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In the third quarter of 2023, U.S. mortgage holders collectively held $17.2 trillion in home equity, according to the November 2024 ICE Mortgage Monitor Report. That includes $11.2 million in “usable” equity, or what homeowners can borrow without falling below an 80% loan-to-value ratio.
For homeowners, that translates to an average of $319,000 in total equity and $207,000 in home equity. Rising home prices provided that big pot of cash accessible, and for some, using it to improve their space could increase home values even more, especially now that home equity loan and home equity line of credit (HELOC) rates. have fallen steadily since their post-pandemic peak and are expected to continue falling in the coming months.
Taking out a home loan oh HELOC financing improvements allows you to borrow at an affordable price, and both HELOC Interest i home loan interest can be tax deductible if the funds are used to improve a qualified primary residence or second residence. However, if you’re thinking about using some of your equity to improve your home, there are a few home improvement projects in particular that experts say could increase your home’s value.
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3 strategic housing projects that can increase the value of your home in 2025
The following home projects could pay off by increasing your home’s value in the new year:
1. Build a complementary housing unit
If you’re hoping your home can bring in extra cash, or if you want to make room for extended family and domestic help, add a complementary housing unit it could be the ideal upgrade for you.
Andrea Saturno-Sanajna, a broker at Coldwell Banker Warburg, says many localities are enacting legislation or creating programs to encourage the construction of ADUs to create more affordable housing. In some cases, these programs even include government funding to help cover costs. However, even without this bonus, Saturno-Sanajna believes this is a project worth thinking about if it’s allowed in your area.
“The ADU could be rented out for extra income or used for parents or older college students to be close to family while maintaining some autonomy, for au pairs, exchange students or caregivers, or even for short-term holiday accommodation and income generation when it allows,” says Saturno-Sanajna.
MyHome at Freddie Mac reports that ADUs increase your home’s value by up to 35%, but they must meet certain requirements, such as having a kitchen, bathroom and separate entrance. If you have the space and equity available to create this type of home, the payoff could be substantial.
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2. Increase your energy efficiency
With the growing threat of climate change and the rising cost of electricity, projects that improve your home’s energy efficiency should be high on your list in 2025, says Michael C. Weiner, agent by Coldwell Banker Warburg.
“Infrastructure changes that improve energy efficiency are not only helpful in increasing value, but they can start paying for themselves from day one,” says Weiner.
Their suggestions included upgrading the windows, adding insulation or installing a smart thermostat.
Weiner also recommends swapping out older appliances for newer, more energy-efficient ones that can give your home an updated look and lower your utility bills for a double whammy. With the Department of Energy reporting that a new Energy Star-certified refrigerator could save you more than $220 over its 12-year life, this upgrade alone is worth it.
3. Invest in well-being
The COVID-19 pandemic brought a renewed focus on maintaining good health, so incorporating wellness features into your home could be an upgrade worth considering in 2025.
Broker Sean Adu-Gymafi of Coldwell Banker Warburg advises installing upgrades such as whole-house water filtration systems and whole-home air purification systems.
“Water filtration systems will provide better water quality and are better for the environment as they can reduce the amount of bottled water used,” says Adu-Gymafi. “Similarly, installing air purification systems throughout the home can also add value. As more people prioritize their health and well-being, these features are becoming highly desirable.”
The bottom line
These improvements can help improve your financial situation immediately as you earn rental income, improve your health, and lower your monthly bills. They can also make your property more desirable to prospective buyers. Using equity to top them off could be a smart financial choice in the new year, especially if you’re looking for competitively priced loans and taking advantage of new, more affordable loan opportunities.