Is Financing a Home Addition Right for You?

If you’re looking for a pragmatic home improvement project that could add value to your home, a bonus room may be just what the realtor ordered.

But don’t measure the drapes for your new room without doing your due diligence. First ask these questions to determine whether financing a home addition makes sense for you.

1. Is It Feasible?

First, determine whether it’s actually feasible to build an addition on your property. Start by identifying the place you’d be most likely to put it. Common options include the second-floor space above an attached or detached garage, a first-floor space outside the home’s existing footprint, a newly finished basement or a newly weatherized porch or sun-room area.

Next, assess the cost and legalities of building your desired addition. Does your home’s layout or construction constrain your options or render your proposed project unrealistically expensive? Do your plans violate local zoning codes, requiring a variance to proceed? If your proposed room is too much for your budget or too impractical for your property, it’s best to table the idea. There are plenty of other value-boosting home improvement projects to choose from.

2. Who’s Going to Use It?

The versatility of bonus rooms is a core component of their appeal. Still, you want to have a plan before you start knocking out walls. Some common uses include:

  • An entertainment room or theater
  • A spare bedroom for guests
  • A full-time bedroom for older or adult children who live at home or stay for extended visits
  • Living quarters for an aging parent or grandparent
  • A home office or computer room

This isn’t an exhaustive list, and there’s no “wrong” way to use a bonus room. But it might not be a cost-effective choice for your home if its best and most likely use is storage and the occasional catnap.

3. How Will It Impact Your Cash Flow?

Added rooms aren’t commonly included on lists of home improvement projects that reduce homeownership costs. But maybe they should be. Renting out your room could be a great way to monetize your spare space and subsidize your monthly mortgage payment. If you’re OK with welcoming guests into your home and willing to adhere to housing regulations and the standards that short-term rental platforms expect, using your bonus room as a cash flow engine is a no-brainer.

4. What Are Your Financing Options?

Finally, take a hard look at your financing options. If you have sufficient equity in your home, consider a home equity loan, home equity line of credit or cash-out refinance. If you’re purchasing a fixer-upper with big plans to make it your own, a Federal Housing Administration 203(k) renovation loan might be your best bet. If you have limited savings and equity in your home, you can look into personal loans or credit cards that give you cash back — though remember that your credit score and history will affect your qualification and interest rates.

A bonus room isn’t the only home improvement project worthy of your finite time and money. When resources allow, why not invest in an upgraded kitchen or reimagined master suite? The sky’s the limit. Just remember to ask the same questions before attempting any major home improvement project. Your wallet — and your personal sanity — will thank you.

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