Michael’s Two Cents

WTF! Yep… Right now is the perfect time to build a bedroom onto your house. You see several things are coming together you might want to pay attention to if you own a home.

1. The economy is in the crapper.
2. The president just signed the Economic Stimulus Act of 2008.
3. Home prices have plummeted.
4. Bigger homes are worth more than smaller homes.

The economy is in the crapper

You might have noticed I work for a bank… a really big bank… I’m not an economist but I can read and today while putting together an email newsletter I actually stopped to read the publicly available report mentioned in the newsletter. Basically it says what we all know or suspect, the economy is definitely in the crapper and its not going to get better for a while.

Economic Stimulus Act of 2008

The economic crisis is definitely the reason Bush signed the Economic Stimulus Act of 2008 which includes a temporary conforming loan limit increase. I believe means that jumbo loan definitions will be changed for a short time in many people’s favor (read this). It also means some of us will get more money back from the IRS on our taxes.

Home values have plummeted

The problem is that if you want to take advantage of the changes and refinance you’ll need to look at your equity. You might find yourself upside down in your loan (owe more than your house is worth). Who know how many people are in this situation, most people don’t want to talk about it, but if you want to refinance the more equity you have the lower your interest rate is… ususally. If you are upside down you probably can’t refinance at a lower rate.

Bigger homes are worth more

I was looking at my mortgage balance and home’s value today on Zillow and Trulia. I was mostly just curious but I noticed this little chart on my neighborhood’s page on Trulia. Today, In my neighborhood the average three bedroom house is selling for $370,000. The average four bedroom house is selling for $510,000! Check it out for yourself.
I also realize that these are averages and there are many other factors in play, but a $140,000 difference in price seems like a pretty good indicator that if I added a fourth bedroom to my three bedroom house I’d bump myself into a better loan to value situation. Ask your friendly neighborhood appraiser but I think they’ll tell you that square footage, more bed and baths, and quality kitchens and baths, add up to more value.

The Short Version

So… theoretically if I added on a bedroom, did most of the work myself to keep the cost low, increase my equity, and then refinance under the new jumbo loan deal, I might actually end up with lower payments. I’ll definitely crunch some numbers this weekend and draw up some plans. This is definitely something worth considering. If I move forward I’ll post my progress here.