Korene's Blog

Financing Smart Home Improvements

You've found a great home, but it's a bit rough around the edges and you're on a limited budget. That leads to a number of questions: How much will the necessary upgrades and repairs cost? How much value will they add to the home? How are you going to pay for all this?

Whether you are upgrading to a larger home in a neighborhood you've always loved, downsizing to a smaller home now that the kids are out of the house or even moving to a new state, don't let a house that you love get away just because it needs some repairs or updates — you do have options!

203(k) Loans
A 203(k) loan lets a qualified borrower not only finance the purchase price of the home, but also include the price of the necessary repairs to the home.

Many types of properties qualify for 203(k) loans. Approved improvements include painting, room additions, decks, bathroom and kitchen remodels, finished attics and basements, structural changes and repairs, environmental rehab such as removing lead paint or making energy efficiency upgrades, roofing, flooring or accessibility upgrades for disabled residents.

It's important to note that there are two different types of 203(k) loans available and you'll need to determine, along with your lending professional, which type of loan is right for your particular situation. I'd be happy to spend some time with you to review and determine what might best meet your needs. Here's a quick overview of the available 203(k) options:

• A "streamlined" 203(k) loan is intended for a home that requires only non-structural repairs like cosmetic upgrades (painting, new carpet and appliances, new roof). In addition to the price of the home, you can borrow up to $35,000 to cover improvements.
  
• A "regular" 203(k) loan is for properties that require structural repair, such as room additions, or major landscape work or site improvement. You can borrow the purchase price of the home, plus the price of the improvements, up to 110 percent of the home's expected value after the improvements.

Once you've understood your loan options you'll also want to examine the specific types of upgrades or repairs you'd like to make to your new home.

Eligible Upgrades and Repairs that Make Sense
Whether you plan to be in your new home for a short or long period of time, you'll always want to be mindful about how much your improvements will cost and what type of value they will add to your home.

A good place to review this data is in Remodeling magazine's annual "Cost vs. Value" report. The report is considered a sort of gold standard for the return on investment for various home improvements. This can also serve as an excellent guide towards helping you understand the costs of certain types of upgrades and repairs. The data is available for free on the magazine's site (www.remodeling.hw.net/2010/costvsvalue/national.aspx), and can be broken down by region and even city. It even provides drill-down information on various improvements, including pictures.

Here's a look at some of the top remodeling projects you may want to consider that are eligible under 203(k) loans.

• Minor kitchen remodel. If your new home doesn't have your dream kitchen, this may be a smart choice for an upgrade. While kitchen upgrade costs can be high, Remodeling magazine estimates replacing the cabinet door fronts; adding new hardware; getting a new range; swapping out the counters; laying new flooring; installing a new sink; and painting a dated, 200-square-foot kitchen can bring a 72.8 percent return on investment.
  
• Attic bedroom. Does your new home lack that extra bedroom you desire? You may want to consider converting your attic space into an extra bed and bath. This will not only provide you with more living space but converting an attic to a 15x15 bedroom with a 5x7 bathroom will bring on average a 72.2 percent return on your investment, according to Remodeling magazine.
  
• Basement remodel. Finishing a 20x30 basement area into a bonus room with a bathroom and a wet bar can provide you with a great deal more space in your new home and can also add a good deal of value to it.

Another key trend to keep in mind, presented in Remodeling's latest national data, is that upgrades on the outside of the home offer some of the best value of all home repairs and upgrades. These include:

• Steel entry-door replacements. Swapping out a drafty wood door and jambs for a 20-gauge steel door is the No. 1 replacement in the country.
  
• Replacing the garage door. This improvement takes the No. 2 spot.
  
• Wooden or composite deck additions. In addition to adding ambience to your home, decks can also add to the value of it. For instance, Remodeling magazine data shows that adding a wooden deck with an anchored, 16x20 deck using pressure-treated wood with railings and stairs delivers a 72.8 percent return on your investment.

There are a wide variety of upgrades and repairs permitted under the 203(k) loan programs, so be sure to examine all of your options and determine what makes the most sense for your new home.

Getting Started
Once you've determined the upgrades and repairs you'd like to pursue, be sure you speak with an experienced 203(k) lender that is well-versed in the details of permitted improvements under the program. It is also important to note that FHA rehab loans may take longer to close with a lender that doesn't have experience with them, because there is more paperwork. Working with a lending professional that is experienced with 203(k) loans will help you avoid those delays.

Please contact me using the information on this email, and I'd be happy to review how you can use the right funding to put some shine on that diamond in the rough!