Finding the funds to pay for those bigger projects can be a challenge. How do you update the kitchen? Put in a pool or great landscaping? A smart mortgage advisor will show you how to use the equity in your home. Start by finding out your home’s value. How much equity do you have?
Listen up to Coffee and Jam to get the scoop on funding fun projects. Transcript is below.
For the more Coffee and Jam podcasts, click here.
DO YOU HAVE EQUITY IN YOUR HOME?
EQUITY: the money value of a property in excess of claims or liens against it. – Merriam Webster
One of the biggest perks of home ownership is building equity over time. Our smart mortgage advisors will show you how to use the equity in your home to pay for those big fun projects.
Start by finding out your home’s value. How much equity do you have? Contact your realtor (your mortgage advisor can recommend one if you don’t have one). The realtor will be able to tell you the current market value of your home.
If the home’s value is in excess of the mortgage, you’re in luck! That’s equity you can use!
Your realtor will be able to give you a ballpark price for the renovations you’re planning. If the pricing is in your budget, here are two options to use your home to pay for them.
REFINANCE: Paying off one loan with the proceeds from a new loan using the same property as security.
Refinancing pays off your old mortgage in exchange for a new mortgage. Take that updated market value of your home (that you just got from your realtor) and consider it against the estimate for your big project. Maybe now is the time for a cash-out refinance? You can take money out with a cash-out refi and use it for your big project, which could help build the equity in your home.
PRO: There is only one lien against your property. “There is some value in having just one payment every month. And having the tax deduction on that payment” says Erin Finke, senior mortgage advisor.
HOME EQUITY LINE OF CREDIT (or HELOC)
“A home equity line of credit is different than a cash out refinance. It is a second loan on your property” says Finke.
PRO: “The great thing about a line of credit as you pay it down is you can access it again,” says Finke. “With a home equity line of credit you can go up to 100% [value of the home]”.
HOW TO DECIDE?
This can be overwhelming. Our mortgage advisors can help you make this big decision. There are several elements at play: different personal qualifying details and lender rules may make a difference.
ALWAYS BE IN THE KNOW
Knowing the value of your home helps you understand your mortgage better. We like to send our clients a monthly email with an updated value of their home. It helps you manage your most important asset and shares tips on how to save money for the next big project.
- Call your realtor and get an updated home value.
- Ask your realtor for a ballpark estimate of what they think your project would cost.
- Call your mortgage advisor.
- Start on your project!
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Enter our Free Resource Library!
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ERIN It’s Thursday, June 13, 2019.
ALEX Do you remember that, you call in for the weather. That’s what you sound like right now.
HOW TO USE YOUR MORTGAGE
TO FUND BIG PROECTS
Are you planning a new pool or landscaping project? Maybe a kitchen renovation or addition is in your future? Finding the funds to pay for those bigger projects can be a challenge. We can help.
ERIN Oh, my gosh! You’re right. Or the time? Isn’t that weird that you would call in for the time? The time is nine thirteen. At the tone the time will be nine thirteen am. Beep. And then it would keep going.
ALEX Yes! That’s what you just sounded like. No one knows what the heck we’re talking about.
ERIN Sorry. I apologize in advance.
ALEX Yeah. It’s kind of like that commercial. On the news? It’s right before the news. The time is…
ALEX The temperature is….brought to you by…
Funding Fun Projects
ERIN So thank you for the last 50 seconds, 51 seconds that we have brought beautiful content to you. No! Let’s jump right into our topic today. Last week we talked about improvements in Biggest Bang For Your Buck. Today we’re going to unpack that a little bit further and talk about how to access the funds needed for improvements and the first few steps to take.
ALEX Yep. So what do you want to call it? How To Pay? How to Finance? How To Fund?
ERIN Yeah. How To Fund The Fun Projects. Funding Fun Projects.
ALEX How To FF.
ERIN Oh Jesus.
ERIN So last week we talked about kitchens, baths, we touched on pools. And the return on investment for those things. We also talked about Jen and how she wanted to do a whole master. And I’m still trying to convince her just to do it.
ALEX We should do a vote. Like on Facebook. https://www.facebook.com/theyiteam/
ERIN Everyone is going to say do it.
ERIN It’s her forever home, they’re not going anywhere. It’s just jumping in.
ALEX At that point lets just knock it down and start over.
ERIN A McMansion. The house is huge as far as square footage. It’s just that they have a lot going on. I’m going to encourage her once everything has settled down because I know that would bring her a lot of joy.
Do You Have Equity In Your Home?
ERIN So that being said, if you have the ability to access equity in your home, and what that means is that you have an equity position in your home where there’s some cash available. Now I would recommend if you want to know if that’s possible to contact your real estate agent. Because you would be able to tell them where their home sits on the market today. What’s their value. There would be an appraisal that would come into effect.
ALEX Yeah. And then how much they owe. And what the current market value is. And an appraisal.
