By John Aretos, CEO of Police Mortgage
If you have a substantial equity position in your home, and you’ve paid down your mortgage over a 10 to 15-year period of time and you have quite a bit of equity, it’s not a bad idea to draw on some of that equity to utilize it to fix up your home. Keeping your home up to snuff, as well as keeping it up with the times, can be not only a good idea but also a very important investment.
Somebody who has a 3% mortgage and has almost paid off the house can sure as heck invest in a home equity loan or line of credit. This is particularly true if that owner may be getting the property ready to sell at some point.
However, it’s best to be careful when you borrow money against your home. First of all, home equity lenders don’t generally like to go above 80% of the home’s value. That includes the existing mortgage plus the new home equity line of credit. There’s a little bit of a limitation there, which is a positive because it also limits any damage that can happen if you had to sell your house right away.
Once you take out a home equity loan, now you have much less equity in it because you’re utilizing it to improve the home. So, you need to use that money wisely to increase the value of your property.
When improvements are made the increase in value depends on what was done to the property. If you’re doing landscaping or you replace your driveway that’s not going to improve the value much.
Updating kitchens and baths are what makes a difference. Adding square footage also increases value. Those are the areas that will get you a bigger bang for your buck quicker.
If I redo my bathrooms, I’m expecting right off the bat that I will be getting half of that back in the increased price of the house. If I own a house that’s worth $100,000 and I put $50,000 into a bathroom I would expect that the house is now worth $125,000.
That’s a gutting and complete fix of a bathroom, which will probably be around $50,000 for a significant improvement. That’s how crazy the cost of some of these renovations are. When you speak with a trusted loan professional at a patrolman credit union or another trustworthy financial institution, they will provide you with that type of insight when you inquire about a home equity loan.
A significant number of minor improvements can add up to a significant increase in value, although probably not as much as a kitchen or bath. So, let’s say you’re taking that same $50,000 on a home equity line of credit. Instead of spending 50k on a bathroom, you spend 25k for a complete landscape improvement – front yard, cobblestone, sprinkler system, all the goodies. You get the outside of your house looking really good. I don’t think that $50,000 is going to show up the same way in increased value, but where that will help is in the curb appeal when you sell your house.
That is very important but that improved curb appeal isn’t going to be the same dollar for dollar trade-off on what you’ve invested. It is possible but not likely. This is especially true if the bathroom desperately needed to be redone but you chose to redo the landscaping instead.
You need to be prudent when you spend your money from a home equity loan in order to get the biggest bang for your buck. The rule of thumb is, again, improved kitchens and baths and additions to the house where square footage is added.
If you’re adding another room to the house your comparable sales are now going to be based on homes that are bigger than the former size of your house. Keep in mind that finished basements, while desirable, generally cannot be added to the square footage of a property.
However, if you add a second story to your home now the comps that you’re looking at won’t be single-family ranch homes. You’re going to compare your property to other two-story homes. That, of course, is going to immediately increase the value of your house.
If the improvement is cosmetic, it’s not going to be nearly as much of a bang for your buck. Every market has its own suckers. When I say suckers I mean customers that believe exactly what a realtor tells them. “Oh, I just did a comparative market analysis on your house and, man, you can get top dollar on your house.” You think to yourself as a professional at Police Mortgage, “OK, somebody pumped that into somebody’s head.”
Some owners think that just because they did some cosmetic stuff to the house, which may make it look nicer, that they have increased the value of the home significantly. They fail to remember the fact that the house is still small. It doesn’t have two full bedrooms. It doesn’t have a contemporary kitchen. There’s no garbage disposal. Things like that add to the base layer of what is thought of as a nice house by most buyers.
When clients come to me and relay that their realtors told them their homes are worth “X” the first thing I’m going to do is pull out the comps. I want to see what other homes have sold for in the area. Show me the prices of the homes and show me how they compare to the home my client wants to sell.
So, when you’re looking at a home equity loan to invest back into your home think kitchens, bathrooms, and adding square footage. That may very well be a wise way to use equity and increase the value of your home through renovations and upgrades.
