Home Remodeling Done Right

Line up the money and a good contractor. Then turn your wish list into reality.

If youve been thinking about remodeling, youve probably found plenty of inspirationother peoples projects, Web sites such as Houzz.com and Pinterest.com, HGTV, and design magazines. Knowing what you like is a great first step. But when youre ready to make a move, careful planning with the right contractor will help you match your wish list with your budget.

With the economy improving and home values on the rise, homeowners increased their spending on home improvements by almost one-third from recession-era lows, according to the National Association of Home Builders (NAHB) and the U.S. Census. Through the recession, many homeowners repaired and maintained their homes but put off major projects for better times. Others had anticipated selling and moving on but, given the limited selection of homes for sale, are fixing up their homes instead.

The best contractors are busy now, so youll need to book your job well in advance of the start date. That means lining up the funds as soon as possible, too. If youre tackling one of the more popular remodeling projectsupdating the kitchen or a bathroom, or adding a bedroomsee our plans and estimates on the pages that follow.

Write up your wish list, then prioritize it from the must haves to the it would be nice to haves. Choose materials, fixtures and products. The more specific your project description, the more accurate the cost estimates remodelers will provide.

For a rough idea of how much your project will cost, go to Remodeling magazines Cost-Versus-Value Report. Youll find descriptions and costs for 35 projects by region and in 81 cities. Houzz.com and Zillow Digs also give costs for sample projects. Whatever your budget, reserve 10% to 20% of it to cover the unforeseen (but almost inevitable) problems that will arise and changes that you are likely to want along the way.

If you want to finance your project, get prequalified for the amount you can borrow at a mortgage lender, bank or credit union. A home-equity line of credit (HELOC) is well suited to remodeling because you can withdraw funds as the project progresses. Including your first mortgage and the HELOC, you can typically borrow up to 75% or 80% of your homes appraised market value, although some lenders will stretch the limit to 90%. Youll pay a variable raterecently an average of 5.2%, according to HSH.com, a rate-tracking serviceon the outstanding balance. (For more information on home-equity borrowing, see Cash In on the Housing Rebound.)

If you cant get a HELOC large enough to fund your remodel, try a construction loan. In that case, you refinance your first mortgage to an amount equal to the future value of your home, based on an appraisal of its current market value and your projects plans and specifications. Most such loans allow a loan-to-value ratio of 95% or more. At predetermined points during the work, you submit draw requests to the lender to pay the remodeler. Before it pays, the lender will send its inspector to your home to verify that the work has been satisfactorily completed.

Two popular versions of construction loans are Section 203(k) loans, backed by the Federal Housing Administration (FHA), and HomeStyle mortgages, backed by Fannie Mae. In most cities, the maximum loan amount is $271,050 for 203(k) loans and $417,000 for HomeStyle loans. In higher-cost cities, the limit is $729,750 for 203(k) loans and $625,500 for HomeStyle loans.

The 30-year fixed rate will typically run one-fourth percentage point higher than for other loan programs (or you can take an adjustable rate), and closing costs will reflect higher administrative costs for draws, appraisals and inspections, says Josh Moffitt, president of Silverton Mortgage Specialists, in Atlanta.

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Home Remodeling Done Right