How to finance a detached structure and protect your home’s value

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Detached structures can be a great way to add some extra storage space to your property, better protect your vehicles and belongings or just give your family room to spread out and grow. If done carefully, a detached structure could also make your home more marketable when it comes time to sell.

Want to make sure your detached structure adds to your property instead of taking away from it? Here’s how to finance your addition so that it’s done right.

Should you borrow to finance a detached structure?

Borrowing money to finance a detached structure could be a good idea if you have a plan in place to pay off your debt. Many personal loans come with repayment terms of one to 10 years, while HELOCs could have repayment periods of up to 20 years. With both options, you’ll be responsible for making consistent monthly payments or else risking the health of your credit score.

If you’re interested in borrowing a loan or line of credit, it’s wise to shop around with a few lenders; doing so will allow you to compare rates and find the cheapest way to finance your detached structure. Keep in mind that with any of these options, you’ll be paying back interest on top of your loan amount.

Financing your additions

You can, of course, pay for your detached structure in cash, but considering they can cost upward of $80,000, that might not be an option most homeowners can swing. Fortunately, if cash isn’t feasible, there are plenty of ways to finance your addition in a budget-friendly way that works for your household.

Here are just a few ways you can finance your detached structure.

HELOCs

Home equity lines of credit — or HELOCs — can be a good way to finance a detached structure or any home improvement. HELOCs give you a line of credit to pull from (essentially like a credit card) based on the amount of equity you have in the home. You usually have 10 years to borrow from your line, and you’ll repay what you borrowed (plus interest) over the following 20 years or so.

There’s good news, too: Because HELOC rates fall when the Federal Reserve cuts its funds rate, you can get a good deal on one right now. Rates are extremely low, although it could be harder to get approved.

Personal loans

A personal loan can also be a solid option if you’re looking to add a detached structure to your property. The good thing about these loans (when compared to a HELOC, for example) is that they don’t require collateral. The drawback, though, is that they typically have higher interest rates than home equity products. They also come with shorter terms than HELOCs, so you’ll likely need to repay the money back quicker than with other options.

The amount you can borrow for a personal loan (and the interest rate you’ll get on it) will depend largely on your credit score, income and other debts. So if your credit is less than stellar, you might consider financing your project another way.

Home renovation loans

If you don’t want to take out a personal loan for home improvements, renovation loans, like the Federal Housing Administration’s 203(k) loan, can be good choices when looking to improve your home. Because they’re backed by the FHA, they come with very low interest rates and aren’t too hard to qualify for.

The FHA also allows for 203(k) refinancing, which would allow you to refinance your existing mortgage into a 203(k) loan. This would give you the funds you need to pay for your improvements while also keeping you to a single monthly payment. In total, 203(k) loans let you finance up to $30,000 in home improvement costs.

Credit card rewards

As an alternative to a loan, the right mix of credit cards can help you reduce the total costs of your project, while also letting you spread the expenses out over time. To start, find out what rewards your existing credit cards offer. Do any of them offer discounts at home improvement stores or other similar retailers? If not, you might consider a credit card from Home Depot, Lowe’s or another hardware store that offers rewards and discounts.

If you have a cash back rewards card, you can also consider using this to fund your project. Just make sure you use the cash rewards toward your monthly card payments and set up autopay to ensure that you don’t fall behind on the rest.

Detached structure cost expectations

The exact costs and expenses you’ll need to cover will depend on the specific detached structure you’re looking to build. While some structures cost as little as a few thousand dollars, others can run as high as $86,000 if you get all the bells and whistles.

Overall, the cost of each detached structure will depend on the following factors:

Your use of professional contractors.
The site preparation required (will you need a concrete foundation poured?).
Any windows or doors required.
The electrical and plumbing requirements.
Roofing, framing and siding materials (metal costs more than wood).
Any permits required.
The foundation you’re using.
Any paint, stain or decorative elements.

Here’s a little more about what you can expect with each type of detached structure.

Carports

If you don’t have a garage or just need extra space to store a vehicle, a carport can be an easy and affordable choice. They can also be helpful if you need a rain-protected loading zone for kids, disabled family members or elderly residents.

The biggest downside to a carport is that it might require permits from your city. These can be tedious and sometimes costly. You will also need to check with your homeowners association and read your deed restrictions to ensure that carports are allowed in your specific community.

Cost-wise, HomeAdvisor estimates a carport costs anywhere from $3,200 to nearly $10,000, depending on the features you choose. Fixr, another home improvement site, says the cost can go as low as $800 for a basic carport.

Boat shelters fall into the carport category when it comes to detached structures, though they will typically cost more due to their larger size and higher height.

Detached garages

Detached garages can serve many purposes. Use them traditionally as a place to store your car or use them for storage, as a workshop or a combination of all of these. They’re versatile spaces that increase your home value and increase your square footage.

Unfortunately, a detached garage is going to be the most expensive structure you can add to your property, with Fixr estimating a cost anywhere from $30,000 to $60,000 on average. HomeAdvisor says the project can go as low as $6,000 if you really go bare-bones with your project.

Storage sheds and barns

Sheds and barns are also popular detached structures that can be used for both storage or personal space. A recent trend lately is the “she-shed” or “man-cave” addition, which offers residents a private at-home retreat without too much financial investment. You can also turn a shed into a fun playhouse for the kids.

The best thing about sheds is that they’re typically quite affordable. Though HomeAdvisor estimates a range of $1,700 to $4,600 for shed, barn or playhouse additions, Fixr reports the national average at just over $5,600, making them the most affordable detached structures on the list.

The bottom line

Detached structures can be a great way to expand your property and its opportunities, but if you want to protect your home’s value, they must be done right. Use careful financing to ensure that your project adds to your property’s marketability, and be sure to insure your new addition once the structure is finished. This will safeguard both your property and your financial investment.

Learn more:
How to pay for home improvements
Smart ways to use your home equity for remodeling
Best home improvement loans

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