Frequently Asked Questions - Remodeling a home
Why Remodel?
Remodeling your home can modernize the style, make it more comfortable, improve energy-efficiency and home functionality, increase the value of your home, and help with upkeep and maintenance. Remodeling is a sure investment in your home to ensure longevity, usefulness, and home value.
When 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.
What are some remodeling ideas?
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.
How do I plan a remodel?
The first step is to develop an idea of what you want to do. Write a prioritized list of your needs and wants. Look at magazines and Web sites and collect pictures of what you like. The more clearly you can envision the project and describe it on paper, the better prepared you'll be in making your decision.
Think about traffic patterns, furniture size and placement, colors, lighting and how you expect to use the remodeled space. If your decision to remodel involves creating better access for someone with limited mobility, you may want to consider contacting a Certified Aging-in-Place Specialist.
Figure out how much money you have to spend on the remodeling job, furnishings, landscaping or any other cost you might incur.
How do I pay for a remodel? (more details below)
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.
How do I find a professional remodeler?
When you hire a remodeler, you are buying a service rather than a product. The quality of service the remodeler provides will determine the quality of the finished product and your satisfaction with the result. To ensure your satisfaction, make sure you hire a qualified, professional remodeler.
Look at the How to Hire a Professional Remodeler resource page for tips, questions to ask potential remodelers, qualities to look for in a remodeler, and a searchable directory to find a professional remodeler in your area.
What should I expect during the remodel?
While remodeling can be an exciting process, it can also present unexpected challenges. Many problems can be avoided by planning ahead.
- Establish good two-way communication with the remodeler. It's essential to have good communication for a smooth remodeling project. Does the remodeler listen? Does he or she answer questions clearly and candidly? Can you reach him when you need to? Does he return phone calls promptly? Does he let you know when problems arise and work with you on solving them?
- Make sure you have compatibility and "fit" with the contractor. You'll spend a lot of time with your remodeler so it's important to have a good rapport and trust in him.
- Set a clear and mutual understanding about the schedule. You and your remodeler should agree on the schedule up front to avoid conflict and problems later in the project.
- Request a written proposal. Often times, two people remember the same conversation differently. Get the proposal in writing and work with the remodeler to ensure it reflects your wishes.
- Determine a clear and mutual understanding on the miscellaneous details. There are a lot of little details that need to be settled before work starts. What times of day will they be working? How will he access the property? How will cleanup be handled? How will they protect your property?
- Remember to be flexible. Remodeling is an interruption of your normal life. Remember to be flexible during the project so that you can handle the unexpected and go with the flow.
- Create a clear and mutual understanding of how Change Orders will be handled. With remodeling there is always the chance you may want to change materials or other project details during the job. Agree with your remodeler on how these changes will be handled before the start of work. Also understand that changes could affect the schedule and the budget, so it's important you have all changes in writing.
- Agree on a well-written contract that covers all the bases. The contract should include these elements: a timetable for the project, price and payment schedule, detailed specifications for all products and materials, insurance information, permit information, procedures for handling change orders, lien releases, provisions for conflict resolution, notice of your right under the Federal Trade Commission's Cooling Off Rule (your right to cancel the contract within three days if it was signed someplace other than the remodeler's place of business), and details on the important issues (such as access to your home, care of the home, cleanup and trash removal).
- Ask for a written Lien Waiver from the remodeler upon completion of the work. If the remodeler hires subcontractors for portions of the work it is their responsibility to see them compensated. In order to ensure this has been done and to protect yourself, ask for a written lien waiver when the work is finished. This document will verify everyone has been paid.
- Establish a project plan, covering all phases and dependencies in the work. Plan your big picture goals with the remodeler and talk out your needs. Hire a remodeler who will plan it out with you, listen to concerns, and answer questions.
--From How to Hire Your Dream Remodeler by Tom Higgins, Superior Products Home Improvement, Littleton, Colo.
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.
