Update or Just Repair?

Many factors to consider in decision to remodel bathroom

Dear Edith:

We bought a wonderful home in a desirable suburb last June. It was built in 1988, and it has been well maintained with a beautiful kitchen upgrade, but there are no bathroom updates.

We’ve discovered a leak in the shower in the master bath, which has slightly damaged the kitchen ceiling. We are weighing updating the master bath entirely versus just fixing the leak in the shower and the ceiling. It seems like baths are a relatively good investment.

The kicker is that when we bought the home, we thought we’d be here for 15 years or so, but a new dream job opportunity has come up, and there is a possibility we’ll relocate in the next six to eight months. Does it make sense to update the bathroom if we might sell so soon?

— B.

While there are exceptions, improvements don’t usually increase the value of a property by the amount spent. That would be particularly true if you’re going to relocate soon.

Of course, I don’t know how your home compares in price with its neighbors — whether it might be the least or most expensive one in the area. That would make a difference, for it can be particularly difficult to recoup an investment in the most expensive house in the neighborhood.

Nor do I know how much you’d be spending on that bath. It does seem a shame, though, to have the house torn up with construction only to leave it.

I’d certainly wait until the job situation is settled. Then, if you want a new bath, do it for your own satisfaction, not necessarily as an investment.

After a short sale

Hi, Edith:

My house was not worth what I owed on the mortgage, so a short sale was the best option.

How long after a short sale do I have to wait before applying for a new mortgage? I’ve heard it is two or three years.

— D.

For those who aren’t familiar with the term, a short sale is one that doesn’t bring enough to pay off the mortgage(s) and lien(s) on the property. In order to sell the property, the lien holders must agree to settle for less than is owed.

In the unlikely case that you’d been making your mortgage payments right up to the date of sale and had not defaulted on the loan, you could immediately apply for a Federal Housing Administration-backed mortgage on another house.

More often, though, the unfortunate ex-homeowner does have to wait two years. After that time, with a 20 percent down payment, it’s possible to qualify for a conventional mortgage.

Qualifying ratio

Dear Ms. Lank:

Two mortgage lenders have told us their qualifying ratio is 28-to-36. My husband says we qualify, but I would appreciate it if you’d give us your explanation of what that means.

— L. R.

It’s called “qualifying” because if you meet that standard, you are considered financially qualified for a mortgage loan. That 28-to-36 refers to the comparison of your debt to your income.

If you’re quoted 28-to-36, that means the lender is OK with you spending up to 28 percent of your income on mortgage payments. Your monthly charge will include what is known as PITI: the principal, interest, one-twelfth of your property taxes and homeowners insurance.

Lenders also take into consideration your other debts. If their standard is 28-to-36, they’ll OK a loan that allows you to spend up to 36 percent of your income on your mortgage and all other debts — often a car loan, for example.

If your debt ratio is higher than 36 percent, it’s sometimes possible to get a mortgage loan anyhow, perhaps by increasing your down payment. Most lenders, though, don’t want you getting in over your head. Their loan is safer if they’re pretty sure you can handle it.

Changing terms

Dear Edith:

I live in a single-family home with a 15-year mortgage. My payments include taxes and insurance.

Is it a good idea to change the terms of my mortgage to pay my own insurance and taxes, thus reducing my monthly payments?

— Ms. M. B.

You can’t make any changes at this point. Doing so wouldn’t save you any money anyhow.•

Contact Edith Lank at www.AskEdith.com, edithlank@aol.com or 240 Hemingway Drive, Rochester, NY 14620. The opinions expressed in this column are those of the author.

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