Home Loan advise? Remodel and Addition

9 years ago

I am looking into a renovation/remodel of my current home. Let me start with some background information.
My house/land are fully paid for and are appraised at $85,000. The house we are in was built in the 87 by my family and has some measure of sentimental value however it was originally built for 2 people and we are bursting at the seams. Additionally the construction work is not professional grade and so there are areas of the house that are wearing out such as the foundation (built on blocks) and electrical.
I have no intention of moving. I was raised in this small community and plan to do the same for our children. We have looked at new construction but would have to factor in the cost of demo on our current house and the cost for that and construction would far exceed a reno/addition.
We are considering a plan that adds a new master bed and bath, an updated kitchen and an additional room so that each child (boy and girl) can have their own room and closet.
Our house is currently 1000 sq feet including an upper loft.
We are looking at closing in the upper loft and adding dormers to create bedroom space upstairs for the kids and expanding the downstairs some to include a master bed/bath and. The additions would be approximately 500 sq feet or less. The renovation portion would allow us to finally tie in to a proper sewer line, restructure the kitchen, and fix the roof and foundation problems. Additionally we currently only use a wood burning stove for heat and a small window unit for cooling so we are adding a central air and heat.
I am working with an architect to design a new space and the current estimate is around $100,000
We have the enough for 15% down although and look at being able to pay the loan off in 10 years.
My question is what type of loan would work best for us? I have placed a call to our local bank and have an appointment with a lender there however I am interested in a second opinion.
Thanks!

Comments (5)

PRO
LMP Designs
9 years ago
You have a couple of choices but the one that probably makes the most sense and the "cheapest" money, would be to take out a first mortgage on your home. Since you currently own the home "free and clear" interests rates are at historic lows and, depending upon your geographical location, you should be able to get a mortgage somewhere in the neighborhood of 3.5%-4%, with a monthly payment of around $600, for 15 years. Obviously the payment would be higher to pay off the loan in 10 years. The problem with this option and also a HELOC (home equity line of credit), is that most lenders will not loan 100% of the homes value, which is what you need, $100,000-15,000 (your 15% down)= $85,000, which is the current appraised value of your property. So unless you can find a lender who will loan 100% of property value, you may have to get real creative. Is it possible to phase the remodel? Do some now, pay off the loan, do the remaining later? Also, a HELOC works in a very similar way that a credit card does, as you pay down the loan, more money is available and you wouldn't need to take out another loan.
allieundercover
Original Author
9 years ago
This is so helpful. Thank you! and yes.. we are already working on a plan so that we can do the house in 3 phases to stay somewhere around 1/3 of the appraised current value.

