As the US housing market continues to recover from the 2008-2010 recession, a clear sign of improvement can be found in the record number of homeowners around the country who are investing in remodeling projects. The National Association of Home Builders reported that the Remodeling Market Index posted an all-time high in the final quarter of 2014, as more homeowners took advantage of record low interest rates and increased property values to upgrade their homes. This hot remodeling trend shows no signs of abating and more records could be set in 2015 as more families access their home equity and remodel.
Kitchens are popular and valuable home remodel trends.
The reasons for remodeling tend to vary, but families who need to address a long-deferred home maintenance problem tend to take on remodeling projects when the economy is improving. Similarly, families who own an older home or who wish to make substantial home improvements are motivated when property values are increasing. The key “trigger” factor this year, of course, is today’s low interest rates. When credit is cheap and the economy is improving, homeowners refinance in droves and remodel their homes.
The type of refinance you need to fund your remodeling project is known as a “cash-out refinance”. A cash-out refinance is a fairly simple transaction in which the mortgage lender orders an appraisal to determine the fair market value of your home. Based on that fair market value, the lender establishes your maximum loan amount and determines how much money you are eligible for. The lender then evaluates your credit, employment, and income in order to qualify you for the loan. After closing, the lender pays off your old mortgage, replaces it with a new mortgage for the larger loan amount, and gives you a check for the difference less any closing costs.
The key rule of thumb for a cash-out refinance is this–the lower your closing costs, the more money you have to spend on your remodeling project. Low closing costs matter. Shop for a mortgage lender who will waive their origination fee and any discount points. If Lender A is offering a slightly lower interest rate than Lender B, be sure and carefully compare the closing costs for each lender. The difference can often be thousands of dollars. The lowest interest rate is not necessarily the best deal.
When determining which remodeling projects make the most financial sense, most experts advise that remodeling your kitchen or bathroom provides the biggest value, although a recent study by Remodeling Magazine revealed a little-known fact that replacing your front door actually provides the #1 return on investment for your remodeling dollar. Other popular trends in remodeling include energy efficiency projects, new siding, increased storage space (e.g. closets), and room additions.
A gorgeous entryway is the home remodel with the largest ROI.
Examples of remodeling projects that are decreasing in popularity include home office remodels and sunrooms.
Let’s face it—home remodeling is an investment that requires smart financial planning. To maximize the value of your investment and determine the best home improvement project for you and your family, choose a reputable mortgage lender who offers you a low fixed rate with the smallest amount of closing costs. Join the record number of homeowners who are capitalizing on an improving US economy and low interest rates and turn your house into your dream home.