Project Planning

Even before you consult an architect, you can begin sketching out your ideas and imagining your remodeled home. If you are adding or expanding a room, think about how the space will be used and how the changes will affect traffic patterns. Also consider how new construction will affect the overall context of your home. An oversized addition may overwhelm your house or crowd a small lot. A simple home design software program can help you visualize your project. Consider the following points:

1. You need to update the out-of-date. If your kitchen still sports appliances and decor from decades past, now may be the time to make it current.
2. You need to replace fixtures or appliances. Sometimes a home improvement project grows out of an immediate need to replace broken or inefficient fixtures. If the sink, tub or toilet has to be replaced, many people take the opportunity to refurbish the entire bathroom.
3. You're selling your home. You want to be sure you'll get top dollar from the sale of your home, and that may be the rallying cry for some home improvement projects.
4. You're staying put. You thought about moving, but now you realize that improving your present home is a better option.
5. Your family has grown and you need more space.

Cost

Even the best-laid budgets can go bust. Chances are your remodeling project will cost more than you expect. Before you set your heart on high-end ceramic tile, find out how much you have to spend and make sure you have a cushion against cost overruns. For must-have items that could wipe out your savings account, explore home improvement loans and other financing options:

1. Second mortgage.


• This is a loan against the equity in your home. It is, in essence, an additional mortgage. Typically, financial institutions will let you borrow up to 80 percent of the appraised value of your home, minus the balance on your original mortgage. For example, if your home is appraised at $100,000 and your current mortgage balance is $70,000, you may be able to borrow $10,000 by way of a second mortgage. You may also incur all the fees normally associated with a mortgage - closing costs, title insurance and processing fees. Talk to your tax advisor about whether the interest on a second mortgage may be tax-deductible.


2. Refinancing.


• This involves paying off your old loan and taking out a new mortgage on your home. To refinance, generally you'll need to have equity in your home, a solid credit rating and a steady income. You'll incur all the closing costs that go along with getting a new mortgage, so unless you're doing extensive remodeling and can get a mortgage interest rate at least two points less than you're currently paying, this type of loan may not be for you.


3. Home Equity Line of Credit.


• Like a second mortgage, a home equity loan lets you tap up to about 80 percent of the appraised value of your home, minus your current mortgage balance. Since it's set up as a line of credit, you won't be charged interest until you make a withdrawal, but you will have to pay closing costs. You can make withdrawals gradually as you start paying contractors and suppliers. The interest rate charged is usually variable and may be based on the outstanding balance. Make sure you understand the terms of the loan. If, for example, your loan stipulates that you need to pay interest only for the life of the loan, you'll have to pay back the full amount borrowed at the end of the loan period or you could lose your home. The interest on home equity loans may be deductible; talk to your tax advisor.


4. Unsecured Loan.


• Although the interest rates charged are often higher and you generally will not be able to get a tax deduction for the interest paid, the costs of obtaining an unsecured loan are usually lower. The relative ease of obtaining this type of loan makes it popular for small projects costing $10,000 or less. The lender will evaluate your application based on credit history and income.