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How to Estimate and Finance Remodeling Costs
Summary: Estimating the costs of remodeling and financing those costs is more difficult than estimating the cost of a new home.
This is because there is no cost estimating software available that can give you at least a rough estimate and contractors charge more for remodeling.
And, it is not really possible to price remodeling by the square foot.
You will have to get comparative bids for each facet of the total remodeling project.
You should make a list of all the categories the project will need and use the cost estimate spreadsheet as a starting point. Obtain competitive bids as though you were building a house and proceed from there.
How to Finance Additions and Remodeling
Financing remodeling or an addition could be easier than financing a new home. You may be able to simply get a home equity loan based on the equity you have in your home. (Your equity is the difference between what the house is worth and what you owe on it.) Quite often you don’t even need to give a reason to borrow against that equity because the lender is well protected if you should default. The house already exists and serves as collateral for the loan.
The amount you can borrow varies from lender to lender, but if you have been in your house for at least three years, it is safe to assume you have built up some equity. Typically, you could borrow up to 100 percent of your equity.
Not any more. Now you are lucky if you can borrow up to 75% of the value of your home.
If you don't have sufficient equity for an equity loan, a construction loan based on what the "completed value" of the house might be the answer.
Financing small jobs can also be done with cash from savings, low interest credit cards.
Just as in planning new home construction, a local lender can sit down with you and discuss your lending needs.
Try a credit union. I find they are more flexible in their lending and less bureaucratic.
Remodeling: Renovation or Restoration
Over the years, finding inexpensive historic houses to buy for the express purpose of restoring them has gotten harder, except in areas that no one wants to live in.
It is hard to increase the value of a home through renovation if it is in an undesirable area.
The result is you may have to pay too much to make renovation feasible. If the price of the house plus the cost of renovation exceed the fair market value (appraised value), it makes little sense to proceed.
You must keep in mind that sooner or later all houses will have to sell.
There do remain a few pockets of desirable older homes, usually in established neighborhoods close to viable downtown areas, where paying more to purchase is rewarded in the end. But the big bubble of the 2000's is long gone.
If you already own a house in need of renovation, however, or have found an appropriate one to buy, read how to analyze the situation on my page Renovation Budget