of credit with variable rates that made them nervous,” Schaecher said. “So I connected them with a lender that got them into a 20-year, cash-out refinance at a good rate. So we shaved five years off their mortgage. Now they’ve selected their contractor and they’re on the good path.”

Advisors also encourage clients to think ahead when mapping out home renovations. Homeowners may want features today that wind up creating headaches in the future.

For instance, the desire to turn a musty attic into an entertainment room may offer immediate appeal. But as homeowners age, they may struggle to navigate the narrow staircase to access this space.

Advisors Share Smart Home Improvement Tips

Osman sometimes offers detailed advice to clients who seek to upgrade their home. He urges them to choose neutral colors to paint the walls and replace old furniture as part of any modernization project.

“I had a client in her 60s who had problems selling her house because she never updated her furniture,” he said. After the house lingered on the market, Osman suggested that she hire a firm to stage the home and give it a fresher look.

“She didn’t want to do that and spend the money and deal with the hassle of moving her stuff,” he said. “Eventually, she had to sell at a lower price.”

Advisors might also prod clients to get multiple bids from contractors, check references and confirm the people they hire are properly licensed and bonded.

The possibility of rate hikes in a client’s homeowner insurance also becomes a factor. Proactive advisors help clients explore how a potential renovation could affect their premium — and how certain investments such as a new roof using more resilient materials can ultimately reduce the likelihood of costly claims down the line.

In some cases, advisors work with clients to reassess ambitious home improvement plans, especially when helping family such as an adult child or elderly parent map out home renovations.

“We may caution them not to put too much money into a house if (family members) are going to move in the short term,” Schaecher said.

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