Don't forget the bathroom. Image from Flickr.

Many people balk at putting money into their homes in the current situation. Home prices and values are falling, and equity loans for home improvements are all but impossible to get. With falling values, few people have any equity left.

No one can blame homeowners for not wanting to deplete their savings to invest in something that has a depreciating value. However, homeowners must remember that their homes are still their greatest assets, and even if they can’t build value they can slow the fall.

Choose the Project that Fits Your Budget

If getting a loan is not be a viable option, choosing a project that is appropriate for your budget is very important. There are projects that will increase the value of a home that will fit almost any budget level.

You must choose a project that generates the greatest return on  your investment. As always, try to use the bank’s money if possible, but using your savings could still be worth the investment.

High Cost Projects

When choosing more costly projects, the homeowner needs to think infrastructure and not cosmetics. Projects that add to the longevity and energy efficiency of the home should be at the top of the list. One of the up sides of an economic downturn is that prices for services have fallen, too. In relative terms, it may be more cost effective now to make some major upgrades that you have been putting off.

For example, replacing your current siding with fiber-cement or foam-backed vinyl siding can be done more cheaply now and still net an 87 percent return on investment with energy savings and increased home value upon resale. A valuable room that is often neglected is the bathroom. Realtors estimate that a remodeled bathroom can yield as much as a 71 percent return on investment when you sell a home. Remodeled kitchens net a similar return on investment, as well.

Medium Cost Projects

If you do not have access to enough credit or savings for those projects, there are still significant gains you can make without spending quite as much. One of the highest rates of return on investment is actually found outside the home. The addition of a well-made, well-designed wood deck can get you up to an 81 percent return.

If it cost you $10,000 to build the deck, you could add $8,100 to the selling price of the home. If fiber-cement siding is too costly, upgrading with vinyl siding is still a good investment. Vinyl siding garners about the same return as the wood deck: 81 percent. Even minor kitchen remodeling and upgrades will net you a nice return. Upgrading the countertops alone can bring you a better asking price.

Something is Better than Nothing

Even if you can’t do everything, do something. Your home is the most important piece of your financial portfolio, and doing some work now while prices are down can pay off big down the road. The housing market will rebound someday, and you could get an even higher return when it does.

History tries to repeat itself

The Federal Housing Authority says it doesn’t have the resources to police predatory lenders. Officials from the Department of Housing and Urban Development say the FHA needs more staff, better technology and added legal authority if it is going to stop another wave of shady lending practices from hitting the country.

The Troubled Asset Relief Program, which so far has spend $350 billion, was put in place to aid lenders by giving them federal funds. The FHA is charged with screening people who apply for bailout money or otherwise try to get involved with federally backed loans. However, recent examples have shown the FHA is ill-equipped to do so. Too bad a payday loan can’t help.

Finding ways around the law

The first example seems to be simply of slipping through the cracks. An FHA lender in New York was debarred five  years ago. That lender was somehow able to go back into the business, and it continued using the same fraudulent practices that got its license taken away in the first place.

A lending company in Arizona had its license suspended and then filed for bankruptcy. The company promptly resumed operations by putting the company under a different owner’s name.

Evaluating evaluators

The FHA isn’t just in charge of screening lenders. It is also responsible for screening appraisers, people who assign value to homes or property. Right now the government’s list of appraisers still names 199 who have been disciplined by the states. The list also includes 3,480 with expired licenses.

As home prices continue to fall and property taxes continue to rise, homeowners are challenging the appraisal value of their property. Appraisers are being overloaded with requests for re-evaluating a home’s worth. The more appraisers are hit up with these requests, the more bogged down the FHA will become.

Get on the right track

In my opinion, it is imperative that these organizations immediately get the staff and the technology they need in order to be able to properly screen requests for federal funds. Obama has requested access to the remaining $350 billion in TARP funds. If the FHA’s problems aren’t fixed before the government starts handing out money again, Americans will be vulnerable, once again, to predatory lending practices. And this time it’ll be our own government paying those shady lenders.

The first step toward fixing these problems comes with double benefits: Hire people! If some bailout money is used to pay more staff it will have the added affect of giving jobs to part of the 7.2 percent of the population that is unemployed right now. Add that to preventing more of the same mistakes that caused the mortgage crisis in the first place, and we have a winner. I think getting the proper technology for these organizations would be a worthy investment, as well.

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