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Refinance, Sell or Remodel??

Sooner or later, life changes. When it does, we must all make choices. Perhaps you bought your property at the wrong time, and are trying to gain some value through a remodel. Perhaps the family has grown out of the old house, and a decision must be made whether to sell and buy a bigger home, or whether to add on to the existing house. Can you get money out of the equity in your property to do the remodel? Perhaps you just would like to get a lower interest rate than when you first bought. Let's discuss these issues.

There are costs involved in refinancing your house, and the overall picture must be examined carefully. The issues relating to taxes, how long you will be remaining in your property, how many years you've already paid your mortgage vs. starting with a new 30 year loan...all are factors. A simple, although very, very general rule of thumb is that if you're remaining in your property more than three years, and you can save one percentage point on your interest rate, you probably will find (after checking with your accountant) that it makes financial sense to refinance with a loan that has no prepayment penalty. We will simply leave that to your accountant to advise whether or not to take the action, let's now talk about whether or not you will be able to. There are unfortunately difficulties in most refinances for two reasons. The first reason is that, although you already have a loan with a higher interest rate you are now paying, you still must qualify for the loan again. This may be a new company loaning you the money for your refinance, or the same institution, it really doesn't matter most times. The company will want to be sure your income is still high enough to qualify, and that your debt ratios are in line. If you've borrowed a tremendous amount of money, or if your wife no longer works, etc., you may not qualify to refinance your home through conventional means, even if it's going to bring your payment down! You may still try and approach your current mortgage holder if this is your case, there are sometimes exceptions.

If you do meet income requirements, you will want to go through a mortgage broker in most cases, who can offer you a wide variety of products. Secondly, your home must qualify. With property values having dropped substantially, your home may not have the proper "loan to value" ratio to refinance. Many times homes which originally qualified with an 80% loan to value (say, $ 160,000 loan amount on a $ 200,000 purchase price) may now have a value where their current remaining balance relative to what a new appraisal would bring is more like 90% ($ 200,000 in the above example) home now worth $ 170,000, six years later, current loan balance about $ 153,000). There are plenty of loans out there with 90% LTV (loan to value) ratios, but now you will have to pay an additional premium for private mortgage insurance (or, PMI) because the lender requires PMI on LTV's higher than 80%. You must look at the total monthly cost out of pocket...new payment plus PMI vs. old payment when making your final decisions in these cases where value has plummeted. In many cases unfortunately, it doesn't pencil, or the home can't qualify for even a 90% type loan. You must consider all the issues, determine what the break even time is for the savings you get vs. the cost of the refinance, and how long you intend to live in the home. Take all that to your tax advisor, then call us for current rates. Sometimes, even after all of the headaches, we can save you a couple hundred dollars a month or more.

The decision to remodel or not is more complicated than whether it makes financial sense or not. Living through a remodel can be quite an experience for a family. Sometimes it brings a family closer together, but often, it is a relatively trying experience. It is often the right decision to simply sell the old house and buy a larger home. We speak from experience with a solid background in residential remodeling on this point. If you decide you'd like to consider the remodeling option, take a look at the Ventura Associates web site, and give us a call. There are designers on staff who can come to your home for a free consultation and discuss your situation. Send email by clicking the link, or try the link to go to Ventura Associates homepage... and thank you!