FIRST THINGS FIRST BY JOE STELLA PHOTO BY ROB MELNYCHUK/GETTY IMAGES

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1 FIRST THINGS FIRST HOME IMPROVEMENT PROJECTS KEEP YOU FALLING IN LOVE WITH YOUR HOME. PRIORITIZING THESE PROJECTS GIVES YOU A LONG-TERM PLAN YOU CAN LIVE WITH. ONE OF EVERY THREE AMERICAN HOMEOWNERS WILL undertake some kind of home improvement project this year, regardless of how long they ve lived in their homes. That s not surprising when you consider that interest rates on home equity loans, the most popular way to finance home improvements, have been near historical lows. But no one can say how long the favorable borrowing atmosphere will last. With that in mind, the old adage, There s no time like the present, certainly applies. But where do you start? Maybe you ve already planned to turn your kitchen into a chef s paradise or your master bath into a Zen-like fortress of solitude. Of course, there are dreams and there are realities and, for the average homeowner, a limit to how much you can spend or borrow. So the question is: Which project do you tackle first? BY JOE STELLA PHOTO BY ROB MELNYCHUK/GETTY IMAGES 34 YOURHOME Spring 2004

2 In addition to providing hours of relaxation, new bathroom remodels recoup most of their cost at resale. Upscale remodels like this master bath with jacuzzi tend to pay back more than mid-range re-dos.

3 Safety First When remodeling, many homeowners make the same mistake, says Houston-area contractor Michael Strong. Most people tend to focus on cosmetic changes rather than the home s systems, he says. If there s a safety issue, you have to take care of that first, and then move on to the rest of the home. The best way to check the safety and stability of your home s infrastructure is to hire a qualified home maintenance contractor or a professional home inspector. A home inspection will include critical areas, such as the foundation, siding, roof and the heating, ventilation and air conditioning (HVAC) system, and alert you to problems that could be dangerous or cause costly home repairs. In theory, this early detection service pays for itself with money saved in major repairs should the condition go uncorrected. Unlike the regularly scheduled checkups of a home maintenance service, a home inspector charges a flat fee, typically between $250 and $350 for a one-time assessment on an average-sized home. Homeowners are reluctant to spend money on things like the HVAC system or electrical wiring because those are things you can t see. They figure as long as everything s working, it s fine, Strong says. But it s the most important thing to consider when you re talking about home improvements. This is especially true for older homes, he says, but even newer homes can come with glitches. Some safety upgrades may HOW WE CAN HELP... with home improvement By pairing a first mortgage with a home equity line, the Wells Fargo Home Asset ManagementSM Account lets you access your home equity whenever you need it, without applying for additional loans. The Refinance & Renovate SM loan is a great solution if you have little equity in your home but want to refinance to make significant home improvements. Find out how you can turn your house into the home you always wanted at or call 800/ , extension 100. Which home improvements may increase your resale value? See our online Home Improvement Calculator at For more on financing home renovations visit to download a free Renovation Guide or call 800/ , extension 181. For information on Wells Fargo personal lines and loans, call 800/ , extension 115. even be required before you can sell your home, so that s another reason to address these issues before making any cosmetic changes to your home. Once your home passes its health inspection, you can start the fun stuff on your wish list. Dream Time ABOUT ONE-THIRD OF ALL HOMEOWNERS UNDERTAKING A MAJOR REMODELING PROJECT CITE INCREASING THE VALUES OF THEIR HOMES AS THE MAIN REASON FOR THE PROJECT. Whether you re a first-time remodeler or a seasoned pro, start with a list of improvements you d like to make. This is a creative exercise to get the juices flowing, so don t hold back. After all, dreaming is free. When compiling your list, it s a good practice to shoot for the stars, Strong says. You might be surprised at what your contractor can do. Before closing on a 13-year-old, four-bedroom house in Houston s tony West University neighborhood, Tammie Ebeling contacted Strong and asked him to walk through the home for a reality check. I told him everything I wanted to do, and he told me what was possible, given my budget, Ebeling says. He showed me how I could save a little without sacrificing my long-term goals. For Ebeling, it was as simple as coming up with a few creative solutions. Strong suggested refinishing the existing cabinets and replacing their doors rather than installing a new suite of cabinets, lowering the initial job cost estimate by about $12,000. Strong also found less expensive plumbing fixtures at an outlet store to replace the high-priced brands on Ebeling s list. It s important to find a contractor that you feel comfortable with, Ebeling says. Trust is an important part of the relationship because you want the contractor on your side, working with you to find solutions. Once your list is complete, go through it room by room and ask yourself what you and your family would gain from each improvement. This time, be practical. Consider your lifestyle and any life-changing events on the horizon, such as the birth of a child or caring for an aging relative. It s always a good idea to look at the big picture when remodeling, Strong says. Take into consideration where you and your family will be three or five years down the line. Now reprioritize your list and make sure that your short-term (one to three years) home-improvement plan 36 YOURHOME Spring 2004