Police Mortgage specializes in conventional mortgages, purchase money transactions, FHA loans, and VA loans. Led by founder and CEO John Aretos, Police Mortgage is known and respected for providing clients with exceptional service, customized terms, quick and easy closings, and low money down options. To learn more about Police Mortgage, go to www.policemortgage.com or call 312-499-8878.
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I have my bachelor’s in business administration and have been involved in the banking industry for over 10 years. During this time, I managed two of the Chicago Patrolmen’s Federal Credit Union locations prior to transitioning to Police Mortgage. I have family members who are police officers with the Chicago Police Department. My work has been very rewarding, and I take pride in having assisted countless members and their families with their financial needs and financial wellness. My hobbies include exploring new restaurants in the city and running for marathons that support pediatric cancer foundations and Chicago Police Memorial Foundation’s Run To Remember. I come from a large family primarily from the south side of Chicago and love to share all the diversity and beauty the city has to offer with my two children.
I am honored to grow up in a multi-generational family of Chicago Police Officers. I joined Police Mortgage in the summer of 2020 and love the opportunity to help both first-time buyers and repeat clients alike achieve their dreams of purchasing a home. Having been born and raised in the south suburbs of Chicago, I happily live in the Lakeview neighborhood today. Along with my two younger sisters, I am a graduate of the University of Illinois at Urbana-Champaign and a lifelong Chicago Bears fan. I have a strong passion for food and love exploring the vast array of restaurants throughout our city. Nothing makes me happier than spending a summer afternoon on a golf course with family and friends!
I joined my brother at Police Mortgage as a loan officer in August of 2021 after a 10-year career in sales and marketing. Most recently, I worked as a Senior Account Executive for Ricoh North America, an office electronics company, where my main responsibilities were building new client relationships and maintaining over 400 existing customer accounts. I believe my work experience has transferred over to the mortgage industry well, because I am able to multi-task effectively while working with multiple customers. The skillset I learned in my previous employment allows me to stay organized and to manage my time well for my customers. My number one goal is always to make the loan process as quick and painless as possible for our borrowers. I am excited to further develop the Police Mortgage brand with my brother. It is a unique situation, and I believe working in an office together allows us to help our borrowers even more due to streamlined communication and our ability to help each other with our respective files. I like to spend my free time relaxing, watching sports, exercising, going out to eat with my wife, and trying to keep up with our three daughters – all under five years old!
After graduating from the University of Missouri in 2015, I moved to Chicago where I began a career in marketing at a firm called Ansira. I sought a career change and contacted Police Mortgage, where I was first introduced to the mortgage industry. I have spent the last 5 years training with our CEO, John Aretos, who has taught me all of the intricacies of the mortgage process. I love finding solutions for our clients to help them purchase the home of their dreams. I feel a huge sense of accomplishment when helping homebuyers, especially first-time homebuyers, all the way through the loan process, from pre-approval to closing day. I recently moved back to my hometown of St. Louis, where we opened a new office. I am excited to help start this new chapter for Police Mortgage. My wife, Megan, and I are happy to be back in our hometown. We are always checking out new outdoor events such as music or food festivals – anywhere we can take our dog, Remy!
As the CEO of an organization associated with serving the Police and their loved ones, I am privileged to play a role in helping our clients achieve their life’s financial goals. Our mission is to make the home buying or refinancing process as comfortable as possible, providing our clients with competitive products and excellent service.
I was born and raised in the Chicago metropolitan area, and I have a deep-rooted love and appreciation for the diverse culture which makes our city so special. My two older siblings and I grew up working in our parent’s restaurant, which instilled a work ethic and sense of family that I carry with me to this day.
I am a graduate of Indiana University and have been involved in the mortgage industry for nearly 25 years, helping thousands of clients save money or finance the home of their dreams. My passions are passing down my love of food, music, art, snow skiing, and red wine to my three children, who motivate me to be a better person each and every day!
