Before you start picking out tile and paint chips, be sure you know how much it will cost to remodel your house.
Have you just moved into a new place and want to spruce it up? Or maybe you’ve been in your home for a while and feel ready for a change. The easy part is knowing your goal for home remodeling — whether you’re trying to keep up with your growing family, add office space, modernize dated features or generally increase your home’s value.
Even if you’re ready for a kitchen renovation or anxious for a bathroom remodel, figuring out how to plan a home renovation that doesn’t break the bank can be tricky.
Here are five key steps in planning your home remodeling project.
1. Estimate home renovation costs
As a general rule of thumb, you should spend no more on each room than the value of that room as a percentage of your overall house value. (Get an approximate value of your home to start with.)
For example, a kitchen generally accounts for 10 to 15 percent of the property value, so spend no more than this on kitchen renovation costs. If your home is worth $200,000, for example, you’ll want to spend $30,000 or less.
Something else to keep in mind: Contrary to popular belief, kitchen renovations offer among the lowest return on investment. Every dollar you spend on a kitchen remodel increases the value of your home by approximately 50 cents.
The highest return on investment? A mid-range bathroom remodel.
2. Consider home remodeling loan options
If you plan on borrowing money to fund your home renovations, there are a number of loans out there to help with just that.
- Refinancing. Depending on your current interest rate, you might be able to refinance your mortgage at a lower rate and/or for a longer loan term, which could lower your monthly payments and help you save up for your renovations.
- Cash-out refinance. If you have enough equity, you could also consider a cash-out refinance, which means refinancing your existing loan for an amount that’s higher than what you owe. Going this route, you pay off your original mortgage and have cash left over. Use a refinance calculator to see if refinancing makes sense for you.
- HELOC. If refinancing sounds like too big of a leap, a home equity line of credit (HELOC) might work better. A HELOC works a lot like a credit card in the sense that it has a set limit that you can borrow against.
- Home equity loan. Although it sounds similar to a HELOC, a home equity loan is a bit different. This loan requires you to take out all the cash at one time. They’re often referred to as “second mortgages” because homeowners get them in addition to their first mortgage.
Refinancing, getting a HELOC or taking out a home equity loan are all big decisions, and it can be tough to know which one makes the most sense for you. As with any new loan, consult with a lender to see which option is best for your situation.
3. Get home renovation quotes from contractors
Some contractors will give you an estimate based on what they think you want done, and work completed under these circumstances is almost guaranteed to cost more. You have to be very specific about what you want done, and spell it out in the contract — right down to the materials you’d like used.
Get quotes from several contractors, but don’t necessarily go for the the lowest estimate. A bid that comes in much lower than the others could be a sign of a contractor who cuts corners — which can lead to extra costs in the long run.
4. Stick to the home remodeling plan
As the renovation moves along, you might be tempted to add on another “small” project or incorporate the newest design trend at the last minute. But know that every time you change your mind, there’s a change order, and even minor changes can be costly. Strive to stick to the original agreement, if possible.
5. Account for hidden home renovation costs
Your home may look perfect on the outside, but there could be issues lurking beneath the surface. In fact, hidden imperfections are one of the reasons renovation projects often end up costing more than anticipated.
Rather than scramble to come up with extra money after the fact, give yourself a cushion upfront. Factor in 10 to 20 percent (or more) of your contracted budget for unforeseen expenses, as they can — and do — occur. In fact, it’s rare that any project goes completely smoothly.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.
Originally published June 2015.
Millions of Americans struggling to make their monthly mortgage payments because of COVID-19 have received relief through the Coronavirus Aid, Relief, and Economic Security Act.
But mortgage forbearance is only temporary, and set to expire soon, leaving many homeowners who are still struggling perplexed on what to do next.
Enacted in March, the CARES Act initially granted a 180-day forbearance, or pause in payments, to homeowners with mortgages backed by the federal government or a government-sponsored enterprise such as Fannie Mae or Freddie Mac. Furthermore, some private lenders also granted mortgage forbearance of 90 days or more to financially distressed homeowners.
According to the Mortgage Bankers Association, 8.39% of loans were in forbearance as of June 28, representing an estimated 4.2 million homeowners nationwide.
So what are affected homeowners to do when the forbearance goes away? You have options, so it’s well worth contacting your lender to explore what’s best for you.
“If you know you’re going to be unable to meet the terms of your forbearance agreement at its maturity, you should call your loan servicer immediately and see what options they may be able to offer to you,” says Abel Carrasco, mortgage loan originator at Motto Mortgage Advisors in St. Petersburg, FL.
