Renovating an existing home can be a significant undertaking. There are budget issues to resolve, permits to obtain, contractors to interview, and legal factors to consider. This article provides an overview of issues you may want to consider when updating the look or structure of your home.
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Establishing a budget is an important first step for many homeowners. Costs vary widely, depending on whether you pursue a standard renovation project with materials purchased from a national chain store vs. a high-end remodel with elements designed to your specifications. For example, REMODELING Online has estimated that the cost of a kitchen renovation can range from $17,928 to more than $54,241, depending on the scope of the work done. An upscale makeover with elements custom-designed for a homeowner may cost significantly more.

REMODELING Online's 2006 Cost vs. Value Report presented the following national averages for mid-range renovations frequently undertaken by homeowners:

• Vinyl siding replacement: $9,134
• Vinyl window replacement: $10,160
• Bathroom remodel: $12,918
• Roof replacement: $14,276
• Deck addition: $14,728
• Bathroom addition: $28,918
• Basement remodel: $56,724

Keep in mind these numbers are averages, which means you may be able to spend less. If you are just beginning to think about a renovation project, visit several home improvement stores to get prices for the types of materials that appeal to you. Ask representatives to help you develop a list of items you are likely to need for a given project. Larger stores may employ personnel who can develop rough drawings of kitchens or other rooms to help you determine your options for placement of appliances, lighting and other issues.
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Many homeowners want to select renovation projects that are likely to yield the highest return on their investment when they ultimately sell their home. The following renovations are those most likely to result in a payback for homeowners:

	Average Cost	Return on Investment
Vinyl Siding Replacement	$9,134	87.2%
Minor Kitchen Remodel	$17,928	85.2%
Window Replacement (Wood / Vinyl)	$11,040 / $10,160	85.3% / 83.7%
Bathroom Remodel	$12,918	84.9%
Two-Story Addition	$105,297	83.2%
Attic Bedroom Remodel	$44,073	79.9%

Although return on investment is important, also consider your lifestyle. If your family is growing, an extra bathroom or bedroom may be your most immediate need, even if a kitchen remodel would result in a higher return on investment. In contrast, empty nesters may be more inclined to take on renovations that reduce ongoing maintenance, such as vinyl siding, instead of adding space to their home.
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In most instances, a building permit is required when the living area of a home is changed or when structural work is undertaken. For instance, transforming an unfinished attic into a master bedroom suite typically requires a permit. The types of permits mandated by different jurisdictions vary considerably. If you are undertaking a project that encompasses structural, plumbing and electrical work -- such as a new bathroom or kitchen -- you may need separate building, plumbing and electrical permits.

The National Association of the Remodeling Industry (NARI) recommends that homeowners not take out their own permits but instead leave this task to their contractor, who typically is familiar with the permitting process in a given locale. Typically, the individual who obtains a permit is considered to be the contractor and is legally responsible if work does not adhere to local building codes. Requiring your contractor to obtain permits protects you legally and is part of the job you are paying a contractor to do. Because it can take weeks or months to obtain permits, be sure to leave time in your schedule for the permitting process.
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A contract defines the scope of a job and provides a degree of legal protection for both the contractor and the homeowner. Although contracts vary in length, they frequently include the following provisions:

• Details about what the contractor will and will not do
• A list of materials specifying size, color, model and other particulars
• Approximate start and completion dates
• Design plans that you approve before work begins
• Right of Recision, a federal law that requires a contractor to inform a homeowner of the right to cancel a contract without penalty within three days of signing it
• Financial terms, including total price, payment schedule and cancellation penalty
• Warranty covering materials and workmanship for a minimum of one year

You may want to ask your attorney to review the contract before you sign it.

Paying attention to your budget, potential return on investment, permits and a written contract may help ensure that your renovation project is a success. Even if problems do emerge, you will have a framework for dealing with them and potentially moving on to a satisfactory completion.

Home ownership is the cornerstone of the American Dream. But before you start looking, there are a number of things you need to consider. First, you should determine what your needs are and whether owning your own home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a financial investment.

Even if housing prices don't continue to increase at the torrid pace seen in recent years in many areas, buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits.

Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live.
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Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.

The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.

The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.

Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify" you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing.

In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate. Lowering the down payment increases leverage (the opportunity to make a profit using borrowed money) but also increases monthly payments.

How Much Home Can You Afford?

Bob and Janet's combined income is $50,000 a year, or $4,166 a month. Their housing expense ratio of 28% yields a monthly maximum of $1,166 for mortgage, insurance, and taxes ($4,166 x 0.28 = $1,166).

Their total debt ceiling of 36% is $1,583 (4,166 x 0.36 = $1,500). Their monthly debt payments include a $200 car payment, credit card payments of $100, and student loan payments of $200. Subtracting this total of $500 from the $1,500 permitted leaves $1,000 in monthly housing payments.
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Many home buyers are surprised (shocked might be a better word) to find that a down payment is not the only cash requirement. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3% and 8% of your purchase price.
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In addition to mortgage payments, there are other costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.

Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.
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Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home.

Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.
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If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is paid by you. Seller's brokers are paid by the seller.

Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split between the listing broker and the broker that eventually sells the home. Don't be surprised if your broker is eager to sell you their own listing since they would then earn the entire commission.

Home Buying Costs
Down Payment	0% - 20% of purchase price
Home Inspection	$200 - $500
Points	$1,000 and up for 1% - 3%
Adjustments	3% - 8% of purchase price

Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you.

Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.
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