Budgeting Your Home Renovation

Whether you are renovating one room or the whole house, it's a good idea to think through the process of creating a budget for your project.

No matter the size of your renovation, it will be a big deal because it's happening under your roof. Starting with a realistic budget can reduce the stress considerably. Determining what you can spend ahead of time on flooring, lighting, painting, and other accessories helps to take some of the pressure off as you shop and compare.

Think big to small. One approach to creating your renovation budget is to first understand the anticipated costs of the must-haves. There are certain fixed costs you can't avoid. Most people have an idea of what they have available to spend on a renovation. So start by thinking about the most expensive things you must have to complete your renovation, such as electrical work or a new roof. Then, subtract those costs from your available funds. The remaining dollars can be broken down to cover finishes and other features.

Pick a must have! Choose one thing you feel you absolutely want for the space, such as some gorgeous tile, and make a few selections around it, such as cabinets. It's an exercise that's helpful in determining what you are dreaming about for the project and, once you understand costs, what things you may decide to compromise on."

Look ahead. When determining what you want to spend on your renovation, consider how much longer you plan to live in the house. Is this a short term home or a 20-year home? If you plan to live in the house only a few more years, make selections you like but consider spending less than you would on a house you plan to live in for many years to come. If you plan to sell, you will want the kind of quality that will entice people to buy your house. Just don't sink your entire savings into it.

Consider the neighborhood. Never spend more on your renovation than your location can support. You don't want the most expensive home in the neighborhood and not be able to recoup your expenses if you decide to sell. Visit with some local realtors and check comparable sales to find out how much homes are worth in your area and what renovations and features most buyers are looking for.

Plan for contingencies. Most remodeling experts suggest padding the budget by 15 percent to cover the unexpected.

Save and splurge. Find ways to cut expenses, such as buying all your appliances from one dealer and requesting a discount or purchasing floor models for less. Then apply your savings to something you've been dreaming about, such as granite countertops.

Indulge in the planning phase. Hours spent researching how you'd like your renovation to look and proceed is time well spent in the long run.

Your Homes Electrical System

Electricity is a mystery to many people, but there are rules that govern how your home's electrical system should work. Every house should have an electrical panel with a main shutoff, whether it’s circuit breakers or fuses. The number of circuits will vary with the electrical loads in the house.

According to the National Electric Code (NEC), 240 volt – 100 amp service is now the minimum standard for residential use. Older homes may need to be upgraded to that standard to accommodate the electric demand common to today's lifestyle. Although older electric systems may be "grandfathered in," most communities require that all new electrical work meet code. That means, among other things, that the system must be grounded; all outdoor outlets, bath outlets, most kitchen outlets and basement outlets must be protected by Ground Fault Circuit Interrupters (GFCIs); and new work in other living areas of the house must be protected by Arc Fault Circuit Interrupters (AFCIs).

Ideally, your wiring should be color-coded to indicate the function of the wires (with black wires being "hot," white wires being "neutral," and green or bare wires being "ground.") But, with old knob-and-tube wiring (common in houses built prior to the 1950's), all of the wires may be black. Always check!

Using too high a fuse can allow the wires to heat up and burn their insulation before the fuse blows. For safety, all fuses or circuit breakers should be correctly sized to the wire they control -- and to the load on the circuit. Wire is assigned a number according to its thickness. That number ("gauge") corresponds to the maximum amps it can safely carry and determines the total wattage that can be used on that circuit. 12-gauge wire should carry no more than 2400 watts, and should be controlled by a 20-amp fuse or circuit breaker; 14-gauge wire, 1800 watts, controlled by a 15-amp fuse or circuit breaker. Unless you can determine the wire size, it's safest to assume any old knob-and-tube circuits to be 14-gauge, to prevent a fire hazard; if you put a 15-amp fuse on the circuit and it starts blowing, don't replace it with a bigger fuse -- unplug something from the circuit or upgrade the wiring.

Many household appliances use so much current that they are required by code to be on "dedicated" circuits (circuits with only a single item on them) to prevent nuisance tripping of the fuse or breaker. For example, a forced-air gas furnace should be on its own separate 20-amp circuit. Although the blower motor, when running, is rated at 1600 watts, a surge of 2200 watts is needed to get it to start spinning. If another appliance draws power from the same circuit as the furnace when it starts, the circuit breaker can trip.

What Are Piggyback Loans?

Piggyback loans, which fell from the forefront during the housing downturn, are making a comeback as home values start to pick up.

Piggyback mortgages – when a borrower takes out a second mortgage in the form of a home equity or line of credit – accounted for 3.8% of the loans originated in 2012, compared to 1.7% of the loans for 2010.

The loans were commonly used by borrowers who wanted to avoid paying for mortgage insurance but didn’t have enough money for a 20% down payment. Some of these loans were taken out to finance home improvements; others were part of a subprime product known as an 80/20 mortgage, in which 80% of the purchase price was covered by a first, adjustable-rate mortgage, and the remainder by a second mortgage with a higher interest rate.

Piggybacks went away because values dropped so dramatically, so many of the banks that offered second mortgages out there lost everything.

As the market stabilizes and continues on its current path, we will see a reemergence of banks offering second mortgages, just as we’ve seen a reemergence of jumbo loans.



Piggyback can be a great product if used properly.



In the case of piggyback mortgages, it could make perfect sense for someone who might be short on the down payment, but can rather pay off the second mortgage rather than going with skyrocketing mortgage insurance.