Is refinancing to complete a basement remodel a good idea?

Asked by Tim, Nashville, TN Sun Mar 1, 2009

Our house is currently worth $190,000 and we owe $159,000. If we finish the basement, then it would be worth $220,000. We plan to be in this house for many years and would like to finish the basement for entertainment as well as get some additional money to replace the roof, add a pool, update the kitchen, and fix the cracked driveway. Is this a good approach? I rather have one loan with a low rate, instead of a primary loan and an equity or construction loan. My current mortgage rate is 6.5% and if we refinance it would be around 5%.Thanks for your advice.

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Emily Lowe, Agent, Nashville, TN
Sun Mar 1, 2009
Tim, The short answer from me is "yes". Especially if you are going to be refinancing at a lower rate and you intend on staying in the house for many years. Adding usable square footage to a home will help increase its value, not to mention increasing your happiness in the home.

The LONG answer from me is "maybe." There are a lot of questions that come to mind to me as a Realtor. First, how did you figure out what your home is worth (both on the "before remodel" and the "after remodel" figures)? Secondly, how much are you planning on spending on your remodel? This is KEY. Here is a link to a report on cost vs. value:…

Also, keep in mind that although you have no current intention on moving anytime soon, things happen and the truth is that none of us REALLY know what the future holds...

Soooo, my advice to you is:
1. do a LOT of research on the cost vs. value
2. if the cost vs. value comes back at 75%, then consider trying to do your remodel for less than that amount (i.e. if you are only going to recoup 75% of your cost, then lower your cost by at least 25% if at all possible)
3. don't forget that the TOP TWO places to remodel in ANY HOME are the kitchen and the master suite.

Good luck!
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Laura Scott, Agent, Brentwood, TN
Sat Mar 14, 2009
Did everyone read your intentions?? Replace the roof(about$ 5-7000), add a pool($25,000),
update the kitchen($5000+++ depending on your choices) and then finish the basement??Way
too much to do and you would be taking all the equity out of you house....These are great goals, but
I also would take on one project at a time, for as you know, Murphy's Law may insert itself...I would
recommend the basement redo, but as I have done myself, you might just consider step by step....frame
out if necessary, add insulation and drywall, then some carpet or stained may be able
to use "as is" at one of these junctures.....Refinancing is probably a good option, but then there are those
pesky closing costs to roll in or pay out.....So, good luck and if you want my opinion (as I do this for my clients), just give me a call.....I think you would need further evaluation of your home, your neighbohood,
and the area in which you live in order to see which jobs you should do....Laura(977.9088)
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Dena Parker…, , Tennessee
Mon Mar 2, 2009
I actually am going to be on the more cautious side with this one and personally would not. The first thing you can not be sure about is your actual home value now and especially after the remodel unless you've had an appraiser out very recently. Even then, it's hard to know what tomorrow's value will hold. I think the mistake most people make is overdoing their remodel and/or overvaluing its remodeled value.

If you have accurately assessed your home's current value...the one thing you DO have in your home now is a little bit of equity...which is something to be protect, in my opinion. I would be very cautious about pushing the debt back up near the value for a While I do not feel that a basement remodel and the other projects you want to do is a bad idea, I just probably wouldn't advise borrowing to do it right now. I know it sounds like you plan to stay awhile, which is good, but you never know what can might get a job transfer or something that puts you in an unexpected move situation and be upside down to sell when you look at closing costs, etc.

What I personally would do is just scrutinize the budget to set aside money each month to go towards one project at a time once enough builds up to do one of the projects. And then move towards saving for the next after that. I know I'm not winning any "thumbs ups" for this opinion because it's definitely not a popular response, but I think there are some things that can be done creatively...For the kitchen update and the basement, you might be able to do some lower cost alternatives to a full remodel. You might be surprised what some DIY alternatives are that make both rooms a more enjoyable place for your family.
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Megan Manly, Agent, Nashville, TN
Sun Mar 1, 2009
I'm with Sherry on this. Basement square footage is not rich square footage for appraisal and market value purposes. Since you are finishing it for enjoyment purposes, act as if you're not trying to add major value to the home with the basement. Emily is correct in that your approach here is well thought. Enjoy the home and approach it as if you won't get the basement (not rich square footage), cracked driveway improvement and roof (both as monitored required maintenance items) money back, however the kitchen will return.
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Sherry Wheel…, , Knoxville, TN
Sun Mar 1, 2009
Be careful on how much money you put into the basement. This is a mistake a lot of people make. You don't get as much per square foot on a basement as a regular floor. You don't mention how much all this will cost you. This is my concern.
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Emily Lowe, Agent, Nashville, TN
Sun Mar 1, 2009
oh and one more good link to look at, which does a cost vs value according to area of the country:
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