This guide covers home improvement projects that add value to a home. Home improvement can be a good investment and add value to a home. However, over-improving a home for the area is never a good investment. The right-hand rule is that homeowners never want to own the biggest home in the block unless they intend to live there for the rest of their lives.
Many new home buyers want to update their homes after closing their home purchases. A home purchase is most people’s largest investment in their lifetime and one of the happiest times. Many new homeowners cannot wait to remodel their home before moving in.
Common and popular home improvement projects include painting, flooring, new fixtures, appliances, landscaping, basement remodeling, and attic remodeling. Others decide to start major home improvement projects. High-end renovation projects may or may not be good investments. Home improvement projects such as adding a new room addition, swimming pools, and outdoor kitchens can become quite expensive.
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, it will add value. The 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.
Extensive major landscapes, such as adding a pond, waterfalls, basketball courts, tennis courts, and other unique improvements, may be worth every penny for the homeowner if they utilize it. However, there has been many cases where homeowners may spend tens of thousands of dollars on an inground pool and never use it.
Home improvement projects, such as remodeling an unfinished attic or basement, are excellent investments. Remodeling a basement, homeowners will get their investment back plus a handsome return on their investment without spending a ton of money.
Is Remodeling The Basement a Good Investment
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. Ethel Matthews, a dually licensed realtor and loan officer, explains her professional opinions on home improvements adding value to a home as follows:
Basement remodeling costs less 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 between $10,000 to $15,000 to remodel a basement, including a bathroom and wet bar/kitchenette.
Home Improvement Project of Remodeling Unused Space
An unfinished attic can easily be converted into 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 on their investment when they sell the home. Plus, they can enjoy the additional space while owning the home.
Luxury Home Improvement Projects
Projects like in-ground swimming pools, outdoor kitchens, tennis courts, basketball courts, oversized decks, ponds with waterfalls, and other specialized unique home improvement projects will not add value to the home.
Homes 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 on their investment, they have it wrong.
There are many cases where a home buyer does not want an in-ground pool for 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 over-improving their homes. If the homeowner owns 2,000 square feet home and does a 3,000 square feet addition, they now own 5,000 square feet home. Are there 5,000 square feet of homes in the area? If not, homeowners will have a very hard time refinancing their home or selling a home if the appraiser cannot get any similar and like homes in the area to use as a comparable
Financing Home Improvement Projects
Home Improvement projects can be quite costly. Many homeowners do not have tens of thousands in their bank accounts. There are several financing options homeowners can get access to home improvement financing. Here are a few:
Cash-Out Refinance Mortgage
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- HUD, the parent of FHA, allows up to 80% LTV cash-out refinance mortgages.
- Conventional loans allow 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 seven years after a housing event or foreclosure
- Maximum CLTV is 90% in most cases
FHA 203k Renovation Loans
HUD has the very popular FHA 203k Renovations Loan Program for home purchases and homeowners needing to refinance. Homebuyers can purchase a fixer-upper home with a 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 an 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 get in touch with Gustan Cho Associates Mortgage Group at 800-900-8569 or text us for a faster response.
