The kitchen cabinets you choose are one of the single most important items for setting the future value of your home. As former real estate appraisers (CA and WA), we have a few suggestions. To understand real-estate appraising lingo go to the Glossary of Real Estate Appraisal Terms.
The kitchen almost always sets the bar for what type of homes we use as comparables in an appraisal. If you have - higher than average cabinetry, granite or other high-end countertops, pot-fillers for your high-end range or cook-top and hard-wood or ceramic tile on the floor – we are obligated by state statutes to find homes that are similarly appointed. The more high-end attributes you can give your kitchen, the higher your appraisal will most likely be.
Why does this matter? Well, for one thing, if you can get an appraisal that tells the bank you have a house that is valued at 20% or more above the loan you are seeking – you will not have to pay Private Mortgage Insurance (PMI). If however your house is valued at 19% you will be paying PMI for either the life of the loan, or at 79% if you’ve negotiated automatic termination, or until you refinance, when your home has increased in value above the 20% guideline.
Typically, PMI costs between .5% and 1% of the entire loan on an annual basis. For instance, you’ll pay $3,000 extra a year based on a $300,000 loan – or $264 a month above your actual loan payment. Put another way, if you put that $3,000 you’d pay to PMI in the first year alone, into upgrading your kitchen while building your home – you would have both an upgraded kitchen and NO PMI for the life of the loan. It’s a no-brainer, right?
“What about the bathrooms,” you say. Upgraded bathrooms do add value, but not nearly as much as the kitchen. Bottom line: focus on the kitchen first.