How Remodeling Your Home Can Help When You Refinance or Sell

Many people who are looking to sell their home or just refinance it, decide to do some remodeling to help attract either a buyer if they’re selling, or a higher value if they are refinancing. Whatever your purpose is for fixing up the place, make sure you don’t get carried away with it.

A Dollar Spent

When you’re thinking of putting in new cabinets in the kitchen or adding an additional room to your house, you have to keep your costs under control. Many people are under the false impression that every dollar spent will increase the value of their house by a dollar. Sadly, many homeowners have found that out the hard way that it just is not true. If your remodeling project includes adding a bedroom to the home, make sure you don’t spend more than it will increase the value of your property. If you have a three bedroom house and nearly every home on the block has four, you should check comparable properties to see how much an extra room increases the value of a house. Appraisers have very strict guidelines they have to adhere to if they want to keep their license. You may very well find that an extra room only adds $5,000 to the value of a house. If you’re not careful and end up spending $10,000, your appraiser cannot up the value of your house just because you spent the extra $5,000 beyond what is reasonable for a four bedroom house. It would be better to just stay a three bedroom house and keep the price tag that goes with it.

The same thing goes for things like remodeling the kitchen. You can easily spend 10-15 thousand on new cabinets but you are not likely going to get your overall home value increased that much just because you thought your kitchen needed updating. If it is a bit of an eyesore try refinishing your cabinets and countertops. You’ll probably get more bang for your buck that way.

Finishing Your Project

Before you start a remodeling project you should be sure you have the money to finish it. I cannot tell you how many times I received a call from a potential borrower who wanted to refinance their house and get cash out to finish the remodeling project. Sadly, it was my duty to inform them that I could not offer them a loan until the project was finished. I know of no bank or lender who will refinance a house that has an unfinished remodeling project in it. You cannot just lower the value to compensate for it. If you get it appraised the appraiser will not give you a value until the project is finished. You will end up paying him to inspect your house, then you will have to pay again for him to come out later and make sure your remodeling project is finished. Do not start remolding unless you are absolutely sure you can finish it.

Ask the Appraiser

Before you begin any project you should ask an appraiser how much a certain project will increase the value of your home. You don’t have to do this unless you are planning on selling your home or refinancing it. If you are just going to keep the home and don’t need to refinance, the money you spend remodeling is not so important. The first thing you have to do is find an appraiser who will give you an idea how much your house is worth. The easiest way to do this is to get your last appraisal out and get the name from the inspection report. That person will be familiar with your house and he will have a good idea what it is worth. Just be sure to tell him if you have made any improvements since he last inspected it. He should be able to get on the computer and in short order give you an estimate as to the value of your house and how much it will likely increase if you add a bedroom, for example.

Make your Decision

After getting an estimate on your remodel project, and after talking with your appraiser and getting his figures, you should be able to make a decision on whether it will be a good financial move to do the project at this time. It is vital that you take these steps and do not end up like so many of my prospective clients who have run out of money and are trying to refinance to pay for the project. Remember, just because you spent ten grand on an in-ground pool for example, that doesn’t mean it will add ten thousand to the value of your house. Be wise, do your due diligence and you will be glad you did.

Adam Vaught enjoys writing about home insurance, having worked in the industry for over 10 years. View homeowners insurance rates here homeownersinsurance.com

Tags: Appraiser, Home improvement, Home insurance, Loan, Refinancing, Renovation

Category: Housing