ERIN So all of those things to start the conversation to try to figure out what it is you want to accomplish. If you’re like me you wouldn’t know what that is going to cost. I don’t know anything about costs of construction or any of that. So my first step would be to find out what I want to do and then talk to a professional who may be good, not necessarily to price it out, but who could give me a ballpark. Alex you would have an idea.
ALEX Couple big bids.
ERIN Yeah, even before bids. Like if I said, Alex, I want this new kitchen you would have an idea. Ballpark like, all right if you want to do this it’s going to cost you $25,000, or whatever it is.
ALEX Whatever it is.
Funding Fun Projects With A Cash Out Refinance
ERIN Maybe it’s a little bit more, maybe it’s a little bit less depending on little details that are chosen. So basically the first step is figuring out what your property is going to be worth as a ballpark. And that’s going to be a deciding factor in you moving forward. You can always take cash out of your property. You need to do a “Cash Out Refinance“. You could also take out a Home Equity. A Home Equity Loan is different than a Cash Out Refinance where it’s a second loan on your property. Depending on your specifics, one may make more sense than the other. It just depends on your circumstances. So if you do a second loan, it’s a Line Of Credit.
ALEX That’s what I have.
ERIN Yeah. So as you pay it down, you can access it again. So there are some benefits to that.
“There’s some value in just having one payment every month.”
ERIN For a Cash Out Refinance, you still just have one loan. There’s some value in just having one payment every month. And having the tax deduction on that payment. So, those are all unique to each person applying and the goals that they’re trying to meet.
ALEX Is there a cap?
ERIN Different programs offer different things. With the Home Equity you can go up to 100%.
ALEX Really? Fantastic.
ERIN Yeah. There are just different personal qualifying details that need to be met. You need to qualify and the lenders themselves have rules. We at Fairway don’t actually do stand alone Home Equity Lines Of Credit. We can obviously put you in touch with some people who do them. So that being said, I want to blow out this wall in my living room and I want to do a huge island with a big slab of marble and I want to do blah, blah, blah. Alex, I’m going to call you and you’re going to say, “okay great! I know Mr. Smith who’s the contractor”. How does that work?
ALEX Kind of like what you just said. It’s a little more in depth with ethics. I have to make sure that their license is up to date. This is boring logistics but I have to put it out there. I have to make sure their license is up to date. Then I have to email the contractor’s contact information with their link to the license. I do have a rolodex of people. And if you ask me ballpark number I’ll be able to give you an idea of what it’s going to cost.
ERIN I would say that’s probably unique to you too, because you work with a lot of developers. Versus just a regular resale real estate agent who might not know. I would say that’s a strength that you would have.
ALEX If you were to call and say that you wanted to put hardwood floors everywhere. Who is the best company around? I would be able to get you in touch. Things like that, that’s easy. Now when it comes to actually pulling permits and stuff then I have a whole thing. What people don’t realize is you may want to do one project but it could involve four different types of contractors.
ERIN That’s so true!
“The most expensive part of a project sometimes is the permits.”
ALEX And the most expensive part of a project sometimes is the permits. Especially when you want to move things.
ERIN I didn’t even think about the permit part. So please speak to that. Let’s say I call you and I want to take…it’s my house! It’s my property! I have to get permits for work that’s being done inside my home?
ALEX You actually have to get a permit if you change out your toilet. Yeah, Montgomery County requires a permit for almost everything. https://www.montgomerycountymd.gov/dps/
ERIN No way! So I had no idea.
ALEX Yeah. And if anyone ever fact checked it. Say you put another kitchen in the basement and you never pulled a permit.
ERIN And you try to sell your house.
“You can get a permit afterwards.”
ALEX You can get a permit afterwards. You can. Typically the seller would pay. You can get a permit after the fact. I would just not advise that scenario, which we have right now going on.
ERIN So I’m going to go off on a little side road here to give you an example I just thought of as you were talking about these requirements. We’ve had situations before where people have refinanced or asked to refinance. Guess what, they’ve closed out their garage to make it a mini kitchenette.
ALEX Whatever, yeah.
ERIN And now there’s no access now to the main house from it. They created their own little space. They took out the garage door. They put in bay doors. They put in a kitchenette. They did plumbing. None of it was permitted. Guess what, now it’s a two unit property, it’s not a one unit. It wasn’t an accessory unit either. The point is, they didn’t know it wasn’t okay. Had they contacted their real estate agent and said this is what I’m looking to do…
ALEX It’s interesting, because a good contractor will actually know that.
ERIN These people in particular were doing the work themselves.
ALEX That’s the only thing. I’m not knocking DIY projects. I would just confirm with either a real estate attorney, contractor, maybe a real estate agent one what you do and do not. Or, go to the county and ask what you need permits for. Because you really do need a permit for almost everything.
ERIN So how much do permits cost?
ALEX It all depends on the project and the scope of the work.
ERIN Really? So how does it work? Someone comes out and…You say I want a permit because I want to put on a…?
