When your current housing arrangement does not meet your wants or needs, you have two options in front of you — you can add on to your home, or you can purchase a new home that meets your criteria. While purchasing a new home is certainly an option, many homeowners purchased or acquired their current home for a variety of specific reasons, so moving is likely a last-resort option. However, when weighing out the overall costs and benefits of remodeling or upgrading your home, is it worth the price tag?

One of the most important factors in determining whether moving or upgrading is a better option for you is how happy you are with your home, and its location. If you like your neighborhood, you have an emotional attachment to your home, or you just really like your house, the costs associated with remodeling your home are almost guaranteed to be justified so long as you deal with a reputable construction company. However, if you don’t really like your house, and especially if you do not like your neighborhood, any home additions or upgrades would likely be deemed ‘too much’, even when considering the arduous prospects of buying a home, moving, and trying to sell your home in a poor economic climate.

Another determining factor in whether or not home remodeling costs are worth the price is your reason for wanting to remodel your home. If you’re looking to remodel your home to accommodate your own needs, such as an office space, an updated bathroom, or a play area for the kids, this is one thing. However, if your reasoning for home renovation is to increase the value of your home for resale, this is something completely different. A house’s value is determined, in part, by the values of the properties that surround it. If your sole motivation for home renovation is to boost your home’s selling price, you should thoroughly research the properties in your area, get an estimates for your proposed upgrades, and maybe even speak to a realtor before you commit to a costly aesthetic upgrade for profit purposes. Now, if you just want to turn your current home into a your ‘dream home’, the ends typically justify the means, especially if you like your house and your neighborhood.

Finally, you should assess whether or not you can afford to renovate your home at this time. A good home remodeling company will work with you and your budget, but regardless of how good of a deal you get with a remodeler, it’s still going to cost you some money. Alternately, if you cannot afford all of your proposed home upgrades at present, but have a small amount in your budget to get started on your project, speak with a professional builder to discuss the options available to you.

Bottom line, if you like your home and you like your neighborhood, there’s a good chance that home remodeling is more than worth the price. If you choose to work exclusively with an established, and reputable, home remodeling company, they can help you turn your current home into your dream home without breaking your budget.

It’s a fact that most industries in the past decades have been suffering from the effects of inflation and never-ending rise of production costs. The construction and engineering industry has not been spared the dilemma. Aside from dealing with shortage in labor and manpower, material costs are also taking a toll on the productivity of the construction industry.

The worker shortage

Fewer employees might translate to more profit for some industries, but this is not the case for the construction industry. According to James R. Bogonet of Bogonet Construction Associates Inc., a D.C. firm that specializes in building and renovating interior office space:

“I’ve had to go out and work weekends to keep a project on schedule. The construction industry is suffering a severe worker shortage that is helping drive up the cost of development, including wages and office rental rates.”

The trend is continuous, because as early as year 2000 more than 240,000 jobs related to the construction industry are glossed over for higher-paying jobs. It’s a case of double jeopardy- if the firms do not pay enough, they don’t get staffed. But they lose immense profit when they do pay higher salaries to construction workers. The problem is cyclical.

Prices are going up, up, up…

According to Engineering News-Record, an industry publication: “National construction costs are up 2.3 percent this year.”

The problem calls for more capital outlay on the part of the clients, because to handle for the backlog due to shortage of workers and even tighter deadlines because of being understaffed, it takes $125-$150 to construct a single square foot of office space in the prime areas of United States.

This figure exponentially rises when we’re talking about the largest buildings and skyscrapers that are either leased or rented out to individual office-space holders.

Subcontractors decline

Smaller outfits are being more selective because of the relative shortage of manpower in the construction business. According to David Dempsey, a senior vice president for Spaulding & Slye Colliers, a development and construction group in the District:

“Ten years ago, if you put out a bid for masonry work, you might get twenty some responses. Today, you’re lucky if you get six.”

As we can see here, the construction industry is experiencing a very tight labor market. In the event that such labor conditions exists, every cost rises to match the unceasing demand. On the other hand, when labor is plenty, the prices drop because of the distributive quality of supply and demand scales.

According to Andrew Craig, vice president of construction and design for Staubach Co., an international commercial real estate brokerage:

“There is so much demand for development in this area that the problem takes on more urgency. We have to be more strategic, more nimble. They (the clients) want to know, `Why am I paying $50,000 for something I paid $30,000 for last year?’ You have to help them understand what’s happening in the marketplace.”

Craig’s analysis is quite dynamic because it highlights a basic truth about all industries- that in the end, if the market is sluggish, everything topples to the ground.

After owner builders work their way through the maze of owner builder construction loan qualifying, it will be time to close on the loan. This is essentially where you sit down and sign a huge stack of documents that you will never read, or understand if you try.

Basically, this is where the owner builder loan promises to give you the money, and you promise to repay it. Sounds simple, but it will take a hundred or so pages to accomplish it.

Owner builders are typically free to choose any closing agent to conduct the closing. In most states, owner builders can choose either an attorney or a title company to perform this function. Some states require you to use an attorney.

Once you sign all the documents, the closing agent still must record them with the county registrar, making the owner builder construction loan official. This is usually the day after your signing.

During construction, as an owner builder requests specific loan draws, the lender will most likely request the closing agent to do periodic updates of the title to make sure no liens have been filed to date.

