Savings or Loan? Paying for a Remodeling Project

People who dream of renovating a home — or redoing just the kitchen or bathroom — might wonder how other homeowners finance a home remodel that can cost tens or hundreds of thousands of dollars.

Paying for a home remodel sometimes involves a new loan, but more often, homeowners have cash on hand from other sources, says Steve Klitsch, owner of Creative Concepts Remodeling, a home remodeling company in Germantown, Md.

Klitsch says the majority of his customers last year used cash from personal savings to pay for remodeling projects, though two families received substantial gifts from their parents and two others refinanced their mortgage and cashed out some of their equity to finance a home remodel.

People who spent their own money to finance a home remodel typically were more frugal and asked more questions about labor, materials and warranties than those who received gifts or refinanced their mortgages, Klitsch says.

Among those who had saved up were dual-income couples whose children had recently completed college, ending years of education expenses.

“There’s a relationship between working couples, life partners, who have children who’ve completed college and within a very short period after that, they say, ‘Wow! Look at the money we have!’ They’re not paying tuition, not buying books. They suddenly have thousands or tens of thousands of disposable income they can put into their home,” Klitsch says.

A late-2012 survey by the National Association of the Remodeling Industry, or NARI, in Des Plaines, Ill., also suggests many remodeling customers have adequate savings.

The survey found 96 percent of the 518 NARI member contractors who completed the questionnaire had accepted checks as a form of payment. Approximately one-quarter had accepted credit cards, home equity loans, bank home improvement loans or cash. Only 6 percent had arranged financing for their customers.
Cash out to remodel

Homeowners who tap their equity to remodel will be limited to the lenders’ maximum loan-to-value, or LTV, ratio. Most lenders won’t allow a homeowner to borrow more than 80 percent of the value, says Stephen LaDue, senior loan officer at Prime Lending, a mortgage company in Brookfield, Wis.

“If you have a $250,000 house, 80 percent is $200,000. If you want to do a $50,000 remodel and you owe $175,000, you only have $25,000 to work with,” LaDue says.

Shopping around might turn up a local lender or credit union that will step up to 90 percent, LaDue adds.

“Be a smart shopper and ask upfront: ‘What are your loan-to-value limitations? Can I go up to 80? Can I go up to 90 with a second mortgage?'” he says.

A second mortgage might be especially difficult to get because second-mortgage lenders were among those who “took it on the chin the worst in the housing crisis,” LaDue explains.

Still, some homeowners can pull out enough cash for a modest remodeling project that makes a house they’d planned to sell more comfortable for a longer stay, says Rob McAllister, a mortgage broker at West Seattle Mortgage in Seattle.

“People are refinancing, taking the low rate and pulling out $20,000 or $30,000 to get the house to where it needs to be for them to stay there longer than they’d anticipated,” McAllister says.

An informal NARI website poll in April 2012 found quite a few homeowners planned to keep their home longer than they’d originally intended. Twenty-eight percent planned to stay an additional one to five years, 23 percent intended to remain another six to 10 years, 10 percent added 11 to 15 years, and 26 percent planned to stay 16 to 20 years longer.

Only 13 percent said they hadn’t extended the time they expected to live in their home. The survey isn’t scientific because those polled were self-selected and searching for information about remodeling, yet it offers a sliver-sized snapshot of homeowner behavior.
Unlimited funds

Some homeowners can remodel with little concern about funds, says Jim Bateman, owner of Bateman Custom Construction, a home remodeling company in Fairfax, Va.

“You meet all types,” Bateman says. “Some people have more money than they know what to do with. I’d like to have all those customers, but that’s not the case.”

Others factor energy-efficiency rebates or savings into their calculations. Making a home more energy-efficient during a remodeling project involves upfront costs, but can pay off over time, says Gary Henley, president of Henley Homes, a home remodeling company in Liberty Hill, Texas.

“It costs you less every month to make the house more energy-efficient while you live there, so why not do it while the kitchen or bathroom is torn to pieces, instead of coming back and making another mess later?” he says. “You’re getting a quick payback, so it makes it affordable.”

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Home Remodeling Spending to Grow 20% in 2013

The Leading Indicator of Remodeling Activity released by Harvard’s Joint Center for Housing Studies points towards a strong rebound in home improvement activity during 2013.
By Daryl Delano, January 18, 2013

The remodeling market continued to record steady gains – and good opportunities for custom installers/integrators – during 2012, even as the recovery in new home construction proceeded at a disappointingly slow pace.