4 home improvement: evaluating your financing options FINANCING OPTIONS YOUR PROFILE PROS & CONS WELLS FARGO EXCLUSIVE Home Asset Management SM Your current mortgage does not need refinancing. By adapting your current mortgage to a Home Asset Account with an You have equity in your home, but believe property value Management Account, you get ongoing access to funds that ADAPTED mortgage will appreciate in the future. grow due to property-value increases and pay down on your You foresee a need to access your equity over the years. mortgage balance. Annual statement that shows the valuation of your property used to measure your equity and the amount you have borrowed against it. Credit card to withdraw funds from the line of credit. Usually tax deductible interest. Careful management of your home s equity is important. Interest rate is usually variable, so you assume the risk of rising interest rates. However, the opportunity exists to turn variablerate lines into fixed-rate loans. Home Asset Management SM Your mortgage interest rate is higher than current By refinancing your current mortgage into a Home Asset Account with a market rates. Management Account, you get a lower interest rate on your first NEW mortgage Same as above. mortgage and ongoing access to funds that grow due to property value increases and pay down on your mortgage balance. Same as above. Home Equity Loan Your renovations must be paid for soon or in a lump sum. Generally lower interest rates than unsecured credit cards, You have sufficient unused equity to borrow against. personal loans or lines. Your mortgage interest rate is not higher than current rates. Interest rate is usually fixed. Interest is usually tax deductible. You may have to begin paying back the whole amount immediately. Home Equity Renovations will be done in stages, perhaps because You borrow the funds as you need them. Line of Credit you re doing them yourself. Generally lower interest rates than unsecured credit cards and You have sufficient unused equity in your home personal loans or lines. to borrow against. Interest rate is usually variable, so you assume the risk of rising Your mortgage interest rate is not higher than interest rates. current market rates Interest is usually tax deductible. Cash-out Refinance Your mortgage interest rate is higher than current If your mortgage needs refinancing, accessing your equity with market rates. a cash-out may give you lower monthly payments than other You have sufficient unused equity to borrow against. products, depending on type of loan or line and interest rate. Usually tax deductible interest. You must begin paying back whole amount immediately, whether or not funds are used. Refinance & Renovate SM You do not have sufficient equity in your home to support The amount of the funds you are given for renovations is determined the cost of your planned improvements. by future, after-improvement property value, not on your current equity. Your current mortgage needs refinancing. The interest rate and/or monthly payments may be lower than a Your home s value after improvements will be higher first mortgage and home equity combined. than its current value. Usually tax deductible interest. A contractor will make the improvements. This financing is not permitted for do-it-yourself renovators. Personal Lines & Loans Your current mortgage does not need refinancing. Even if you have no equity in your home, you may be able to get Your home s equity is not sufficient to support funds to improve it. the improvement. Interest is usually not tax deductible. Interest rates are generally higher than other types of financing. Credit Card Your improvements are small (under $10,000). Convenient access to funds and you only pay for what you use. You can pay off the costs quickly. If purchases are paid off quickly, impact on overall interest Your current mortgage rate is very low and/or you don t expense may be minimized. have enough equity. Interest is not tax deductible. Interest rates are generally higher than other types of financing. Home equity financing and the home equity piece of the Home Asset Management Account are available from our affiliate, Wells Fargo Bank, N.A. An Equal Housing Lender. Home Asset Management Accounts are not available on homestead property in Texas. Consumer credit cards and personal lines and loans are issued by Wells Fargo Bank, N.A. Member FDIC. Contact your tax advisor for specifics. YOURHOME 37

