Without cash or sufficient equity, it's a no go.

You are having trouble finding someone to loan you the money because it is a horrible investment. You want them to give you a large amount of money. You'll make improvements that increase the value of your home by less than that amount. If you default on payments, then the bank is holding collateral that is worth less than the loan. That would be a stupid business decision.

Basically, you can't afford a major remodel at this point. It is very expensive and you just don't have the cash or equity to pay for it. You'll need to start saving if this is one of your goals.

Not true bill. You appear to assume that we are wanting to put on an addition that will cost $$$ but only raise the value by $. It's not the case and the appraisal confirms this. The problem comes from when we purchased this house we still owned another one so we couldn't put a full 20% down. At the time the market was climbing and we had over 25% equity built up a few years ago. Then the market crashed. That's the hangup, not the value of our home vs the cost of the improvement.

What I asked is if there are any banks that are willing to do loans with people who have lost equity in their homes but need to do work.

NO, there isn't a single bank out there willing to let you go upside down on your house. Nor should there be.

If you don't have cash to do this, then you shouldn't be planning on doing this anyway. Remodels are twice as expensive as new construction if not more, and new constructions are having difficulty getting appraisals to meet the construction costs. Many people are having to bring cash to the table to be able to move into their brand new home.

You're really mistaken if you believe that spending 200K on a remodel will get you that same 200K back in value. Even in the time of rising home values, that didn't hold water. Adding on additional space does not "pay you back". It costs you money. Money you don't have to spend. You're already at the break even point on your house due to market drop. The market isn't headed up any time soon. If you were to default on the loan, you'd be under water. You need to have MUCH more equity in your home to even consider such a money losing proposition. Even then, it would be an outstanding home or location to be worth the expenditure of the remodel you're talking about.

Your bank is correct. If you want a larger house, then it's more financially sound to move than it is to remodel.

Seriously, there is no need to shout or be rude. All caps and bold type is not necessary. I wasn't rude to you, please treat me with the dignity and respect that I deserve.

Secondly, never did I say I had an upside down mortgage or that I would have one, or be under water after the addition. We applied for a construction loan, not a home equity loan. The appraisal has been done, the plans drawn up, the budget set. The bank has approved everything up to this point ~ the loan officer and I have had many discussions regarding this and we are not putting ourselves nor asking the bank to put us into financial jeopardy at any time. We aren't spending $200k on this addition, nor would we be foolish enough to dream of that (no clue where you came up with those numbers...) IF we were looking at adding that kind of value to our house we'd definitely out value the neighborhood. And to assume that by doing the addition we'd never get the money back, that our home would be too high in value for our area, we've been working to keep that from happening. Again, we've already got the appraisal of the completed value of the home after construction ~ the bank is happy with those numbers.
I did not ask you to make a judgment call on my financial situation ~ you do not know what we have in savings, stocks, bonds, various accounts, etc. All you know is what I stated initially and that we don't have 100% of the cost of the remodel. I never once said that I *couldn't* get the money needed to do the remodel, just that we didn't have the cash on hand to completely bypass the bank at this time.
Now, since you don't know me or my whole situation, why we won't consider moving and why we are planning to add on, please refrain from jumping into conclusions.
And, just for the record, it's not my bank that said to move. I (just) wanted to make sure there weren't any options, new programs, new government rulings, etc. that I wasn't aware of and my bank hadn't thought of already. I truly hope that if I post in here again my questions are answered in a more compassionate and helpful way.

I've learned not to discuss this topic on this forum. Not worth it.

Maybe a different forum. Try,

http://ths.gardenweb.com/forums/finance/

Or better yet, try some banks.

If I may.....(please don't shoot the messenger)

Banks are under a great deal of scrutiny for their underwriting of loans. Loans are reviewed and approved based on standards that are set by the bank and its officers, their (often times) parent corporation, and regulatory bodies like the Federal Reserve and FDIC. They bank will have certain guidelines that need to be followed to help "standardize" its loan decisions. This helps the bank know its risks, determine its costs, and decide on which loans to approve.

It sounds like some of the banks that you have been in contact with have given you their criteria that would allow your loan to be approved by them. Like the down payment requirement. And a construction loan, which is different than a mortgage loan or a home equity line of credit, or an unsecured loan. Different types of loans will have different criteria.

My suggestion to you if you feel that your individual situation is financially sound, but just not "fitting" into the banks criteria is this. See if in your community there is a fairly large, but local bank that holds it's own loans and specializes in community lending. Perhaps this type of lender will have the ability to look at your situation in a more individual way.

Know that this type of loan will probably have a somewhat higher interest rate, because the bank is assuming more risk since the loan is not something they can resell onto the secondary loan market. And I would assume that if you are willing to pledge a financial asset beyond your home as collateral that may help also.

My other suggestion is that you ask a lot of questions and listen to what they tell you, especially if they tell you no. You will want to know the reason they don't approve the loan, because that information will impact what you do next.

Hi Mikora,

I agree with the previous poster and suggestions made by him/her are great. In addition, I wanted to throw some ideas for you:

Obviously you started thinking of remodel because you felt the need for additional space. At the same time, banks have become very very risk averse because of the crisis that we all know about.

Adding space in one area is more expensive than the other. Second story additions have a different economics than first-story additions. Given this, may be you could approach it from the perspective of which areas do you want most, that would add most value to your new home? Also run another calculation on which areas cost less and whether they add proportional value to the end project?

Have you looked into the pre-fab home modules? They might be cheaper than stick built construction, thus bringing your cost basis down.

