Remodeling Projects: Which Ones Build Your Home Equity Most?

(ARA) - Can't bear another day with pea green countertops? Does your rust-colored carpet make you cringe? If your home's interior looks like the set of "Three's Company," or if you're just ready for a change, now may be the perfect time to renovate. The right remodeling project can enhance the livability and value of your home, but which ones will give you the most bang for your buck?

The Eyes of the Beholder

Although your personal tastes should factor into the project you choose, you also may also want to take into account what a possible buyer might like. Don't worry, mind-reading isn't necessary. According to Remodeling Online's 2000-2001 Cost vs. Value Report, kitchen and bath remodels, along with second-story, bathroom and family room additions, recoup most of your costs when a home is sold.

Other improvements you might consider include:

• Energy efficiency - With energy bills going sky-high, a new furnace that updates your home's energy efficiency can lower your energy bills, as well as appeal to buyers. Consider a new heating and cooling system, new windows or added insulation.

• Landscaping - Shrubs, rock gardens and retaining walls can enhance the beauty of your home's exterior and increase curb appeal when it's time to sell. Properly placed trees can block wind and lower heating costs.

Visiting model homes is another good way to predict what amenities future buyers might appreciate and find ideas that you might appreciate. Tour open houses around your neighborhood, too. Besides getting free cookies, you'll get a chance to see how your home compares with others that a potential buyer might visit.

Hammer Time

So you've decided on a project, now where to begin? If your project is complicated, you will probably want to start by hiring a contractor. The Better Business Bureau recommends getting bids from at least two or three contractors using the same specifications. Ask for local references and try to visit one of their completed projects. Verify that the contractor has insurance to cover worker's compensation, property damage and personal liability in case of accidents. Also, make sure the contractor is bonded and licensed if your city requires it.

Financing Your Fix Up

A strong housing market has made it easier to finance home improvements. Rising home values can mean increased home equity for people who have owned their homes for several years. Equity is the difference between what your home is worth and how much you owe on your mortgage and any other liens on the home. Home equity loans let you borrow against that value for a variety of uses, including home improvement projects.

Home equity loans are available at fixed rates with average terms up to 15 years. These loans usually have lower interest rates than credit cards, which may mean lower payments and more savings for you. Best of all, the interest on home equity loans may be tax deductible. (Be sure to talk to your tax advisor.)

A home equity line of credit may be a good option if you won't be doing all your renovations at one time. With a line of credit, you are given a credit limit that you can borrow against as you need it. Rates are usually adjustable with flexible repayment terms.

Now that interest rates are down, it may be a smart time to think about remodeling. Home improvements may make your home more comfortable, energy-efficient and increase its value.

Jim Larranaga is Executive Vice President of Priority Publications, a Minneapolis-based publisher of financial newsletters.

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