3 Important Considerations for Renovating
From HGTV to Pinterest and Instagram, home transformations have been increasing in popularity among existing homeowners and first-time homebuyers. With so much inspiration out there, it’s hard not to be tempted with taking on the challenge. And let’s face it, it’s simply exciting to see an older home get renovated to match Chip and Johanna Gaines' exquisite tastes. Whether it’s a farmhouse or a mid-century modern home, renovations may be needed for a number of reasons. Here’s what you need to know before you dive-in sledge hammer first.
Reasons for renovating
As mentioned, there are a variety of reasons people choose to renovate their homes. For some, it’s about cosmetic upgrades so they can make their home fit their style and taste. For others, it’s about major improvements that would help with the functionality of the home; maybe knocking down walls to create a more open space, or to help someone with disabilities access all points of the house easier.
If you plan to renovate, keep in mind of how it will affect your home’s value.
A big draw of renovating your home is the impact on home value. Some renovations can improve the home’s value, while others can actually decrease the value. For example, breaking down walls could be a good thing, but if you’re breaking down walls and decreasing the number of bedrooms as a result, that could do more damage than good when it comes to resale. Ask yourself the right questions before starting a fixer-upper project on your current home. Here are a few questions to get you started:
Am I looking for a fixer-upper project?
Am I looking in neighborhoods that won’t keep the home value low?
Or is it my current home that needs updates?
Will my current neighborhood prevent my home from increasing in value?
Does the math add up? Will I be able to at least break even?
Will the renovations themselves actually increase the home’s value?
Are the upgrades I plan on doing ones that give me more bang for the buck?
Do I have the time to wait before moving in?
Do I have a contractor in mind?
How do I plan on financing the project?
It’s also good to talk to your mortgage banker since they know your entire financial picture. That way, they can help guide you in the right direction in terms of upgrading or not upgrading, and what financing options are available.
Financing a renovation
So how do you get started with a renovation? There are a few choices out there, including paying out-of-pocket, but it’s usually more feasible to get financing specifically for renovations. And, you’re not just limited to a renovation for when purchasing a new home. If you’re eligible, you can get financing for a renovation when you refinance on your home too.
Not all loans are created equal though. Kind of similar to the Energy Efficient Mortgage, a Renovation loan is an add-on to an existing loan, such as FHA, and gets financed into that mortgage. Which means it depends on the kind of loan you qualify for first, before deciding you can do a renovation. That’s why it’s important to talk to a mortgage banker before looking at homes. It’s never fun to fall in love with a home that you then have to walk away from. But by knowing what you qualify for first, you can start looking for a home that inspires your creative side.
Standard Repairs
Renovations can be big or small, but with Standard Repairs, your renovation and repairs costs would have to require $5,000 in costs, at least. With this option, you’re allowed to make complex repairs and renovations, so if you’re looking to do more than just a little facelift, then this may be the solution. There’s also no repair limit unlike with the Limited Repairs option mentioned below. So here’s a few things you could take care of:
Adding or replacing roofing
Replacing plumbing
Major remodeling
Room additions/new construction
Landscaping and site improvements
Modernization
Energy conservation improvements
Pool repair
This isn’t the full list, so if you’ve got plans past these, talk with your mortgage banker to make sure your plans are eligible under the Standard Repairs program option. Limited Repairs
With Limited Repairs, you can finance home improvements between $5,000 and $35,000 in cost. As the name suggests, you’re a bit limited in regards to what all you can do compared to Standard Repairs, but still required to at least have repair costs of $5,000.
Repair or replacement of existing roof
Repair or upgrade plumbing
Minor remodeling
Painting interior or exterior
Weatherization
Purchase and installation of appliances
Repair or addition or decks and patios
Window and door replacements
Making renovations that pay off
Even if the home you’re buying needs a facelift, there are certain projects you should consider first, as they could help increase the home’s value and improve the functionality of the home. The four biggest improvements you could do is building an addition to the home, especially if it helps increase the number of rooms and still has a good flow from the rest of the house, kitchen remodeling, bathroom remodeling, and then more maintenance related upgrades like plumbing, electric, and energy conservation improvements that make the home more “green.” Now, if you see yourself selling the home at some point in the future, there are certain improvements that could help with the marketability of the home.