As I see it, the key here is to meet with the bank halfway (might work, since they're not budging for your current proposal) -- and also try to come up with cash from other sources like family etc. That's how I would approach this issue.

One more suggestion: Evaluate if you can actually reclaim what is otherwise dead and unusable space in your house and simply re-purpose it.

Hope this helps.

Mikora7,
You've gotten some good replies, even the ones that you didn't want to hear. A 2 story addition of dining room, laundry and master bedroom is a want, not a need. A need is something you need to survive such as a new roof because the old ones leaking or windows because they're rotting or broken.

The banks are hesitant to loan because you no longer have much equity in your house. The 20% they are requiring is to protect themselves in the event the economy continues to fall...that's their cushion.

Why would you want to put your family at risk by taking on a project that you can't pay for and the banks don't think is a good risk? Work to save up the money so you can either bypass the bank or meet their guidelines and then you'll be in a better position.

I don't know what you expect to spend for such a remodel, but 200K is closer to the mark than 50K would be. Even if you DIY most of the project, you're closer to 100K than 50K. It's hard to build a garage for less than 30K here in the South, and you're not talking any heating or cooling or plumbing changes like you would with a master suite.

So, let's do the math. If you have a 400K house, and your estimates are unrealistically low @ 50K to do the project, and you think you'd actually appraise at 450K after the work was done (very unrealistic, the "return" will only be about 20% tops) then the bank needs you to have 90K equity in the home before they'll lend you the 50K. YOu don't have that to be able to qualify. If you have that 20% equity at current value, you have 80K in the home, (loan value at 320K) only 10K worth of difference, but enough to 86 the project.

If home prices continue to decline, that 400K current value may look more like 360 with only a 10% market drop, leaving you only 40 K in equity, or 11%. If the bank does loan you 50K to do your project, and that project only gets half done because it's underestimated, and you then default on the loans, the bank ends up owning a 360K value home with 370K (320 loan + 50K loan) minimum worth of paper on it, and will have to spend even more to complete the project. And that is if 100% of the renovation loan value could be added to the property value with only a minimum market drop. Even if market values stayed stable, Adding 50K worth of debt to a home that would only expect to see a 20% increase in equity for th value of that loan (10K) would only leave you with 40K equity in the home, which is under 10% and would lead you to paying mortgage insurance and other fees associated with such a loan to value situation.

What kind of banker would go for any of those situations in this day and age? THe markets still haven't recovered from the last time they believed in pie in the sky increases and no doc loans.

If this is really important to you, then pay cash as you go. Each stage is expensive by itself & this will take longer, but you'll be able to do your project. It can be done this way for sure. Plenty of people over the years have done it this way DIY.

Thank you for clearly explaining some more of how this works from the financial end of things. It does help me to understand why the bank is being so cautious. Right now they haven't said no, just that they can't give us the whole amount we are requesting. I have tried to talk my husband down into a smaller, less expensive addition but he's not willing to budge much more because we've already down scaled the plans several times ... long story ... so I guess we'll see now what the bank says. They called yesterday and explained how much they would be willing to give us and more on what the terms and expectations would be so the next step is to see if the final approval will be given.
Again, thank you for the explanations and suggestions as to how to accomplish this. It does give me some things to present to my dh that he might not have thought about before.
As for the wants vs needs response, we have discussed this many times and we do need a space where our family can gather to eat. Right now we are eating in shifts as the "dining area" in this house is too small for our large family. We need another bedroom as well ~ wouldn't have to be a master bedroom but we can't see putting any of the younger kids on a floor/level of their own. In the girls' room there is enough room for their triple bunkbed, one dresser and one cabinet. Everything else of theirs is stored in our bedroom. So there are some very real needs in this house. Yes, the laundry room is a want, not a need, but the design allowed us to put in a laundry room with a closet (our house has almost no closets, not even at the front entry) and bring the washer/dryer up from the basement which does increase the value of our home. It's not a large enough space to make into a bedroom ~ and too large to be a closet. So there are some huge considerations in what we have designed and are hoping to do. Our home is considered to be less than 1200 square feet (they don't count the underground level) so the additional space is really not a luxury as it might first appear to be.

I know families change, but what made this 1200 square foot home your choice when you were house hunting? If budget was your primary consideration, then, unfortunately, you've probably got as much space as your $$ will buy. If it was location, or some inherent charm in the home itself, and you thought you could easily and cheaply remediate the space issues, then you've been misled as to how easily and/or cheaply any remodel can be done.

Really and truly, moving to a larger home in another location might be the less expensive and easier choice. Of course, that means that you must sell this one first, and with the markets the way they are, that might be difficult.

Pay as you go as was suggested remains an option. It's not the easiet thing to live in a constant construction zone, but it does let you accomplish what you want as you can afford it.

I don't have any loan advice to lend, just wanted to say whichever way you accomplish it, I wish you the very best of luck, Mikora. :)

I skimmed some of the responses so not sure if this has been said, but it sounds like your bank is only lending this type of loan at 80% loan-to-vale based on the future appraisal. I do know that some banks will got to 90% although the criteria is tightening and it will depend on the bank. We had friends that have been planning a remodel and when they first applied, the bank they were working with said they could do 90% ltv, but after getting all preliminary work done (plans, budgets, etc) the bank said they could no longer do 90% and would only do 80%. For them, that was a huge difference dollar difference. They spent some time calling and talking to other banks - both local and national, and did find a few other options for lendors willing to do 90%. You may have to call around and see what else is out there. These friends both work in finance so they were pretty savvy, but I still think it's worth putting in the time to call around. Hope this helps - and good luck.

This thread is 4 years old... Economics of remodeling and the Economy have changed.