Home Renovations & your mortgage

Home remodeling projects come in all shapes and sizes: from simple projects that breathe new life into a home to major projects that involve gutting a house and redesigning the floor plan to customize it for your lifestyle. The reasons people remodel are as varied as the projects that homeowners can undertake: adding a room, modernizing a kitchen — even improving the energy efficiency of a home by adding new doors and windows. The nationwide housing boom of the past few years is extending beyond the initial purchase of a home.

People are putting money into their houses to improve comfort, safety and protect their initial investment. According to the Remodeling Activity Indicator (RAI) used by Harvard’s Joint Center for Housing Studies, homeowners continued to invest in their homes by spending almost $127 billion on remodeling in 2004 — up by almost 6 percent over 2003 levels. One reason for the jump may be a mortgage option that allows borrowers to purchase and renovate a home using a single loan. “Renovation loans give homebuyers some options when it comes to considering houses that aren’t perfect,” says John Sway, renovation program manager for Wells Fargo Home Mortgage. “With the majority of the nation’s housing stock at least 25 years old, there’s demand for mortgage products that address the needs of homebuyers who are looking at older homes that need some TLC.” In the past, financing options were limited, especially if the owner didn’t have sufficient equity in the home. These days, however, homeowners have choices that were developed specifically to help buyers and owners finance home improvement projects.

The Federal Housing Administration’s (FHA) 203(k) loan is one of the more popular renovation loan programs. This loan is generally used to update or improve a house or condominium needing a minimum of $5,000 in essential repairs such as new wiring, plumbing, roof repair/replacement or structural repairs. Other renovation loan programs offer higher loan limits, allowing buyers to obtain more financing toward the purchase and improvement of the property. In addition to essential repairs, these loan programs can sometimes allow financing for luxury items such as swimming pools, hot tubs and sun rooms. “These mortgage products are great tools for homeowners and important for community revitalization,” says Sway. “Homebuyers and neighborhoods benefit from the improvements these loan programs make possible. Investing in a home contributes to the financial well-being of the owners, and it certainly contributes to the financial well-being of a community because the homeowners are preventing these older homes from deteriorating and falling out of the housing stock.”

A recent study by Harvard’s Joint Center for Housing Studies showed that minority homeowners are expected to become a major growth market for home remodeling and repair. From 1995 to 2000, minorities accounted for 60 percent of the increase in households and 40 percent of the increase in homeowners. It is only a matter of time before these homeowners start spending on remodeling projects and have an important impact on home improvement activity. Over the coming decade, many metropolitan areas are expected to see a noticeable pickup in remodeling activity, especially as rising home prices force an increasing numbers of buyers to look for older, more affordable homes. Wells Fargo Home Mortgage is the nation’s number one retail mortgage lender, the number one lender to low- to moderate-income customers and ethnic minorities, and one of the country’s leading servicers of home mortgages. It operates the country’s largest mortgage network from more than 2,000 mortgage and Wells Fargo banking stores and the Internet. Based in Des Moines, Iowa, it serves about 5 million customers in all 50 states through its retail and wholesale lending operations.