This BLOG On Home Improvement Projects That Add Value To Homeowners Was UPDATED On June 7th, 2019
Home improvement can be a good investment and add value to home. However, over improving a home for the are is never a good investment.
- Right hand rule is homeowners never want to own the biggest home in the block unless they intend in living there for the rest of their life
- Many new home buyers want to update their home after they close on their home purchase
- Common and popular home improvement projects include projects such as
- new fixtures
- new appliances
- basement remodeling
- attic remodeling
- Others go to major renovations that is high end may or may not be good investments are home improvement projects such as the following:
- adding a new room addition
- swimming pools
- outdoor kitchens
- extensive major landscape such as;
- adding a pond
- basketball courts
- tennis courts
- other unique improvements
Good Home Improvement Projects Versus Bad Investments
One of the biggest mistakes homeowners make is that they assume if they invest in their home via home improvement projects that it will add value. Key is they should recoup their home improvement costs when they sell their home.
- This is partially true if they do the right home improvement project
- Certain home improvement project such as remodeling the following:
- unfinished attic or basement is an excellent investment
- homeowners will definitely get their investment back plus a handsome return on their investment without having to spend a ton of money
An unfinished basement with a high ceiling can be finished and turned into a nice recreation room with a guest bedroom, office, wet bar, kitchen, and storage space.
- Basement remodeling does not cost too much money if the homeowner contracts with a reasonable general contractor
- A finished basement is a great investment
- It utilizes an unused space into a livable space
- A remodeled basement can add $25,000 or more in market value when the homeowner sells their property
- It normally costs anywhere between $10,000 to $15,000 to remodel a basement which includes a bathroom and wet bar/kitchenette
Remodeling Unused Space
An unfinished attic can easily be converted to a finished attic with a guest bedroom, bathroom, and storage area. Pitched roofs can be cut and a dormer can be added.
- It does not cost an arm and a leg to remodel an attic
- Homeowners can get a great return of their investment when they sell the home
- Plus they can enjoy the additional space while owning the home
Projects like in ground swimming pools, out door kitchens, tennis courts, basketball courts, oversized decks, ponds with waterfalls, and other specialized unique home improvement projects will not add value to the home. Home may sell quicker due to having unique amenities.
- These home improvement projects cost thousands of dollars
- The homeowner is free to do whatever he or she wants
- But if they think they will get a great return of their investment, they have it wrong
- There are many cases where a home buyer does not want an in ground pool due to liability reasons if they have smaller kids
- I have seen cases where a home buyer hired a contractor to fill in the in ground pool after they closed on their home because they had younger children
Over Improving Property
A white elephant is a home that is oversized and over improved in the area.
- Some homeowners make the mistake where they go nuts in over improving their home
- If homeowners owns 2,000 square feet home and does a 3,000 square feet addition, they now own a 5,000 square feet home
- Are there 5,000 square feet homes in the area?
- If not, homeowners will have a very hard time refinancing home or selling home if the appraiser cannot get any similar and like homes in area to use it as a comparable
Financing Home Improvement Projects
Home Improvement project can be quite costly. Many homeowners do not have tens of thousands in their bank account. There are several financing options homeowners can get access to home improvement financing.
Here are a few:
- Cash-Out Refinance Mortgage:
- FHA Allows up to 85% LTV cash-out refinance mortgages
- Conventional Loans allows up to 80% LTV on cash-out refinance mortgages
- The U.S. Department of Veteran Affairs (VA) allows up to 100% cash-out refinance mortgage on VA Home Loans
- Second Mortgages
- Banks offer second mortgages
- However, most banks require 700 credit scores
- Debt to Income ratios may be capped at 45% DTI
- Most Banks require 7 years after housing event and/or foreclosure
- Maximum CLTV is 90% in most cases
FHA 203k Renovation Loans
HUD has the very popular FHA 203k Renovations Loan Program for both home purchases and homeowners who need to refinance. Home Buyers can purchase a fixer upper home with 3.5% down payment on the after improved value. There is no construction limit with a full standard FHA 203k Loan. Homeowners can also refinance their current home loan with a FHA 203k Loan where the new 203k Loan will pay off the existing loan balance and a new construction loan will be funded in escrow. Once the renovations are complete, the FHA 203k Loan converts to a long term 30 year FHA term loan. For more information on FHA 203k Loans, please contact Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response.