Renovation and Refinance

[Andrew Spinelli]

Hello BP!

This is my first time posting, but have been following BP for a couple years now after purchasing my first property in Graduate Hospital, Philadelphia in 2017.

In 2020 my wife and I rented out our place in Philly and moved to Haddonfield, NJ. We recently did a full kitchen reno, added a powder room and will be putting in a deck this spring on the NJ house.

After these upgrades are complete, it’s our goal to refinance our home at a higher appraised value and use those funds to invest in a multifamily property (still evaluating markets).

I have a good relationship with my lender so was planning on opening the conversation there, but does anyone have any tips, pitfalls, etc. when it comes to refinancing after making renovations?

My main questions are around understanding how appraisers may value the upgraded property, timeline of the refinance process, and any other considerations I may not be thinking of

Thanks in advance! Happy to be a part of the BP community!

Andrew

[Natalie Schanne]

@Andrew Spinelli - you shouldn’t have any problems with your (cash out?) refinance. After 6 months of owning your haddonfield property, they can use the new appraisal to loan you money, usually 80% of the property’s appraised value. It takes about 35-45 days to complete a refinance from the day you start. And you have to buy title insurance again (it’s possible if you use the same settlement company they can cut you a deal). Interest rates were lowest in Dec and seem to be ticking up with the government’s plans to print money so with a cash out refi you may find yourself being offered a rate that is MORE expensive than your current mortgage rate. I saw rates as low as 2.75% but was recently quoted 3.25% on a primary purchase 30 year fixed.

What you want to do is prepare a paper printout and excel doc list of recent renovations and approximate costs (you can inflate it a little or ballpark based on a professional if you got it on sale or DIY it) and provide it to the appraiser at the appointment. Also print off any mls or Zillow sold comps that would reflect your home being worth more than you paid because of the additions. Other X bed Y bath Z sqft homes have sold for $$$. Don't expect that every $$ you invested will come back 1:1. Sometimes pro bathroom renos might be valued at like $10,000 even though you paid $20,000. It all depends on the area, what you paid, and how generous the appraiser is feeling. My husband and I refinanced our home after renovations to go from a 5% down loan to a 80% LTV loan, no cash out, and payments dropped $500/mo because we went from 5% (2018 rehab loan) to 3.125% and we were able to remove $100/mo of PMI. Our home appraised for $100k more than we were into it for. Good luck to you!!!