Remodeling Your Home

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Is It Time to Remodel? Remodeling vs. Moving Ask for Estimates Financing Your Remodeling Project How to Live With Your Remodeling

Is it Time to Remodel?
Perhaps it was that moment when you realized that avocado green and harvest gold are no longer the "in" colors for today's trendy kitchens. Or maybe you had an epiphany one day as you stood in line to use your own bathroom. Whatever the impetus, the thought has crossed your mind: Maybe it's time to remodel . . .

If you decide to follow through on that thought, you'll join millions of others who decide to remodel their homes each year. The reasons for remodeling are as varied as the projects we undertake. Some of these include:

	Adding more space.
	Upgrading cabinets, counters, appliances, and fixtures.
	Creating a floor plan that's customized for your lifestyle.
	Improving energy efficiency with new windows, doors, insulation, and climate control systems.
	Increasing the resale value of your home.

Before you head too far down the remodeling path, it's a good idea to think through your wants and needs:

	Decide what changes you want to make.
	Ask yourself and other family members what you like and dislike about the house, then create a prioritized list.
	Look at magazines and collect pictures of what you like.
	Think about traffic patterns, furniture placement, colors, lighting, and how you want to use the remodeled space now and in the future.

Remodeling vs. Moving
If you want to change your home, your other option besides remodeling is to find a new one. But more and more American families are deciding to stay put and improve their existing home. Here are some of the reasons:

	Remodeling allows you to customize your home to meet your needs and desires. The only similar, but much more costly alternative, is to have a brand new custom home designed and built.
	Remodeling means that you don't have to give up a familiar neighborhood and schools.
	Remodeling is a more efficient use of your financial resources. According to the American Homeowner Foundation, selling your home and moving typically costs about 8-10% of the value of your current home. And much of this goes into moving expenses, closing costs, and broker commissions - items that have no direct impact on your home's quality.
	Remodeling can be stressful, but few experiences are more stressful than moving.

While there are many reasons that people choose to remodel, the bottom line is that remodeling makes your home a more enjoyable place to live. The intangible value of this pleasure needs to be considered, along with any resale value you hope to gain.

But there is no doubt that, as far as improving the sale of your home, all remodeling projects are not created equal. The general rule of thumb is that any remodeling project that brings your home up to the level of your neighbors' is a worthy investment. But it doesn't pay to be the most expensive house on the block - real estate experts recommend that a remodeling investment should not raise the value of your house to more than 10-15% above the median sales price in your neighborhood.

Remember that potential buyers will compare your home to ones newly built. Therefore, you'll want to look at the design trends and amenities being built into new homes. Great rooms (open kitchen/family room arrangements), master bed and bath suites, and higher ceilings are a few of the features sought by today's home buyers.

Each year, Remodeling magazine conducts its "Cost vs. Value" report to assess which remodeling projects create the greatest return on investment. Not surprisingly, kitchens and baths regularly come out on top. These are two of the most used rooms in the home, and they receive the most scrutiny from potential buyers.

Ask for Estimates
Ask for a written estimate of the work to be done based on a set of plans and specifications. This is a time-consuming process for the contractor, so you should be prepared to pay for this package.

Make sure that you're comparing apples to apples. Estimates from different remodelers need to be based on identical project specifications.

Conventional wisdom states that you should "get at least three bids" before hiring a contractor. But it's a mistake to let price alone drive your selection. If you like a remodeler and are confident that he would do a good job, don't automatically switch to another contractor (who may not rank as high in customer service, competence, communication, etc.) if the estimate is more than you can afford. You may be able to scale down by making a few modifications - using quality stock rather than custom designed cabinets or selecting less expensive appliances or fixtures.

Financing Your Remodeling Project
One of the most important considerations for your home improvement project is financing. After all, the project will go nowhere if you can't pay for it.

Fortunately, there are several options that can provide the dollars you need. Four of the most common are a home improvement loan, a home equity line of credit, a home equity loan (second mortgage), and a cash-out refinancing of your current mortgage. However, the simplest method of financing is cash.

