By Brad Litz
Real Estate Broker, Appraiser & Investor
Lately, I have had a lot of people approach me saying that they have all these ideas for their home and they want to get started on projects, but they just don’t know where to start. Well, that is where I can help. I would say that the best place to start is to call a trusted person in the real estate industry who can either help you with the project or can give you a solid referral of someone that they have experience with. I often find that this leads to a casual meeting at your house and a discussion of ideas. This discussion typically turns into collaboration and your ideas can be expanded on or added to and all of a sudden you can start to envision your new space.
I find that after the initial meeting and discussion of ideas, people tend to get more excited as they can see that these ideas can become reality in a relatively short amount of time. They start to also think about how the livability of their home is going to increase and how the functionality of the new space will improve their lives. But, before you take the plunge, rein in that excitement and get down to the brass tacks…What this is going to cost and how am I going to finance it?
First of all, as I have mentioned before, make sure that you are not over-improving your home and that you are making a wise financial decision (call your realtor or appraiser). Once you have determined that you are ready to move forward, start down the path to financing.
One of the most popular ways to finance home improvements is to obtain a home equity loan, which is just borrowing against the equity you already have in your home. This is fairly simple as plenty of lenders offer these products, and it shouldn’t take much time to get completed. If you like your bank and they have competitive rates, go ahead and start there.
The next option would be to pay cash, plain and simple. If you have the cash, but want to save it for a rainy day, there is a way to recoup your outlay. The best way is to refinance your mortgage after you have completed your improvements. The lender will order a new appraisal, and you should make sure that you alert the appraiser to the work you have done and supply them with any pertinent information. If you have enough equity in your home, you can do a cash-out refinance and have your money back in your account quickly (thresholds for this type of refinance can vary between lenders). If the equity isn’t there to take cash out, then just do a rate and term refinance and take advantage of the current historically low interest rates. You may very well save money due to your increased equity, which is inversely a lower loan-to-value ratio (which lenders smile upon), and you can recover your money over time by what you are saving on your monthly payment.
So, feel comfortable talking to a professional about your ideas and get started. Even if it seems like a dream, talking about it will bring you that much closer to making it a reality.