Homeowners in Orange County often see two options when it comes to a home remodel: they can update their home and continue living in it, or they can complete their remodeling and work with Realtors to sell it.
The second option is often called flipping, especially when the homeowner buys a house with the express purpose of updating it and selling it for more money. But many people don’t realize that there’s a third option out there: refinance the home and continue to live in it for a more affordable monthly mortgage payment.
Doing a Remodel to Increase a Property’s Value
When many homeowners set out to update their home, they do so primarily to make the home more comfortable or function better for them. The added value of the house is a secondary benefit. Focusing on comfort and function over value is typically the way to go for those staying in their homes.
That’s because large, expensive renovation projects such as updating the kitchen or a bathroom don’t always recoup their costs in the added value. For example, updating the kitchen could cost a homeowner $50,000 but only increase the selling price by around $25,000.
That’s not to say that a remodel can’t improve value—it can. But homeowners who are doing updates to their home just to increase the sell price need to carefully pick their projects. Anything that adds useable living space, such as finishing a basement or attic, is going to see a much larger return on investment than a simple cosmetic update.
However, those cosmetic updates can make a property much more appealing to buyers, helping it sell much more quickly.
Working with Realtors to Flip a House
For those who set out to renovate and sell a home, the goal is simple: spend as little money as possible to get the most impact as possible. This is usually done in several different ways:
- Cosmetic updates that attract buyers, usually done in the kitchen and bathrooms.
- Adding square footage.
- Repairing/updating items that are required to pass inspection.
- Improving the home’s energy efficiency by installing better windows, insulation, etc.
- Adding a pool.
- Adding a deck.
- Adding a steel door and other security features.
These are just a few of the updates that Realtors can truly sell to potential buyers and will return a fairly high return on investment.
Update and Refinance
The third option that many people don’t consider is to update the home and then refinance it. This isn’t always a given—the homeowner will want to make certain interest rates have dropped and that they can afford to pay the closing costs on the new mortgage.
By refinancing to a lower rate or a lower term, homeowners can reduce the overall cost of the property. Another good reason to take advantage of this option is to eliminate private mortgage insurance by financing less than 80% of the home’s value.
After updating the home, it’s likely to appraise for more, decreasing the loan-to-value ratio and removing any mortgage insurance if you have any.
Homeowners may not think about refinancing their mortgage after remodeling their home, but it is a good move if they’re planning to stay in the house. Before doing so, however, they do need to make certain they are getting a lower rate or a better deal overall.