If you’ve been thinking of adding a room to your house or converting an unfinished basement into an extra room, you might want to think twice. Take a look at the last two articles I wrote about “Home Renovations that Give the Biggest Returns” https://rumsonfairhavenhome.wordpress.com/2014/03/30/home-renovations-that-give-the-biggest-returns/ and you’ll quickly see that capital renovations to a home increase the home’s value by only a fraction of the cost of the project.
If you’re thinking of spending $100,000 on a renovation project, you might want me to show you some of the new construction in our area instead. For $100,000 plus the equity you’ve built up in your current home, you might be able to buy a new house with the space and amenities you want, and all of that $100,000 investment would be captured as equity. In addition, newer construction techniques combined with high-efficiency heating and cooling systems would probably mean lower monthly utility bills.
A note of warning, though: mortgage interest rates are projected to increase by about 0.5% by the fall, and about a full percentage by this time next year. If you need a mortgage to buy a new house, each 1% increase in mortgage rates has the effect of decreasing your purchasing power by 9%. In other words, if now you can qualify for a $400,000 mortgage but you wait 12 months before buying a house, 1% higher interest rates will mean that you’ll only qualify for about a $360,000 mortgage for the same monthly payment. And that’s assuming that home prices remain stable and don’t go up in the next 12 months.
The two take-home messages: you might want to look at new construction instead of adding space to your curent home, and if you’re thinking about buying a house and need a mortgage, find the house you want soon, before interest rates go up.
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