ALEX Usually a contractor will let you know what kind of permits you will need. If you just want to move a non-loadbearing wall, no problem. If you want to move structural walls, then obviously you would need a permit for it. If you want new wood floors, you don’t need a permit for that. Anything that involves the…
ERIN The structural integrity?
ERIN Makes sense. It’s a safety issue.
ALEX Which is why a toilet is part of it because it’s the plumbing.
ERIN Interesting. There’s so much I don’t know in regards to real estate!
ALEX A lot of agents don’t know that either until you get into a situation. Or if you’re like us and the stuff you deal with.
How Long Does It Take To Get A Permit?
ERIN What’s the timeline? From the time that you file for a permit and …?
ALEX It depends. Sometimes they’re quick. Sometimes you can get them back in a week. Sometimes they’re a little slower. It also depends on what you’re doing. If you’re just doing a quick kitchen renovation then yeah, you might get a permit quickly. Three weeks. Now be careful on the outside renovations because if you’re in an HOA, or you’re in a certain neighborhood. Or to put a pool in in the county, if you are within X amount of acres of your neighbor you need them to sign off. Same thing with a basketball court or tennis court.
ERIN Interesting. So that’s an HOA thing or that’s a permit thing?
ALEX That’s a permit thing.
ERIN So when we put the deck on our house last year, obviously we needed a permit. But the people who did the deck did the permitting.
ERIN So there’s a cost to that and they paid for it. That’s the idea? It’s probably built into my bid. So you mentioned neighbors signing. I had neighbors signing for HOA. That’s not permits, that’s just HOA to be okay with the deck.
ERIN So interesting. I believe it took a week or two for the permits. Once the permits were done then they had to do footers. And then that had to be inspected too.
ALEX So everything needs,… like a deck every process, every step of it would need to be inspected. And if you fail inspection.
ERIN Definitely took some time, longer than I thought it would. I think we started in March. I think that was when I went under contract. And it wasn’t built until the first week of June. Like Memorial Day weekend.
ERIN But it had to do with, I don’t remember why exactly. It only took a week to build the whole thing. But to start took a long time. I guess the HOA was like a 25-30 day thing that I had to do.
ALEX Because you have to wait.
ERIN Because I had to submit it. Put all the paperwork in. I had to get a survey. All those things. So the point here guys, is if you’re going to be doing projects you just need to start from square one. What is it that you want to achieve? Then talk to the professionals on what steps you need to take reverse engineer that and figure it out.
ALEX Make sure you get permits because it will come back to bite you in the ass if you want to sell your home. And you find out there aren’t permits, the buyer finds out there’s not permits.
Find Out If It Was Permitted
ERIN How would a buyer find that out?
ALEX Om my god, it’s so easy!
ERIN So I’ve had people who have sold homes and been like I’m going to sell my house. But I didn’t get a permit when I built my deck.
ALEX So it’s really easy. If depends on the county. Like if it’s in Montgomery County, just go to Montgomery County Building Permits. Type in the address. https://www.montgomerycountymd.gov/DPS/index.html
ERIN So it’s all public record?
ALEX It is. Everything is public record.
ALEX Type in the address so you can see the status of the permits. You can see the value of it as well.
ALEX I know!
ERIN All stuff I didn’t know!
ALEX I know! It’s fun. It can be. That stuff excites me more.
ERIN You’re a developer though. You like the project. And project management.
ALEX I do. I like telling people what to do. Haha!
ERIN Haha! We all know Alex. We all know. But it’s to orchestrate the whole project. You do need advice. You’re not, you do that for a living. That’s exactly what you do for a living.
ALEX Yeah, and I’m not going to charge you for advice. That’s the other thing. That’s the problem. A consumer assumes that to bring someone in it’s going to cost them. It’s not going to cost much honestly.
ERIN It’s probably going to cost more if you don’t have a conversation with a professional first. Long term.
ALEX Exactly. Anyway, that is today’s fun little tidbit. Funding Fun Projects.
ERIN So what questions do people have. Something that is specific to you in regards to a project. Maybe planning a project out for the future, let us know. We can definitely speak to it. I think it would be really good to get some real life examples. And actually go through step by step in one of our podcasts.
ALEX If anyone wants to know. We often get questions about what upgrades, what renovations should I do?
ERIN Right. And what materials? That’s a huge one. Because people don’t know how to leverage that investment. You could easily do a very expensive renovation with materials that’s not so great. And then it’s a huge flop. Right? Again, talk to a professional please!
Coffee and Jam
ALEX Please do! Your coffee smells amazing.
ERIN Thank you! It’s just my Donut Shop hazelnut. My big boring.
ALEX Shout out to Donut Shop. Isn’t that with the two E’s at the end?
ERIN I think so. I just get it at Giant. 36 K cups for $17.99.
ALEX There you go!
ERIN That’s what I’m going to do! I don’t know if we talked about it last time. But that stuff from Wegman’s I did try it!
ERIN It was pretty good. For next week’s I’ll bring in a couple and we’ll sample them.
ALEX Okay. Cool. Until next time… bye!
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