Have a wonderful day!
Related Discussions
new FHA remodel loan?
Q
Comments (19)
I haven't visited this forum in a long time, my apologies for not answering your question sooner. "tazochai...Question: You said you did not get the remodel money upfront. So the contractor had to front the money and he got paid later... or is that the way most contractors work? We are considering this kind of a loan, just at the very beginning of the process. Are there stipulations on what types of improvements that can be made?" The contractor is expected to front the money and get paid later. An up front down payment is also reasonable to ask for too, so you will be wiser to have some money in the bank to handle things like this, and in case you run into bad situations like tracie.erin did. Someone else provided you a link to info including stipulations. I know when I researched this, I could not include luxury items in the rehab cost. For example, no pools or steam rooms, that kind of thing. For anyone considering doing this, the bank inspector probably could refer you to general contractors. My bank inspector had names he was able to offer me. The good thing with that is, the GC will already be familiar with this process. It's important they know how to do the paperwork and take it seriously, for example, getting progress lien waivers and final lien waivers, invoices for subs, etc. Anyone reading this wants to know who I used in St. Louis, MO, feel free to ask.
...See More
Remodeling (Construction)Loan, Draws, and Who Pays
Q
Comments (6)
Construction business is running a small company. All businesses need to have a line of credit to get them through the billing cycles. I think there are two issues: available line of credit and a deposit required before the beginning of the project. Construction companies (almost all companies doing custom work) ask for a deposit (earnest money, good faith money, whatever you call it) before the construction (or custom work) begins. This is my experience working with multiple companies in the past few years. It's typically 5 to 10% of the job in construction. Some ask for 25% or more before the work begins (ie custom cabinet companies, custom countertops etc.) Is your guy asking for a deposit? If I was running a business, I would not spend my money without a guarantee that the customer is invested in the project. Unless the customer puts down a deposit, the customer can walk away from the contract without any monetary penalty. This is not a good place for the business to be in before the business starts to spend its money. I would absolutely ask for a deposit from my customer. Maybe he gave you too much information regarding how he spends the deposit... That is entirely different territory of issues. Does the business have enough line of credit to get through the project? BTW, on larger projects we did, we paid every two to four weeks. The companies generally need to be paid often enough to make their cash flow happen. Again, you, the bank and the construction company all need to be on the same page about this.
...See More
Remodeling (Construction)Loan, Draws, and Who Pays (x-posted)
Q
Comments (12)
Most home remodels that are being done are with cash or HELOC's. I don't know of anyone in the past 18 months who has gotten a home remodel loan. Banks have gotten way too bit from "house flippers" who thought they could turn a profit by cheaply putting lipstick on pigs. Most will do HELOC's because the amount is smaller and secured by the equity in the home. A true home remodel loan will require extensive vetting by the bank and appraisers over the plans to be able to try and verify the value after the remodel as well as the reputation of the contractors involved so as to be sure of the completion of the project. It's part voodoo and part neighborhood value. And you should NOT put the cart before the horse on this by fronting any materials before the loan is approved. Because it may not be. However, once the loan is approved, you should pay out of pocket to get it started if need be. You should always have a safety cushion for those type of expenditures that the bank is hurry up and wait on. And at least a 20% cash cushion for overages. You will need that, and maybe more on older homes. Plus, the bank will have a difficult time approving a loan unless you can prove you really don't need a loan and actually have the cash or home equity to do the project outright.
...See More
Addition and remodel
Q
Comments (50)
We just put on 600 sq. ft. onto the back side of our contemporary cape. Builder started the beginning of February. Project has moved along nicely and we are currently waiting on the countertops to be installed and then everything will be finished up from there. Basically the new space is a kitchen, dining nook (bump out) and living area. The old kitchen was turned into mudroom/laundry room (it was very small). My advice would be stay on top of costs and make sure your builder communicates with you. Ours is rather laid back and though I like that, he has also left out some details. For example he would never give me an exact amount of time that I would be out of a kitchen. We are almost at the 2 month mark and it's been hard with two kids. He also moved the washer upstairs while we were on vacation but now it can't be hooked up until all the kitchen plumbing is finished which hinges on the countertop install that we are currently waiting for. So it's things like this that come up that I wasn't expecting. Our biggest cost increases with were with the electrician and with foam insulation. Also, we installed Coretec Plus Ivory Coast Oak with a contemporary looking kitchen. I think it looks great and it's less worrisome than wood. Plus price was right. Good luck!! It's a leap of faith but it will all work out.
...See More
PRO
LMP Designs
9 years ago
You're welcome! Good luck with the remodel :-)
PRO
LMP Designs
9 years ago
You're welcome! Good luck with the remodel :-)
emma
9 years ago
I am just guessing here, but a home built on blocks may not qualify for a loan. We have homes here built for A/C workers during the war that are on blocks and they can't be insured so they can't get a loan. My husband bought the one he was living in when the government sold them. He kept it for rental and when we tried to sell it we found out they don't qualify for loans, none of them. We sold it at a lower price for cash. Your home renovation may be a total loss when/if you ever sell it.

Home Loan advise? Remodel and Addition

Comments (5)

LMP Designs

allieundercover
Original Author

Related Discussions

LMP Designs

LMP Designs

emma

COMPANY

BUSINESS SERVICES

GET HELP

CONNECT WITH US

Home Loan advise? Remodel and Addition

Comments (5)

LMP Designs

allieundercoverOriginal Author

Related Discussions

LMP Designs

LMP Designs

emma

COMPANY

BUSINESS SERVICES

GET HELP

CONNECT WITH US

allieundercover
Original Author