Remodeling: Establish Your Budget

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Before you spend a dime

{SET YOUR PRIORITIES}

Decide how much you can spend and set your priorities based on your reasons for remodeling. Place family must-haves over resale-minded upgrades—you don’t want that new bathroom that will accommodate your growing gaggle of teenagers to come in second to those dreamy granite countertops in the kitchen.

{TALK TO THE TRADE}

Gather itemized estimates from a handful of general contractors. Even if you have a single company in mind for the job, this will school you on real costs and unknowns you might not have considered. For example, does your addition’s site have drainage problems? Will getting rid of old, recessed lighting be expensive?

Word to the Wise: Be wary of applying friends’ costs for similar jobs to your projects. Word-of-mouth estimates lack the detail or comprehensiveness of projections based on your needs and site requirements.

{GET REAL}

Average the costs projected for each item; compare the sum to your cash reserves. Edit down your to-do list to match your budget before moving forward. If your cash cache stops short of your plans, consider whether another year of penny-pinching will get you what you want.

Which Loan is Right for You?

There are three primary types of financing available for remodelers, plus a Federal Housing Administration (FHA) option. Here are the highlights, but be sure and talk to your banker or mortgage broker to determine the one that’s right for you.

1. Home Equity Line of Credit (HELOC)
What It is: A second loan on your property based on the equity you’ve already accrued; usually interest-only for five to 10 years
Who this is Good For: Borrowers who have built up some equity, and have only one lien on the property—one with a good interest rate and terms

2. Renovation Loan
What It is: Similar to a personal loan; not necessarily attached to property value
Who this is Good For: Homeowners who already have two liens attached to the property, or those without sufficient equity accrued

3. Cash-Out Refinance
What It is: A way to tap into the equity on your home (i.e. for a home valued at $400K, the owner can draw from the money he’s already paid on it to finance his remodel)
Who this is Good For: Homeowners who have built up significant equity in their homes

4. 203K Loan
What It is: An FHA loan specifically for renovations that caps at $35,000, regardless of property value
Who this is Good For: First-time homeowners

Keep in Mind
Securing a loan isn’t the walk in the park it used to be and underwriting guidelines have tightened. Also, lenders used to dole out cash to clients with
a credit score of 500 or higher—the low mark now is 580.

The Bottom Line on Building Codes

{Things to Know}
* The 50 percent rule. If you’re in a flood zone and plan to spend more than half of the value of your home (excluding the lot value) on remodeling, you’re required to bring the entire structure up to the current code. This may mean raising it to flood elevation, altering your electrical, and/or updating windows to comply with current wind pressure standards.

* Your permeable surface ratio. In most places, you can’t cover more than 40 percent of your property with a structure or other non-permeable material; in the historic district, that includes paved surfaces.

* All about your building codes. It is ultimately your contractor’s responsibility to know national building codes as well as local ordinances. To brush up on the rules yourself, know that as of July 1, 2009, all local jurisdictions have adopted the 2006 International Residential Code. Contact the latter for specific code questions.

How Strict Is Your Neighborhood?
* Strictest: Downtown Charleston south of Line Street & Mount Pleasant’s Old Village
* moderate: The neighborhoods surrounding Hampton Park downtown, Isle of Palms, Sullivan’s Island, and Summerville’s historic district
* Least restrictive: James Island, John’s Island, Park Circle, and West Ashley