Financing in 94044>Question Details

rms_bap, Both Buyer and Seller in Pacifica, CA

Which is the best way to increase my home equity, pay down the principal (where I get a $1 for $1) or do a home renovation like a room addition?

Asked by rms_bap, Pacifica, CA Mon Jan 28, 2013

I want refinance my home, although I'm not under the water, I don't have 20% equity. I have money to either pay down the principal or do a renovation like a room addition to increase the value of my home. Can some recommend an Appraiser that's familiar with Pacifica real estate. Thank you.

0 votes Share Flag Financing in 94044

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The fact of the matter is that people rearly get the full cost of the renovations out of selling a property. There are resources that will show the projected percentage return based on your location and nature of the work done.

Personally, I think people are placing too much emphasis on a homes investment value and not enough on personal needs, long term committment, and quality of life.

Good luck,

1 vote Thank Flag Link Tue Jan 29, 2013
Thank you all for your input! My house is a cape cod 4BD/2BA about 1220 sq ft. since I don't have a dining room I was thinking of doing an addition for a dining room/family room. My kitchen and bathrooms are pretty fixed-up.

Since Trulia and Zillow estimate is way understated, I just want to get a more accurate estimate value of my property. I don't know exactly if I should pay an Appraiser or can a comparable market analysis be able to give me a close estimate?
1 vote Thank Flag Link Mon Jan 28, 2013
If you pay down your mortgage by making extra principal payments, you can knock off years to your mortgage.

You might also do some updating at the same time so you can enjoy your home while you are there. Many times owners live in their homes for years and don't update it until it's time to sell. If you are going to be there for awhile, enjoy it, it's your home.

Good question RMS.


David Tapper
Coldwell Banker
0 votes Thank Flag Link Thu Feb 14, 2013
Equity is not something that you control, because the market value plays a role and as we have seen all across the country these past few years, Market Values are not that stable.
So just as fast as you pay down principle, Your equity could be decreasing even faster, depending on what the market and the value are doing.

Regarding a refinance. You do not need 20% equity to refinance, only to avoid Mortgage insurance.
So you can refinance without putting any money into the transaction. But you may in order to avoid the Mortgage insurance.

That being said, to completely answer your question, I would need to know more information. But since I don't have that information, I will share with you what I say to all of my mortgage clients that I see and talk to everyday.
If you had a 0% interest car loan, would you pay the car off early? Most answer "No", with the reason being, "Why should they? since they do not have to pay any interest?
Now let's look at your home mortgage. With current interest rates in the mid 3% range. If you take into account the tax deductibility of mortgage interest, your net effective interest rate is in the high 2% range. Well, depending on who you ask, the rate of inflation is in the 3% to 3.5% range (and moving higher). So your net effective interest rate is less than the rate of inflation, so you essentially have a "0% car loan" for you home mortgage. So why would you pay it down sooner?
Appreciation & Depreciation are going to happen no matter what you do. They impact your Equity and
They are out of your control.
So combat that by taking that extra money that you would put toward principle and get with a licensed financial planner and invest that in a safe, secure, compounded interest rate vehicle.

Lastly, i would recommend you use a mortgage company that uses local appraisers and may be able to give you an idea of the value for your home, beforehand.

I hope this helps and Good luck to you.
0 votes Thank Flag Link Thu Jan 31, 2013
Seems to me if you are going to pay for an appraisal, you may as well initiate the refi and do the appraisal as part of the process. If it appraises for a good number then you can proceed with the refi and if it does not then you stop the process and you know the appraised value. Either way you are going to pay for the appraisal so you may as well have the appraiser assigned from the mortgage company do it since when you refi you will need an appraisal from them anyway.
0 votes Thank Flag Link Wed Jan 30, 2013
Some of these answers are interesting. A full year to add a room would be crazy. The cape cods range in value from one listed now at $439,000 to one that is sale pending at over $550,000. It really depends what street you are on, the condition ( I know you said your baths and kitchen are updated), yard and ocean view.
0 votes Thank Flag Link Tue Jan 29, 2013
To me paying down your mortgage still nets you the same results. Home renovations(with exception of a reasonable & well thought out extension) may be a better solution(also time consuming and probably need to deal with zoning boards, architects, etc). Best of Luck!!
0 votes Thank Flag Link Tue Jan 29, 2013

Sue, Brandon and I, all know those houses and that neighborhood very well. I think they would all agree that adding a dining room would not be money well spent. Unless.... you plan on staying and enjoying the home for many years to come and having a dining room will make your and your families life more enjoyable. But, as far as simply adding value, unfortunately I would have to say no.

Since the beginning of September of last year, there have been 6 of those home that have sold. The range in sales prices was $350,000 to $460,000. The lowest, being REO's that were in very poor condition. The highest at $460,000, was in very nice condition, with no additions. I would say if your home is in good order with a modern kitchen and bathrooms, an appraisal may come in as high as $460,000, but certainly no more than that.