Most good owner builder construction loans are one-time-close, construction to permanent loans. Once you are finished building, there are no more closings to convert to your permanent mortgage. At this point most lenders simply send you a final loan agreement with the final loan amount and interest rate and terms for your signature. There should be no need to go back to the closing agent again for a second round of document signing if the owner builder loan is set up properly.

Owner builder loan closing costs typically consist of three components: broker/lender fees, loan fees, and third party fees. Remember two things about closing costs when considering owner builder financing.

First, closing costs for construction loans, in general, and owner builder construction loans, especially, are going to be slightly higher than costs for a plain purchase or refinance mortgage. Accept this and shop for the loan that best fits your needs. Do not waste your time looking for an owner builder construction loan that has the same terms as the refinance loan you did two years ago. Do not try to compare apples to pineapples.

Second, just because an owner builder construction loan has slightly higher costs does not mean that it is not a great deal. Remember the big picture. You are considering being your own contractor to build the exact home of your dreams and save tens of thousands of dollars doing so.

If your research shows that you can save, for example, $65,000 by being an owner builder, is it no longer a great deal if you only save $63,000? How about $58,000? $53,000? Realize that you are still saving a ton of money while building your dream home, despite the slightly higher financing fees that come with owner builder loans.

Brokers earn their income on owner builder loans by charging origination fees for their service. This is a percentage, called “points,” of the loan amount. One point equals one percent of the loan amount. By charging an origination fee, the broker is able to give you access to a lender’s wholesale rates. The broker is also able to represent you and your best interests by offering access to a variety of loan programs.

Working directly with a lender is also occasionally an option. Direct lenders are typically compensated the same way as a broker; by charging points.

Perhaps the best option is working with an organization that has expertise in owner builder loans, that is a direct lender, and that also has the option of acting as a broker when needed. This will give you the best of both worlds while ensuring you are working with a specialist.

The number of points you should expect to pay will vary by loan program and lender. For very specialized loans such as owner builder construction loans, it is common to pay approximately two to three points in total fees. This is a small price to pay for access to a program that will allow you to save tens of thousands of dollars while building the home of your dreams.

In addition to broker or lender fees, your loan’s closing costs will include loan fees. These fees include items such as underwriting, document preparation, draw administration, loan processing and a variety of the other small fees. For a construction to permanent loan (remember you are getting two closings in one), expect to pay approximately a half to one percent of your loan amount in total for these fees. Most of these fees are fixed amounts, so the percentage will be higher for lower loan amounts.

The third component of your owner builder closing costs are made up of things the lender or broker has no control over, hence the name “third party” fees. Third party fees are also, for the most part, not affected by the type of loan you choose. They are, however, influenced by the size of the loan. Third party fees consist of your closing agent’s fees, title search and title insurance fees, recording fees to the state, county or locality and any state or local taxes. Most of these items are set by the state and local governments and are simply the price of buying or owning a home in that area.

All told, owner builders can reasonably expect to pay approximately two and a half to four percent of their construction loan amount in closing costs. Some states may have high transfer taxes, excessive title insurance fees or other high state or local fees that will increase your costs.

Overall, the total closing costs are not bad when you consider you are closing on two loans in one and being given a loan to undertake a process most lenders consider extremely risky. Plus, owner builders get to build their dream home while saving tens of thousands of dollars.

There are many things that you need to consider before pursuing a home remodeling idea. The sheer variety of materials and styles available can cause headaches when it comes to making a choice; and if that isn’t bad enough, you then have the home remodeling costs to consider and whether the remodeling you have your heart set on is actually within your budget range. For most people, cost is the primary consideration and it is inevitable that compromises will have to be made at some to some stage so that your plans can stay within a workable budget.

When looking at your home remodeling costs, the question that really needs to be asked is: “Will the planned home improvements increase the value of my home by more than what I have spent?” If the answer is yes, then you have half a green light. I say “half a green light” because you need to consider things such as not overcapitalizing your home and whether you are ever going to sell your home in order to realize that increased value. Beyond that, home remodeling costs are really a question of style, materials and the scope of your vision.

The first step when considering the “how to of home remodeling” should really be to consult with a contractor who will make suggestions on materials and styles given the budget you have set. If you hire a contractor you will need to clearly work out beforehand who will be responsible for obtaining the supplies.

It is also worthwhile at this point to let your neighbors know that there may be some remodeling disturbances for a while as it always pays to keep on their good side. Your crucial task however, is to take accurate measurements of the materials you will need and remember that mistakes at this stage can be costly. One of the harder aspects to deal with is ordering the correct products and materials for your home improvement and you might find it easier to leave this in the hands of the contractor.

Often a contractor is only called in to consult with the home owners on technical aspects for which they have already made plans. Some contractors will carry out all the work themselves with their own team or they may sub-contract certain aspects of the project to other remodeling contractors if they feel it will be beneficial. General project managers can also carry out all of the remodeling or you may decide you only require them for aspects you don’t feel comfortable about completing yourself.

Home remodeling is often carried out by owners who do not want to move as they really like the area they live in, and this kind of work is on the increase. Many aspects of internal home improvements can be more about what is currently trendy rather than dealing with practical considerations so it is worth finding out what other types of work are being carried out in your area. This is of course more relevant if you’re intending on selling your property at some stage but if it is purely for your own benefit then your home remodeling idea need not necessarily fit in with what others that are doing around you.