5 Things to Consider Before Taking a Loan for Home Repairs
The National Association of Home Builders reports that the Remodeling Market Index, an important indicator of remodeling robustness, climbed 5 points in the third quarter of 2012 (up over second-quarter numbers). In fact, the index is at its highest point since 2005—before the economic downturn.
So how can we interpret this index? Activity was particularly strong when it came to owner-occupied homes. This may mean that homeowners are interested in investing in remodels as home prices begin to stabilize and the ability to sell at a better price becomes a possibility.
So, do you fall in that group? Are you thinking about making your own improvements?
A good remodel can boost the value of your home (not to mention give you something pretty to look at). But, of course, not all home remodels are good remodels. Pick your projects—or the way you’re paying for them—wrong and you could be in a world of financial hurt. Here are some things you should consider before tackling any project:
When you’re making repairs, are you planning to put in upgrades? If so, make sure you’re not “overdoing” it for the neighborhood. You don’t want those upgrades to price your home out of its current neighborhood. While it might be nice to have the largest, most expensive home on the block, it could make the home much harder to sell. It may also make it more difficult to get the home appraised at its proper value, since comparisons are generally drawn from nearby homes that have recently sold.
Consider updating the areas of your home that have the greatest return-on-investment. While the statistics vary, in general, updating your kitchen and bathrooms will have the highest return, adding 80 to 90 percent of their cost to the home’s value.
Be realistic about what your budget can achieve. You probably can’t remodel your entire house for a budget of $10,000 (unless your home is very small). Be realistic about what your budget can get you. If you’re unsure, talk to a few contractors and budget out how much the materials to do the updates would cost you.
Select your contractor carefully. You can consult your local Chamber of Commerce, the Better Business Bureau, the State Attorney General or your Local Consumer Protection Agency to identify any red flags on projects a prospective contractor has done in the past. Talk with people your contractor has done work with before. And be sure you receive a contract (read it carefully) before starting a job. Many people have been swindled by “contractors” who say they can do the work, but bail midway through a project. Without a contract, the homeowner has little recourse.
Finalize your plans before you start remodeling. Changing up your plans after the remodeling is under way can break your budget. It may cost additional hours in labor for your contractor or cause a delay in how quickly the work is completed if you suddenly decide on an item that will take two weeks to ship.
If you plan on remodeling, talk to your agent about your property coverage limits. An improvement to your home can add to its value and, as a result, you may need to increase your limits.
This post comes courtesy of the editors at Credit Sesame. Credit Sesame is the best way to see your free monthly credit score and find out how you can save on your credit, loans and mortgage. Using a proprietary algorithm, only Credit Sesame shows you the best ways that you can stop overpaying on your credit and loans and start saving
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View all posts by Linden Garcia, Credit Sesame