5 home improvement payback Remodeling magazine s annual Cost vs. Value table estimates how much of a home improvement project s cost can be recovered at resale. The report doesn t take into account several factors that affect your home s selling price, including the vibrancy of the local real estate market and the value of surrounding properties. For a more accurate estimate, consult a local real estate professional. Percentage of Cost Recovered accommodates your current lifestyle and any imminent changes. Don t eliminate the other projects; just move them further down the list. It s best to look at your remodeling wish-list in stages, adds Strong. Develop a budget you re comfortable with, spend it on priority projects, and then catch up financially so you can move on to the next stage. PROJECTS NATIONAL AVERAGES CHANGE Deck Addition 104% Siding Replacement 98% 79% +19 Bathroom Addition, Mid-Range 95% 94% +1 Attic Bedroom 93% Bathroom Remodel, Upscale 93% 91% +2 Bathroom Remodel, Mid-Range 89% 87% +2 Window Replacement, Upscale 87% 77% +10 Window Replacement, Mid-Range 85% 74% +11 Bathroom Addition, Upscale 84% 81% +3 Family Room Addition 81% 80% +1 Major Kitchen Remodel, Upscale 80% 80% - Basement Remodel 79% 79% - Master Suite, Upscale 77% 77% - Master Suite, Mid-Range 76% 75% +1 Major Kitchen Remodel, Mid-Range 75% 67% +8 Not included in the 2002 Report Source: Remodeling magazine, November 2003 (numbers have been rounded) Guaranteed Payback: Deck additions have the highest national average of cost recovered. A single mother, Ebeling mainly was concerned with updating the kitchen because that s where she and her two daughters, ages nine and six, spend most of their time. We love to cook and bake together, so that room was my first priority, Ebeling says. It s also important for everyone to have their own space. With Ebeling s elder daughter only four years away from becoming a teenager, the upstairs bathroom remodel will likely be the next big project. Cost vs. Value A top concern for many remodeling homeowners is the return on investment. About one-third of all homeowners undertaking a major remodeling project cite increasing the value of their homes as the main reason for the project. But resale value tells only part of the story. How much a home improvement project adds to a home s value and how much of its cost is actually recovered at sale may not be the same (see Home Improvement Payback, left). That s because there s no objective value to a home; there s only the marketplace and whatever the buyer and seller agree to. A swimming pool, for example, may add to your quality of life, but it may not add the $30,000 cost of installation to the market value of your home. Put simply, think carefully about your expectations. Some home improvement projects are less likely to regain their cost, while others may even detract from your home s resale value. Enjoy It! The flip side of resale value is utility value, which is just as important but more difficult to measure. Utility value is any benefit gained from a home improvement that won t garner you a solid return on investment, such as a swimming pool or central vacuum system that may increase your quality of life, but may not regain the full cost upon resale. Be careful not to make a decision based solely on what you re going to get back financially. If you plan on staying in your home and enjoying your home improvements for years to come, don t sacrifice quality for cost, says Newton Highlands, Mass.-based contractor Paul Sullivan. It s hard to put a price tag on something that s going to add quality of life for you and your family. YH 38 YOURHOME Spring 2004