Cash
If you have cash in savings to pay for your remodeling project, this may be the best way to finance your home improvements. But be sure to consider the fact that, by paying in cash, you tie up money that could be earning interest in other investments. In other words, you need to look at the interest rate that you would be charged by financing the project and compare this to the interest you could earn by investing these funds.

Also remember that interest payments on a home improvement loan may be tax-deductible, while you can't write off the expenses of a remodeling project paid for in cash. Crunch the numbers and meet with a financial advisor to determine whether paying in cash will really pay off in the long run.

Home Improvement Loan
Two special loans administered through the Federal Housing Administration (FHA) are the Title I and Section 203(k) programs. A Title I loan allows you to borrow up to $25,000 for improvements to a single-family home. These are fixed-rate loans that FHA insures against the risk of default. Loans must be made by an approved Title I lender.

The 203(k) program is not as well known, but if you are looking to purchase a fixer-upper, it is a terrific opportunity. It allows home owners to receive a single, long-term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of the property. To obtain a loan under the 203(k) program, you must use an FHA-approved lending institution. Most mortgage lenders are approved to make loans through this program.

Home Equity Line of Credit
A home equity line of credit is a form of revolving credit in which your home serves as collateral. This allows you to tap into these funds whenever you need it. The credit line is usually set at 75 to 80 percent of the appraised value of your home minus the balance of the first mortgage. Your credit history and ability to pay may also be considered in determining the amount of credit available.

Home equity lines of credit usually carry a variable interest rate that is figured by adding a margin to the current Prime Rate or some other index. Other costs associated with setting up a line of credit may also apply and will vary from lender to lender.

Second Mortgage
If you are not comfortable with the open-ended nature of a line of credit (which requires discipline to ensure that you don't go way over budget), a home equity loan, or second mortgage, may be right for you. This is a fixed-rate, fixed-term loan based on the equity in your house that is paid back in equal monthly installments over a specific period of time.

Cash-Out Refinancing
If interest rates today are significantly less than when you first purchased your house, refinancing your mortgage may be a wise move. This refinancing alternative allows you to use the accumulated equity in your home to take out a new loan to pay off your existing mortgage and then use the remaining funds for your remodeling project.

Make sure you factor in the length of time you plan to live in the house and the number of years left on your current mortgage before you decide to refinance.

Keeping Your Budget in Line
Once you've decided how much you can afford to spend fulfilling your remodeling dreams, the real challenge is making sure you stick to this budget. So, how can you prevent your expenses from spiraling out of control?

Plan on spending only 80 percent of what you can afford. Put the additional 20 percent in reserve to cover changes, unforeseen problems, and miscellaneous charges.

Remember that anything not included in the original contract will cost extra. It's very easy to start tacking on hundreds and even thousands of dollars in change orders that will break both your budget and your timeline.

Stay focused on the task at hand. Stick to the project you have planned rather than deciding that now is the time to overhaul the rest of the house.

How to Live With Your Remodeling Project
Remodeling your home is uniquely different from building a new home. With remodeling, your home becomes the worksite. You live side-by-side with the project from start to finish. Once construction begins, you'll probably long for simple pleasures like a dust-free home or a fully functioning kitchen or bath. But the end result will be well worth these inconveniences.

Communication
Consistent and open communication between you and your remodeler will enhance your understanding of the project, provide an opportunity to exchange ideas, and ultimately help to make the experience a positive one for everyone involved.

To facilitate this process, you need to:

	Determine who you and your remodeler should contact for daily decisions or an after-hours emergency. For example, your contact may be the lead carpenter for the job, while the remodeler's contact could be your spouse.
	Designate a backup for each contact person to assure continuity in anyone's absence.
	Create a place in your house where the contact persons can leave messages for each other (a securely anchored notebook is a good idea since it is less likely to disappear).
	Speak up. If you are uncertain about any aspect of the project, be sure to let the contact person know.

