FHA 203(k) Rehabilitation Loans and Your Next Remodeling Project
You can use the same type of mortgage to purchase and renovate a home, too. But when it comes to those renovations, a little research into your options can go a long way and help you make smart choices about the projects you commit to with an FHA 203(k) loan.
Why is the research phase so important? Because it’s easy to get the wrong idea about how much value some additions or renovations might add to your property values. One great example? Some homeowners believe adding a pool or hot tub will increase the value of their property.
Some want to add these features for their own enjoyment, but if you’re hoping a pool installation is worth the expense when it comes to property values you may be disappointed by the realities.
FHA 203(k) Rehab loans don’t permit the funding of such luxury items, but for this article, it’s the misconception that’s most important here.
According to some sources an in-ground pool costs between $30,000 and $50,000.The value? About seven percent of the total you spend on the project. As mentioned above, if you wanted to add a hot tub to please yourself, those numbers won’t matter, but those who want the home to be worth more as a result? It’s a bad idea.
Generally speaking, you should not expect to recoup the full cost of any renovation project when the house goes up for sale. Some projects get close to breaking even; replacing your garage door comes close. You won’t get to 100% but could come within a few percentage points of doing so. But for many other popular upgrades, that percentage is far less.
The Remodeling Cost Vs. Value Report of 2022 at www.costvsvalue.com includes information on home improvement projects and how much they might recoup. Consider the report’s findings on adding a primary bedroom suite. That project will see a return of less than half the expense, and an upscale bathroom addition also only recoups a little more than half the investment.
The main question to ask before deciding what to do with an FHA 203(k) Rehabilitation loan is whether or not you want renovations to improve your enjoyment of the home or whether you want them to add to the value of the property.
Knowing which projects could add more value to the home for resale value is very important. If you want to increase the desirability of a home with improvements, consider upgrades that improve the efficiency of the home, or those that fix a noticeable issue with the property.
Sometimes the dollar value of the improvements isn’t as impressive as the perks those improvements bring. In the case of energy-efficient upgrades the savings on utility bills over time, those savings might be enough motivation to consider such a project.
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