Posted by: jeb1 | March 12, 2010

Can You Afford To Remodel?

Here are some questions we recommend you consider, in order to answer the affordability question.

First, consider the monthly payment amount that you want to target.

  1. Do you have a reliable estimate of the cost? Many homeowners fail to obtain a realistic estimate of the TOTAL cost of their project until well after it is completed. Then, they must borrow much more than originally planned or use other funds. JEB Design/Build has many years of experience and can accurately estimate various remodeling project costs.
  2. Do you have a desired monthly payment amount for the remodeling project? If you have an accurate remodeling cost estimate which includes ALL cost items, then your banker can predict what your final monthly payment will be.

Here are some examples of remodeling projects and monthly payment estimates:

Kitchen remodeling $400-$600/month

Master Bathroom $250-$450/month

Small bathroom $120-$180/month

These figures are just estimates, depending on credit scores, financing fees and products selected. We do expect that material costs will rise slightly this coming year.

  1. Do you have future maintenance issues that will have to be addressed? This could influence your monthly budget. Would you be spending money now on the remodeling project, but saving money later? Remember that a house is an appreciating asset, but it must be maintained regularly. JEB Design/Build can offer options for repairing your house and making it low maintenance.
  2. According to Remodeling Magazines’ “Cost to Value” survey, most remodeling projects recoup about 54%-86% of their cost in the first year. So, the longer you stay in your house, the more valuable the remodeling investment you make will become. In our experience, most homeowners recoup their remodeling investment in 5-7 years. So, how long do you plan to stay in your house?
  3. Will you receive tax credits from items in the remodeling, ex. new windows and doors? There are federal and state energy tax credits available for many products. And saving money on energy cost will help your future monthly budget. JEB Design/Build can refer you to tax credit information.

Next, the banker you choose and the type of financing will also determine the affordability.

  1. Remodeling affordability depends on the banker you talk to. We have seen credit worthy individuals turned down by one bank and granted a generous loan by another bank. When it comes to remodeling loans, there is a HUGE difference in banking expertise. We recommend finding a banker who specializes in remodeling loans. JEB Design/Build will be happy to recommend bankers.
  2. Have you considered refinancing your house and including the remodeling expense in that mortgage amount? Some homeowners can lower the cost of their monthly payments due to the lower interest rates available today.
  3. Do you know the difference between your mortgage amount and your homes’ value?  If you know what your house would sell for today and your mortgage amount, then you may be able to borrow the difference. Generally, banks will loan up to 85% of a homes’ value less the current mortgage. This type of loan is sometimes referred to as a “Cash Out Refinancing Loan”. Another type of loan is a “Home Equity Line of Credit”. JEB Design/Build can refer you to expert bankers.
  4. Are the property values in your neighborhood stable or rising? In Northwest Louisiana, the average house sale price increased by 5% in 2009, according to Coldwell Banker. In some neighborhoods the values increased even more. If you apply for a loan, this is important for the appraisal. JEB Design/Build can help you look at property values in your neighborhood.
  5. There is another type of loan, “FHA 203 loan” which can allow homeowners to access more of the equity in their house.
  6. Do you have family members who can extend a loan to you?
  7. Do you have funds available that are not invested for your retirement?

Next, consider your family situation as to affordability.

  1. Do you have elderly parents who may need to move in to your house? If so, then remodeling for that time can save money and emotional pain. If the alternative is long-term care, that can be very expensive. Also, remodeling projects that provide space for elderly parents, teenagers and other living situations add much value to your house.
  2. Could you remodel your house now and stay in it longer? The cost of selling and moving can easily reach 6% or more of your houses’ value. It may make more sense to simply remodel your house in order to update it. This will enable you to stay in your house longer and also improve the value of your house.

At JEB Design/Build, we will discuss these points with you, in order for you to make an informed decision. Call us for a free consultation at 318-865-4914.

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