The Pre-Construction Meeting
One way to ensure the success of your project is to plan for and actively participate in a pre-construction meeting. This allows your remodeler to clarify procedures and explain how the job will progress. It also offers both you and your remodeler an opportunity to prepare for those issues that may arise later. You should think of this meeting as a forum for all participants to define their expectations and agree on the anticipated outcome.

Some of the issues you may wish to cover at this meeting include:

	Will you allow your remodeler to place a company sign on your property? Remember that, in addition to being a marketing tool, signs help contractors and suppliers locate your home.
	What areas of your home will be off limits to workers?
	Does your house have an alarm system? Will workers need a key or will someone always be there?
	How will you ensure that your children and pets stay out of the work space?
	How will trash removal be handled? Where will the remodeler locate the dumpster on your property?
	Does the remodeler anticipate any interruptions of utilities during the project? If so, when and for how long? At certain stages of construction, the project may affect basic household necessities like water and electricity. Will you need to vacate the house at any time?
	What are your expectations regarding clean up? Will sweeping be sufficient for a daily cleaning, or will you need a more thorough cleaning in order to use the space ?
	You should also use the pre-construction meeting to establish guidelines for the remodeling crew working on the project:
	Determine who you and your remodeler should contact for daily decisions or an after-hours emergency. For example, your contact may be the lead carpenter for the job, while the remodeler's contact could be your spouse.
	What times will workers begin and end work at your home? Be sure to consider the neighbors as well as household members.
	Where can workers park near the jobsite?
	Will you allow workers to use your phone for local business calls?
	Will bathroom facilities in your home be available to workers?
	What is the remodeler's policy on smoking on the jobsite?
	What is the remodeler's policy on the use of profanity? If you are especially sensitive to this issue, you should let your remodeler know.
	Will you allow workers to play their radios at a reasonable volume? Are there any stations or programs that you do not want played?

Preventing Remodeling Fever
The train-station atmosphere of a remodeling project can lead to remodeling fever. The main symptom of this temporary affliction is feeling a loss of control that results from disrupted routines and the impact on your personal space. The best way to prevent this fever is to prepare well, remember that "this too shall pass," and focus on the progress being made. A few other suggestions from remodeling pros:

	Prepare for inconvenience. A remodeling project can turn your home and -- on some days -- your life upside down. A kitchen remodel will, of course, affect meal planning. But a little ingenuity and some culinary shortcuts can lessen the impact. Set up a temporary cooking quarters by moving the refrigerator, toaster oven, and microwave to another room. Arrange a dishwashing station in your laundry room. If the weather is warm, fire up the grill and dine alfresco.
	Designate a safe haven in your home where you can escape from the chaos and commotion.
	Guard against dust. During a remodeling project, dust has the unfortunate tendency to appear everywhere from lampshades to plates stacked inside your kitchen cabinets. To keep out as much dust as possible: 1) Seal off doorways and stairs; 2) Turn off central air or heat when workers are sanding and stock up on extra filters so that you can change them often; 3) Have deliveries made though a designated entrance; 4) Use doormats and temporary floor coverings where appropriate; 5) Remove anything that might get damaged by the dust or at least cover it with plastic drop cloths that are taped shut.
	Maintain a sense of humor, Remember that certain things are out of your control and it's best to laugh rather than upset yourself about things like the weather or delayed delivery of materials.
	See the remodeling process as an adventure. Tell the kids that your are "camping in" and transform inconvenience into fun. Along the way, celebrate as different stages of the project are completed.

For more information on choosing a professional remodeler and managing every phase of your remodeling project, be sure to visit The Remodeling Resource, a service of the National Association of Home Builders Remodelors™ Council on the World Wide Web at www.remodelingresource.com. To order a free copy of How to Find a Professional Remodeler, send a self-addressed stamped envelope to:

NAHB Remodelors Council
Dept. CS-J 1201
15th Street NW
Washington, D.C. 20005