Paying For A Project

By Diane Schlindwein

January 7, 2011 5 min read

In today's housing market, many potential home sellers are wondering whether to update their houses before putting them on the market or to try to sell them "as is."

"As you have heard, remodeling and/or updating your home can be a big contributor in getting you the most money in the shortest amount of time when selling your home," says Lee McClelland, associate broker of Prudential Kansas City Realty and a mortgage loan originator. "Just remember not to put so much money into your home that you overprice it for your area/neighborhood."

Elizabeth Mendenhall, a sixth-generation Realtor with Re/Max Boone Realty, says home sellers should pay special attention to the exteriors of their homes. "Curb appeal is so important. What they see outside immediately will determine whether they want to go inside," she says.

"A new steel door is one of the best things a person can do to improve curb appeal," says Mendenhall, who is vice president of committees for the National Association of Realtors. "That kind of door is important -- and a new coat of paint if a home doesn't have siding. You want to make sure the garage doors work. Replacing windows makes a home energy-efficient and is a good investment."

Mendenhall says exterior replacement projects typically pay off in the end. The same is true for updates to kitchens and bathrooms. "For example, the return on adding a sunroom is 48 percent, whereas the return on a minor kitchen remodel is 78 percent," she says.

Fresh paint and nice carpeting can also help sell a home. "Carpet and paint are easy things to do. Be sure to choose a color palette that people can identify with," Mendenhall says. Historical homes will require different paint colors than modern homes. "It makes a difference where you are. Paint palettes for the coastal regions will be different from those in the Midwest."

If you are trying to sell a home that was built within the past 10 years or that is situated near a newly developed community, you will be competing to grab the attention of buyers who are looking at brand-new homes. That's when you need to make sure newly painted walls aren't covered with a lot of framed artwork or family photos.

"When buyers are going to be comparing an existing home with a new home, it is as if your home is being compared with a fresh canvas," Mendenhall says. "You should know that."

If you have decided to move forward with a sizable project, be sure you know how best to pay for it, McClelland says. "If you have the savings to pay for the project, that's great. But maybe that is not an option," he says. "One choice is to look at the equity that you have in your home. Dividing the amount that you owe by the appraised value of the home will give you the loan-to-value ratio. Having that ratio at 20 percent or higher keeps you from paying private mortgage insurance. Any amount more than the 20 percent is what you can borrow against."

McClelland continues: "Once you know the percentage that you have to work with, you can look at taking out a home equity line of credit. This is the second loan on your property, which you will make a second monthly payment on until you sell your home to pay it back. Call your lender to get all of the details, because the requirements have changed in the past couple of years."

Another option to get the project done may be to use a home improvement center that offers same-as-cash financing, McClelland says. "You can then pay it off when you sell your house."

Mendenhall believes that homeowners who are thinking of remodeling and selling their homes should ask a Realtor for his opinion before doing a lot of updating. "Bring in a Realtor who knows the area," she says.

"Sometimes just changing a few things can increase or maintain the value of a home," Mendenhall says. "Remember, Realtors visit hundreds of homes a year and know what people in that market are looking for."

McClelland agrees. "Whatever you decide, look at all the options and talk to the experts so that you can make the best decision in maximizing the sale of your home."

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