Now with momentum in starts finally starting to build, there’s news that remodeling growth is picking up steam as well.

The Leading Indicator of Remodeling Activity (LIRA), released by Harvard’s Joint Center for Housing Studies (JCHS), points towards a strong rebound in home improvement activity during 2013.  The JCHS report documented robust spending throughout the second half of 2012, and the LIRA projects annual homeowner improvement spending will see accelerating double-digit growth through at least the third quarter of 2013.

The LIRA is compiled by analyzing recent trends in eight specific indicators of market activity (e.g., housing starts, pending home sales, retail sales at building supply stores, etc.) which together have historically had strong correlations to remodeling spending.  After weighting the components to reflect their relative correlation and lead times with respect to historical remodeling spending trends, the factors are applied to develop a forecast of near-term changes in the market.

Related: Housing Starts Strong in Dec. 2012

Summarizing the latest LIRA report, Kermit Baker, director of the Remodeling Futures Program at the JCHS, says that “… the solid momentum behind home building activity, existing home sales, low financing costs and remodeling contractor sentiment all point to a solid start to the new year for home improvement spending.”

By the third quarter of 2013, spending for home improvement projects is expected to be growing at an annualized rate of 19.7 percent, with the dollar value of activity projected to reach an annualized total of $145.5 billion.

Click image to enlarge

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Beware of Home Improvement Fraud

With winter waning and warmer days ahead, it’s the time of year when residents are thinking about home/property repairs.

In order to guard against becoming a victim of home improvement fraud, follow these suggestions:

  • Realize that companies and individuals tend to target the elderly.
  • Make sure to ALWAYS get at least two, preferably three, estimates.
  • Watch out for companies that pressure you with scare tactics into immediately starting the work. Using tree services as an example, a tactic used by scammers is to tell you your tree has been struck by lightning and that it will fall on your house if it does not get cut down — right now.
  • Trees located on a city’s tree lawn generally are the responsibility of the city and no one is allowed to trim them or cut them down. A city’s forestry division normally takes care of this at no charge to the property owner.
  • Beware of paying upfront for services.
  • Do not pay for the job until the entire job is completed to your satisfaction.
  • Make sure to only hire companies that are bonded and/or insured.
  • Before hiring someone check online at (Better Business Bureau).
  • If you believe you are a victim of home improvement fraud, contact your local police department.

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How to Calculate Room Addition Cost

By Steve Brachmann, Demand Media

The costs associated with adding a new room onto your home can be broken down into labor and materials. “Materials” refers to any of the construction materials, from plywood to lighting fixtures, which you intend on installing in the finished room. Labor costs will be incurred if you hire a contractor, or you may decide to pay friends to help. Whatever the case may be, understanding your costs prior to beginning a room addition can help to stay within budget.


Decide on the square footage of the room you will be adding to your home. Room additions can cost up to 50 percent higher, between $80 and $130 per square foot before considering wiring and plumbing, than that same room had been constructed with the rest of the house, according to the Home Addition Plus website. The services of a professional architect, who would draw up the plans for the room, may be between 5 percent and 15 percent of the room’s construction costs, according to


Figure out what fixtures you plan to add to the room. Plumbing work and the installation of a bath and sink will increase the cost of a bathroom over a similarly sized family room that which may just have furniture. Identify which appliances and fixtures you want to buy and tally their costs as part of your total price tag for the room addition. Also consider the plumbing or wiring you need to purchase for running water or electrical appliances.


Decide on the other construction needs you’ll need to purchase to build the room addition. This will include lumber, paint, flooring and any other structural elements of the room. Determine how much of each material you will definitely need to complete the project, and add those costs to your appliance costs to get a rough estimate for your total materials costs.


Talk to a contractor if you require professional help to complete the room addition. Before hiring the contractor, make sure you understand the labor charges per hour or day and ask for references. You should also ask for a written quote on materials; if it’s far more than the cost that you identified, you may save money by to provide the building materials yourself.


Make sure to address other costs associated with the addition of the new room when calculating its overall cost. You’ll generally have to pay a disposal service for cleanup and removal of old or excess materials. Understand that an addition to your home will very likely also cause your home insurance, utility bills and property taxes to increase, as well.


  • When trying to find materials or appliances for your renovations, don’t just go to one retail store to check prices. Compare prices from as many stores, manufacturer showrooms or specialty markets that you can find. You may be able to locate new stores through local publications on do-it-yourself projects or home remodeling.


  • Be aware that building permit fees that must be paid to your municipal government may add to the overall cost of adding a room to your home.

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