Before falling to the temptation of using the equity in your home to undertake major maintenance and remodeling projects, you should know which improvements make sense.

• Improving: Projects that should take priority are those that will protect your home from deterioration and damage. roof replacement, plumbing and electrical upgrades. Although such improvements don't do much to beautify your home, they will help preserve its value.

Renovations that add square footage to your house are those most likely to add value-as long as they bring your house up to (not above) the standard of your area. The projects that render the highest returns? Major kitchen remodeling. Then bathrooms, attic additions, sunrooms, basements refinishing, decks, family room addition, painting and roofing-general maintenance.

• Location The Joint Center for Housing Studies, a Harvard University think-tank, in a study of thousands of home sales in four cities over an 18-year period starting in 1982, found that owners lost money on 41 percent to 56 percent of home sales, depending on the locality. Before you make changes to your home, take a hard look at houses in your neighborhood. You'll get the biggest bang for your buck by keeping up with the Joneses, not by doing them one better. If houses have two baths and you have only one, adding a second will boost your home's value. The same goes for bedrooms.
• Over improvement yields diminishing returns. So don't add an in-ground swimming pool or a third story if you're the only one on the block to have one. Unless you plan to stay for many years, refrain from exotic decorating: Gold-plated faucets or a bathroom tiled in puce won't add to the value of your property. Don't undertake a big-ticket remodeling project if you plan to move within a year. You won't have time to enjoy it, and new owners will most likely want to do something different. Instead, go for maintenance and repairs, clear clutter, and paint.
• Efficiency. Finally, the value of any remodeling project includes elements that can't readily be measured in dollars and cents. Unlike other kinds of investments -- stocks and bonds or bank CDs, for example -- people retain the use of their money in the form of the remodeled space. This "utility value" is difficult to quantify, but it is always present.
• In some cases, the benefits are tangible. Replacing windows, for instance, typically results in added comfort as well as reduced energy costs. The same is true of remodeling projects that include an upgrade of house systems -- replacing HVAC equipment with more efficient models, for example. And a kitchen remodel often includes upgraded appliances that are both easier to use and more energy efficient.

Remodel In A Smart
Experts say there are at least two rules of thumb when it comes to remodeling your house.

First, you should not increase the value of your house to a point where it is the most expensive home in your neighborhood. This could make it difficult to sell the house in a competitive housing market.

Second, you should strive to keep your new mortgage debt below 80% of your home's new appraised value. Not only does this keep you below the debt/equity ratio requiring you to pay private mortgage insurance on the new loan, but it also ensures you don't assume a monthly payment that precludes you from having a balanced household budget

Getting the right help

Once you decide on a remodeling project, you still have to choose from among the estimated 900,000 companies and individuals who identify themselves as remodelers in the U.S. Experts advise asking some basic questions of a prospective contractor such as:

• How long have you been in business?
• Will employees or subcontractors be assigned to the project?
• How many projects like mine have you completed in the past year?
• May I have a list of references?
• Do you use only the highest quality material

Don't rely on just one estimate for any job, as costs can vary by 10% or more among companies. And make sure you understand what is included in each bid so that you can accurately compare. On a painting job, for instance, the grade of paint, type of caulking could vary, meaning a lower bid might also represent lower quality.

In addition, one of the most important questions you may need to ask is whether the contractor has liability insurance -- for themselves as well as any subcontractors they plan to use. Don't hesitate to ask to see an actual certificate of coverage.

Finally, make sure that your own homeowner's dwelling insurance is raised to include the value of the newly remodeled house as the work is completed.