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Spring Spruce-Up - Tips for Financing Your Remodeling Project
(ARA) - Has being cooped up inside all winter given you the itch to renovate,
renew or expand your home? Spring is the perfect time to start home improvement
projects and interest rates make home equity loans attractive, but don't commit
to anything until you've done a little "homework" first.
A home improvement project can add value to your house; however, some
improvements pay off more than others. Before you decide how much to spend and
what part of your house to spend it on, keep a few facts in mind.
According to RE/MAX, remodeling your kitchen can add up to 150 percent of the
cost of the project to your home's resale value. Adding a second bathroom
increases your resale value by 90 percent of the project cost, and a room
addition, such as a family room or an extra bedroom, provides a 60 to 80 percent
return. Other improvements, such as new windows and doors or replacing the
heating system, may be practical but they necessarily translate into resale
profits.
Of course, your decision won't be based solely on the payback. "Choose an
improvement project that makes sense for you and your family," says Maxine
Sweet, vice president of public education for Experian, a global information
solutions company. "In addition to resale value, you should take into
account your family's quality of living."
Once you decide on the scope of your project, get bids from several contractors
so you can compare prices and services. With these bids in hand, you'll have a
better idea of how much money you'll need. But be realistic -- don't let that
vision of your dream kitchen get in the way of common sense. Figure out how much
debt you can take on, and plan accordingly. If your budget doesn't allow for a
complete kitchen remodel, perhaps you can replace your cabinets or countertops
now and put off the new appliances until next year.
Home equity loans are a great tool for financing a home improvement project.
Because the loan is secured by your home, it will likely have a lower annual
percentage rate, and in many states, you may gain some tax breaks on interest.
With a home equity loan, the amount you can borrow is limited by the equity you
have accumulated in your home. You can calculate your equity by subtracting the
unpaid balance of your mortgage from the fair market value of your home. Other
factors may also influence the amount you can borrow, such as your credit
history, income and current financial responsibilities.
To make sure your credit history won't keep you from qualifying for a home
equity loan, visit a credit reporting company online such as www.experian.com to
quickly and easily access your credit report. Make sure all the information on
your credit report is accurate. "If you notice anything questionable, such
as accounts you don't recognize, or payment disputes, deal with those issues
before applying for a home equity loan," says Sweet.
Sweet offers these tips about shopping for a home equity loan:
* Make sure all costs, fees, terms and charges are disclosed, including any
penalties for early repayment.
* Find out the variances to your interest rate, if applicable, including the
"cap," or ceiling, and the amount of the margin.
* Look into all conditions that may apply to your credit line, such as a minimum
amount per withdrawal.
* Find out your repayment options.
* Remember, your house is being used as collateral, so be certain you are able
to make your payments on time, or you risk losing your home.
Once your loan is arranged, make a final decision on a contractor for your
project. Ask around among friends, neighbors and co-workers for recommendations.
If you don't know anyone who has used your contractor, be sure to ask them for
client references - and check them out.
A great tool for researching businesses that many people aren't aware of is
SmartBusinessReports, also available through Experian at www.experian.com. These
business credit reports provide consumers with background information,
comprehensive financial information and credit risk facts in an easy-to-read,
online format.
Other good resources to check before you sign a contract include the Chamber of
Commerce, the Better Business Bureau, the State Attorney General or your local
consumer projection agency. Your lender may be familiar with the contractors
you're considering, and you can ask building product distributors or wholesale
suppliers to see what other professionals have to say.
And remember, every home improvement project seems to take longer than
anticipated, so go into it with an open mind and flexible attitude. In the end,
as you're preparing dinner in your new kitchen, or enjoying family movie night
in your new family room, you'll know the wait was worth it.
Courtesy of ARA Content