Exactly what’s available depends on the fine print in the terms of your mortgage forbearance agreement. Here’s an overview of some possible avenues to explore if you still can’t pay your mortgage after the forbearance period ends.
Extend your mortgage forbearance
One simple option is to contact your lender to request an extension.
Homeowners granted forbearance under the CARES Act can request a 180-day extension, giving them a total of 360 days of forbearance, according to the Consumer Financial Protection Bureau.
The key is to contact your lender well before your forbearance expires. If you let it expire without an extension, your lender could impose penalties.
“If you just stop making regular, scheduled payments, you could have a late mortgage payment on your credit,” warns Carrasco. “That could severely impact refinancing or purchasing another property in the immediate future and potentially subject you to foreclosure.”
Keep in mind, though, a forbearance simply delays payments, meaning they’ll still need to be made in the future. It doesn’t mean payments are forgiven.
Refinance to lower your mortgage payment
Mortgage interest rates are at all-time lows, hovering around 3%. So if you can swing it, this may be a great time to refinance your home, says Tendayi Kapfidze, chief economist at LendingTree.
Refinancing could come with some hefty fees, however, ranging from 2% to 6% of your loan amount. But it could be worth it.
A lower interest rate will likely lower your monthly payment and save you thousands over the life of your mortgage. Dropping your interest rate from 4.125% to 3% could save more than $40,000 over 30 years, for example, according to the Consumer Financial Protection Bureau.
“Lenders have tightened standards, though, so you will need to show that you are a good candidate for refinancing,” Kapfidze says. You’ll need a good credit score of 620 or higher.
As long as you’ve kept up your end of the forbearance terms, having a mortgage forbearance shouldn’t affect your credit score, or your ability to refinance or qualify for another mortgage.
Ask for a loan modification
Many lenders are offering an assortment of programs to help homeowners under hardship because of the pandemic, says Christopher Sailus, vice president and mortgage product manager at WaFd Bank.
“Lenders quickly recognized the severity of the economic situation due to the pandemic, and put programs into place to defer payments or help reduce them,” he says.
A loan modification is one such option. This enables homeowners at risk of default to change the terms of their original mortgage—such as payment amount, interest rate, or length of the loan—to reduce monthly payments and clear up any delinquencies.
Loan modifications may affect your credit score, but not as much as a foreclosure. Some lenders charge fees for loan modifications, but others, like WaFd, provide them at no cost.
Watch: 5 Things to Know About Selling a Home Amid the Pandemic
Put your home on the market
It may seem like a strange time to sell your home, with COVID-19 cases growing, unemployment rising, and the economy on shaky ground. But, it’s actually a great time to sell a house.
Pending home sales jumped 44.3% in May, according to the National Association of Realtors®’ Pending Home Sales Index, the largest month-over-month growth since the index began in 2001.
Home inventory remains low, and buyer demand is up with many hoping to jump on the low interest rates. Prices are up, too. The national median home price increased 7.7% in the first quarter of 2020, to $274,600, according to NAR.
So if you can no longer afford your home and have plenty of equity built up, listing your home may be a smart move. (Home equity is the market value of your home minus how much you still owe on your mortgage.)
Consider foreclosure as a last resort
Foreclosure may be the only option for many homeowners, especially if you fall too behind on your mortgage payments and can’t afford to sell or refinance. In May, more than 7% of mortgages were delinquent, a 20% increase from April, according to mortgage data and analytics firm Black Knight.
“When to begin a foreclosure process will vary from lender to lender and client to client,” Sailus says. “Current and future state and federal legislation, statutes, or regulations will impact the process, as will the individual homeowner’s situation and their ability to repay.”
Foreclosures won’t begin until after a forbearance period ends, he adds.
The CARES Act prohibited lenders from foreclosing on mortgages backed by the government or government-sponsored enterprise until at least Aug. 31. Several states, including California and Connecticut, also issued temporary foreclosure moratoriums and stays.
Once these grace periods (and forbearance timelines) end, and homeowners miss payments, they could face foreclosure, Carrasco says. When a loan is flagged as being in foreclosure, the balance is due and legal fees accumulate, requiring homeowners to pay off the loan (usually by selling) and vacating the property.
“Absent participation in an agreed-upon forbearance, deferment, repayment plan, or loan modification, loan servicers historically may begin the foreclosure process after as few as three months of missed mortgage payments,” he explains. “This is unfortunately often the point of no return.”
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