Mortgage Blog

There are many ways to create value in your home for a home refinance. Homeowners often do not understand which upgrades and/or renovations will actually help to build value when it comes to selling a home. An appraiser can only add value to a home for very specific things. Now let’s take a look at some of the things that a homeowner can do to add value to a home.

Does Home Improvement Build Value?

One of the best ways to add value to a home is to add a bedroom to the home. This essentially puts the home into a whole new class for the purposes of an appraisal. The home will now be compared to homes with 4 bedrooms instead of homes with 3 bedrooms for example. The homes with 4 bedrooms are essentially in an entirely different class when it comes to an appraisal. This can drastically increase the value of your home. The addition of a bathroom can also add a fair amount of value to a home.

Simple additions and upgrades can add value to a home, but generally will only add that value if some of the items that are being upgraded are in a state of disrepair. Upgrading a kitchen for example does not necessarily add value to a home for the purposes of an appraisal. The cost of granite countertops and highly customized upgrades do not translate to dollars when an appraisal is done. The amount that it costs for the upgrades will almost never add value above the cost of the upgrades.

This raises the question, what is the situation in your home? If you plan to live in your home for the rest of your life, then appraisal value really does not mean much for the purposes of upgrading your home. Simply decide if the money that you’re spending on upgrades will improve your quality of living. You do not need to worry about getting dollar value out of your upgrades. However, if you may be selling your house in the next 5 years or so and getting a new home loan, you have to be cost and value conscious. It is easy to spend $50,000 or $100,000 upgrading a kitchen. You will never recover this cost when you sell your home. If you spend that same money adding a bedroom and a bathroom you can add value in your home that will exceed the cost of the upgrades. It may even be a good idea to speak with an appraiser in your area and find out how much the value of your home will increase if you do add a bedroom or a bathroom. This can give you a good idea of what you should spend on the upgrades.

You also have to consider upgrades if you are selling your home. This gets a bit tricky. If bad landscaping or disrepairs are preventing you from getting offers on your home then it may be time to upgrade some of those things. You will most likely not recover the cost of these upgrades or repairs, but it may be the difference between selling your home or not. Your realtor should be able to help you make those decisions.

So you have found the lender that you want to work with on your home refinance.  You understand their fees and you like the loan officer that you are speaking with.  There is just one problem.  Rates aren’t low enough yet.  Your current rate is lower than current rates, or the closing costs involved negate the savings that you would obtain with a lower interest rate.  There is a solution.

Lenders and mortgage brokers can offer a rate watch solution for you.  This allows the lender to watch rates for you and contact you when rates get to the level that makes sense for your situation.  It is a general rule that a refinance makes sense if you can lower your rate by 0.5%.  This is somewhat variable depending on the closing costs and points that would be paid to achieve the lower rate.  Those costs have to be balanced with the monthly savings and the amount of time that you plan to stay in your home.  This is a simple calculation that any mortgage professional can help you understand.

Interest Rate Watch

A rate watch is a great tool for homeowners that are considering a refinance.  Honestly, all homeowners should have a rate watch setup with a lender or broker that they feel comfortable with.  There is no down side.  If mortgage refinance rates never get low enough to make sense for you, they will not contact you.  It allows for you to be contacted at the exact moment that refinancing your mortgage makes sense for you.  It is similar to setting up a set sell price or buy price on a stock.  This eliminates the risk for the homeowner.

Rates may be heading lower over the next few months (although I do not predict what rates will do) as the dollar strengthens and the government adds liquidity to the market.  If I could predict rates I would not be sitting here writing this article.  However, there is an effort to stabilize home prices and help homeowners that are having trouble with their current mortgage.  The options continue to grow for homeowners.  Take some time out of your busy schedule to setup a rate watch with a trusted lender or broker.  Explain to them that you are ready to refinance as soon as rates hit your target.  This is future business for the loan officer or broker and they will be happy to set this up with you.