Massachusetts HELOC guide: Fund historic home renovations

As a state rich in history, it's no surprise that Massachusetts is brimming with historical homes. More than 30% of houses in the commonwealth were built before 1940, making it the state with the highest percentage of older homes.

If you're living in a historic home, you may want to update it to make it more comfortable and modern while also maintaining its historic charm. That's where a home equity line of credit, or HELOC, comes in. Explore what you can do with a HELOC and why it may be the best option for funding your historic home renovation project.

How does a HELOC work for historic home projects?

A HELOC works similarly to a credit card while utilizing your home equity. As you've worked to pay off your mortgage or the value of your home has increased, you've established more equity in your home. Home equity is the difference between the market value of your home and what you owe in any mortgage. The more equity you've built up, the more you have to borrow against if you want to update or renovate your house.

With a HELOC, you have a limit to how much you can borrow — but as you repay the line of credit, you can borrow more as long as you're still in the draw period. That allows you to start and stop projects as needed, based on your schedule and overall goals.

Massachusetts HELOC vs. conventional home renovation loan

A HELOC isn't your only option for funding a home renovation. However, provided you have sufficient equity in your home, it may be a better option compared to a conventional home renovation loan.

Here's what a HELOC can offer that a conventional renovation loan typically can't:

• Revolving line of credit: Unlike conventional renovation loans, which typically provide funds as a one time lump sum, a HELOC gives you access to a revolving line of credit, allowing you to borrow and repay funds as needed during the draw period.
• Flexibility: You get more flexibility with a HELOC compared to borrowing a lump sum. Your project may come in under budget, meaning you don't need to draw down as much as you expected. Or, your project may cost more or take longer than planned. If so, you can make adjustments or repay a portion of the loan to borrow more with a HELOC.
• Potentially deductible interest: If you use funds from a HELOC to buy, build, or substantially improve your home, the interest you pay may be deductible when you file your tax return, which could help lower your tax bill. Interest paid on a conventional renovation loan may also be deductible, as long as certain IRS requirements are met.

You should always consult a qualified tax advisor for information regarding the deductibility of interest and other charges based on your specific situation.

Types of historic home renovations perfect for HELOCs

Looking for home renovation inspiration? The following projects are all ideal for funding with a HELOC.

Kitchen and bathroom modernization

Your old kitchen or bathroom may be big on charm, but perhaps it falls short when it comes to convenience or practicality. Renovating either (or both) can make your home more comfortable while also increasing your home's value. Examples of kitchen and bath renovation projects and midrange costs include:

• Update kitchen cabinets and counters, and install a new sink and appliances: $28,000
• Overhaul kitchen: $82,000
• Update bathroom for accessibility: $42,000
• Add new bathroom: $60,000

Historic preservation projects

Older homes need TLC as much as, if not more than, newer construction. Historic features such as roofs, windows and exterior wood finishings need ongoing maintenance to look good and perform at their best. A HELOC can be an easy way to fund an extensive maintenance project, replace windows or give your home a new coat of paint.

Energy efficiency upgrades

Many older homes were built long before central heating, insulation and other modern comforts existed. Luckily, Massachusetts offers numerous energy incentives and rebates to encourage homeowners to upgrade their houses. Whether you want to switch to a more efficient heating system, invest in solar power or weatherize your home against the heat and cold, a HELOC — coupled with the state's rebates — can help you fund the project.

How to qualify for a Massachusetts HELOC

The process of qualifying for a HELOC in Massachusetts is similar to the process of obtaining a first mortgage on your home. A lender will look at the following when considering your application:

• Your credit score: You'll need at least a good credit score, usually over 680, to qualify for a HELOC.
• Your home equity: How much equity you've built up influences how much you can borrow and if you qualify for a HELOC at all. Typically, you'll need to have equity that's at least 20% of the home's value to qualify.
• Your income: A lender will verify your income and confirm that the debt-to-income ratio isn't more than 65%. A ratio well below 65% is usually ideal.

Potential challenges and smart solutions

Like any loan, HELOCs come with some potential hurdles and challenges. A variable interest rate can be both good and bad news. When rates drop, you benefit. However, when rates go up, so does the amount you need to repay.

You may also be at the mercy of the market when it comes to your home equity. If the housing market drops, the value of your home may fall, meaning you don't have as much borrowing power.

Fortunately, you do have ways to overcome these challenges. Regarding interest rates, make a budget using the highest possible rate. That way you'll have a little cushion if rates are lower. Similarly, plan a project that doesn't require all of your home's equity, so you have some flexibility in the amount you're approved for compared to what you actually need to borrow.

Make your Massachusetts historic home dreams a reality

Whether your historic home in Massachusetts needs a few little updates or a major overhaul, a HELOC can make it possible. Get started on a HELOC application with Citizens today.

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