I help people obtain mortgages and would be happy to help you in that regard. If you do want to pay down your mortgage, the time to add the funds would be through a refinance, so that your monthly payment would be lowered accordingly. If right now, your interest rate is over 4%, refinancing would most likely be a viable option. If your current mortgage is owned by Fannie Mae or Freddie Mac and you have not refinanced since 2009, the value is not as important.

If you would like me to see if I can help you pay your mortgage down and/or refinance, I would be happy to.

Feel free to call me 650-544-4395 or email me directly

Thanks! Sharon
0 votes Thank Flag Link Tue Jan 29, 2013
Most renovations and/or additions to not return an immediate equity gain that is equal or more than the investment. You'll find charts all over the internet that try to estimate the increase in value and most will show you that a dollar invested will return less than a dollar in "value". New Paint and carpets usually return the highest increase.
Have you tried to talk to your current lender? Under one of the new government sponsored program you might qualify for a better rate than you currently have without too much problems if you have not refinanced under such a program already.
In your situation spending money on an appraiser is most likely a waste of money as no bank will except his or her value for a refi. Many Realtors will gladly give you a CMA (comparative market analysis) free of charge and that will be just as instructive for your purposes as long as it is done by someone competent.
Since a lot of market watchers expect some significant inflation sooner than later it might not make much sense in paying down your principle today if you can do it with inflated money much "cheaper" in the future.
In that scenario it might make sense to accept PMI for now, which you can get rid of once your equity ratio improves except of coarse with FHA loans which stays for the life of the loan.
To make a long story short, I would first talk to your current lender and if they do not have a good answer solicit quotes from other loan agents or banks. Best of all it is Free to ask - Gratis.
0 votes Thank Flag Link Tue Jan 29, 2013
It depends...

The room addition will take you roughly a year to complete, assuming you can add to your house and city cooperates. By then the interest rates may be less attractive than now. Paying up a part of the principle seems like the better option.

But if your house is too small for your family, then add a room/bathroom/master suite/family room or whatever will make the house more livable. You will have to accept the interest rates at the time of completion and an increase in property taxes.
Web Reference:
0 votes Thank Flag Link Mon Jan 28, 2013
Or, you could just take on mortgage insurance.

I think that if you mess with the floor plan, you MIGHT get an appraiser to give credit for the addition, but it's the rare home where renovations fully pay for themselves.
0 votes Thank Flag Link Mon Jan 28, 2013
HI RMS. A local Realtor can give you a pretty good idea of what your home might be worth in this market. I would be happy to sit down with you to discuss if you would like. I guess your answer will also depend on how long you plan to stay in the home.
Feel free to call me.


Brandon Denman - Realtor
DRE # 01378663
Pacific Coast Real Estate
650-303-0880 cell
650-560-6142 e-fax
0 votes Thank Flag Link Mon Jan 28, 2013

Prudent to pay down the home provided you are going to live in the place
For a long time.

In the event you are planning on staying for a few more years and then planning on selling
Good to then add a bed and a bath, depending on what size home you have.

Pacifica is a great place.

Web Reference:
0 votes Thank Flag Link Mon Jan 28, 2013
thank you.
Flag Mon Jan 28, 2013
Hi RMS. I don't have an appraiser that I could recommend, but I do feel it would be a good idea to get an appraisal to see what you home values at and just how much equity you do have. Once you have established this, best to seek some advice from local Realtors on what could add value to your home. It is true that a room addition would add value, but depending upon the current size and condition of your home, a remodel may maximize what you could get for your home as an addition can be costly.

Today's homebuyers put a lot of emphasis on the kitchens and bathrooms. If your home already has a good layout and floorplan, it may make more sense to renovate what you already have to maximize what you will be able to get without breaking the bank and going through an addition. That being said, an addition might be the answer if the floorplan is not so great.

Also, if your home is already updated in the kitchen and bath areas, and you find you do not have as much equity as you thought, it may make sense to pay down your mortgage a bit and refinance at today's historically low interest rates. A mortgage broker would be the one to talk with and discuss these options once you have the appraisal.

Feel free to contact me if you would like to discuss further.


Brandon Denman - Realtor
DRE # 01378663
Pacific Coast Real Estate
650-303-0880 cell
650-560-6142 e-fax
0 votes Thank Flag Link Mon Jan 28, 2013
Thank you for your valuable input. I will definitely consider this.
Flag Mon Jan 28, 2013
I agree with Sharon, that it depends on the size of your current home. You do not want to add a bedroom if say, you already have 4 bedrooms. There are a lot of factors to consider here. An agent can give you an approximate value before and after an addition.
0 votes Thank Flag Link Mon Jan 28, 2013

Depending on the current size and bedroom/bathroom count of your home, doing an addition could "hands down" be the best strategy to increase the value of your home. If you are in one of the typical 3 bedroom, 1 bathroom homes in Pacifica, then I would suggest that adding a 2nd bathroom or remodelling your kitchen, would increase the value more than adding another room.

I'm not sure why the need for an appraiser, but I could certainly set you up with one, just let me know. If you just need to know the current value of your home, I would be more than happy to help you with that, just send me a private message.

Thanks and good luck! Sharon
0 votes Thank Flag Link Mon Jan 28, 2013
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