How hard it is to get a loan primarily depends on the amount of money you need to borrow & your credit rating, along with the strength of the housing market in your area and the appraised value of the home before and after.

One thing to look at is what the per s.f. value of the home is in relation to the per s.f. cost of doing an addition is. For example, if the going rate for a house in the neighborhood is $100 per s.f., and it costs $140 a s.f. to do the addition, you'll be adding negative equity to the home. However, if the going rate for a home is $150 per s.f., and you're not overbuilding for the neighborhood, it's a no brainer.

And then compare the size of the home to others in the area post addition. You may not want to overbuild for the area.

It is exceedingly rare for any renovation to add more than 50% of it's value to a home. You would really have to be buying a foreclosure in bad shape in order for the money you put into it to be recouped as 100% additional value, and even then, you would have to DIY most of the labor. And, "added value" only comes into effect when you sell the home. Until you do that, you haven't done anything but spent money.

The national average cost for a family room addition and master suite addition is 190K for mid-range projects. The added value to the residence averaged 55-60%. So, maybe your home would be valued an extra 114K over where you started. But, you still spend 190K, and wouldn't even see that 114K unless you sold the house right away with a fresh remodel. Let that remodel age, and 15 years later, it's almost like it never happened and you're just evaluating gross square footage at that point, not a freshly done space.

It's always more cost effective to buy what you want in the first place rather than trying to do a home makeover. Renovations are for those who look at it as a necessary expense for them to have a home that they find more functional or appealing. And in today's lending climate, they are mostly an all cash expense. Very few renovation loans are being done unless the home has repairs that are needed and required by the bank for your occupancy.

Hi 4Square: In 2001, we purchased a large arts and crafts home that sat on an entire city block. It was in pitiful condition, but we only paid $115,000. We did major repairs to the entire house. We added a 3 1/2 car garage, side entry, master suite, laundry, powder room, and new stairway to the basement. The addition had basement under it, and we finished that part to include a 4th bathroom, family room, recreation room, large storage room, and craft room for my stained glass. At the same time we renovated the kitchen, upstairs bath, and converted the porch into a new study. Also the house got new siding, windows, roof, electrical, plumbing, insulation, 2 new furnaces, 2 new A/Cs, new front steps, and new concrete circular drive. Total square footage after renovation was 6500'. We had no trouble getting a loan, but we paid a lot out of pocket. Was it worth it? I often think of what kind of new home we could have built for the money we put into that house. Did we get out money back? Nope.

We did a large addition in 2008 (added about 1050 sq feet, gutted the kitchen and 3 bathrooms, added a new FR, mudroom/laundry, and master bedroom and bath, refinished floors, etc.) FWIW, here's the thought process we did when we started:
If our house is worth approximately X and an addition costs about Y, then let's look at homes for sale in our neighborhood in the X+Y price range. Well, there weren't any (we love our neighborhood and didn't want to go more than a few blocks away.) We also knew our house would need some updating if we were to put it on the market.

So we moved forward with our addition, which was pretty costly, at least for us (well over $200/sq ft which I think is normal for this area, at least in '08.) For us it has been very worth it because our house suits us so much better now and we are here for the long term.

We worked with our local bank on the loan. There were 2 options we considered: one was a lower rate, but we would have been responsible for doing all the payments to the builders. The second was a slightly higher rate (or fee or something), but the bank did the payouts to the builder, and made the builder hit certain milestones and provide some information (like receipts and proof of paying subs) before getting payments. For us, this was worth it - kind of a safety net. So, I'd recommend setting up a meeting with your banker to talk through different options and expectations with them. That might help you set a ballpark budget, too, and give you a reality check on what they're willing to loan.

You may know this already, but for me it was part of the learning process: We had a plan drawn up by an architect and submitted it for bid to a few places that we had interviewed multiple times and really liked (all had local references that we checked.) Well, 2 of the builders are design/build firms and won't bid on plans other than their own. This made it very hard to compare apples to apples, and it put one of our top 2 choices out of the running. (They do beautiful work but are on the pricey side, which is why we wanted to do a comparable bid.) So anyway, if you're interviewing builders that's something to keep in mind.

PS: The original part of our home is about 50 years old. It was a ranch with full basement; previous owners put on a second floor. We build our addition off the back.

We ended up re-roofing the whole house when we did the addition to make it all flow and blend.

There will always be surprises with an addition / renovation, especially for older homes. Pipes in the way that you didn't count on; utilities that are in a slightly different spot than the records show; etc. So plan on it being more expensive than the bids; not sure what conventional wisdom says but 20-30% sounds about right.