Better Fix Up the Place Before You Refinance

NEW YORK (TheStreet) -- Thinking about refinancing? Before you do, put some time and effort -- and some money too -- into sprucing up.

For anyone selling a home, sprucing up is a no-brainer. Repairs, upgrades, painting and landscaping can raise the sales price. But homeowners who are staying put and refinancing often don't bother with these improvements. If you're not looking for a buyer and have years to get around to these things, why bother?

Because the home's condition will be reflected in the lender's appraisal, which will determine whether you get the new mortgage and how large it can be.

Appraisals start with an analysis of comparable sales data -- the prices of nearby homes that have sold recently. Homes that have merely been refinanced are not included. Because most home sellers do spruce up, the comparable prices likely reflect homes in good to excellent condition.

In the second step, the appraiser makes adjustments for differences between the home and what he or she believes to be the standard among the comparables. So if you have a kitchen from the '70s and the recently sold homes were more up to date, your appraised value will suffer.

After all, the point of the appraisal is to make sure the home is valuable enough to serve as collateral on the loan. The homeowner may perceive the "value" as including all those nagging improvement plans as if they'd be done, as they surely would be before a sale. But the lender wants to know what the home would fetch as is, in case it had to be unloaded after a foreclosure. A homeowner with enough financial troubles to land in foreclosure is unlikely to spend big money on repairs and improvements.

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