Home Improvements Without the Stress: Understanding Capital Improvement Credits

You've been in your Habitat developed home for a few years now, and you're thinking about a big improvement—like finishing that basement, adding a bedroom, or installing solar panels. 

These improvements can add significant value to your home, but did you know they might also qualify for special equity consideration if you sell your home? It’s part of the Habitat closing documents housing contract that homeowners sometimes overlook.

First, let’s talk about what projects are typically considered “capital improvements.”

What Are Capital Improvements?

Capital improvements are permanent changes to your property that add value to your home, prolong its useful life, or adapt it for new use. Unlike regular maintenance (such as replacing a roof or updating appliances), capital improvements usually add something new to your home that wasn't there before. This includes:

• Adding a new bedroom
• Finishing a basement
• Installing solar panels
• Adding central air conditioning
• Renovating a kitchen or bathroom in a way that increases value

Understanding the Benefit at Time of Sale

When you purchased your Habitat home, you signed several documents at closing. One of these outlined the Capital Improvement Credit (CIC) program.

• Here's what you should know: If you make qualifying capital improvements to your home and follow the proper approval process, an independent appraiser will determine the value these improvements add to your home at the time of sale. This assessed value may allow you to retain more equity from your improvements when you sell.

Variable Return

It's important to understand that the cost of your improvement does NOT equal the credit you'll receive. 

• For example, if you spend $15,000 on a basement renovation, but at the time of sale (perhaps years later) an appraiser determines it adds $10,000 to your home's value, the credit would be based on that $10,000 assessment, not your original investment.

How to Secure Your Capital Improvement Credit

To qualify for a Capital Improvement Credit when you sell your home:

1. Contact Twin Cities Habitat for Humanity before starting your project
2. Obtain written approval from Habitat for your planned improvement
3. Ensure your project is properly permitted by applicable government agencies
4. Have the work completed by competent person(s) or professionals
5. Follow up with Habitat upon completion 

Skipping these steps could mean missing out on potential equity when you sell your home.

Why Get Approval First?

Prior approval ensures that your project meets the criteria for a Capital Improvement Credit and doesn't significantly impact the future affordability of the property. Project eligibility might vary: some improvements (like adding an inground swimming pool) may not be approved because they don't align with Habitat's affordable homeownership mission. Other projects such as painting a bedroom or replacing an appliance are considered maintenance rather than a capital improvement. 

Let's Talk About Your Options

If you're considering a capital improvement project, give us a call before you begin. We'll walk you through the process and help you understand how it might impact your equity at the time of sale.

As a homeowner, you can make improvements without Habitat's approval, but getting approval before you begin ensures any value increase from eligible improvements will be free from equity sharing at the time you sell your home.

Even if you've already completed improvements without prior approval, we’d love to discuss your situation. In some cases, projects that were properly permitted and would have qualified may still be considered for credit eligibility.

Our goal is to help you make informed decisions about your home while protecting your investment. Contact our homeowner support team today to discuss your improvement plans!