How to get money to improve home

April 20, 2009 8:02 AM

What are my options for borrowing money for home improvement?

My wife and I need to build a new garage and want to add a bathroom to our house. Total expected expense of approximately $60-70k.

We both have excellent credit. We would exceed any credit requirements. I make a good bit of money. We just don't have $70k in a bank somewhere. We have $100k in equity in our house, which is valued at approximately $400k. We have just one mortgage that was refi-ed 4 months ago. Based on neighborhood, we will likely get the money from this project back out (but this isn't our motivation for doing it; I'm just saying that is not a factor).

Well, my wife went and asked Bank of America about it, and her recitation of the conversation boiled down to that there was no way we could get the money right now. She said the banks are not giving out loans for this kind of thing.

That blows my mind. I'm an absolute sure thing. With my income, I could change nothing about my living and pay $1-2k a month that would easily pay off a $70k loan. Why wouldn't someone lend me the money?

So, what are my options to get $70k to fix my house? Or am I not going to be able to get a HELOC or 2nd mortgage or whatever in this economy? If I am working with an architect and a general contractor, are there ways to set up financing like you would with a car if those two don't offer it themselves?

I'd like to know what my options are for borrowing that kind of money; who would be good sources of this; and what types of things can I say or do to convince a lender that there is virtually no risk in lending me money? I'd also like to get a general sense of how the amount factors in to the decision [The garage ($30) has to be done. The bathroom is just a desire].

Various other demographics which might be relevant: live in affluent and stable neighborhood in DFW area of Texas, married, no kids, dual incomes (one substantial, one good), perfectly clean credit, willing to pay premiums to get it done.

I set up a dummy account for any question or leads: [e-mail]

Thank you.

posted by anonymous to Work & Money (8 answers total)

If this option is available and you have enough in it, you could always borrow against your 401k at work. Interest will be low and you essentially pay yourself back. Also, please don't limit yourself to B of A.
posted by repoman at 8:10 AM on April 20, 2009

You could probably get a personal loan/line of credit. The interest rate on these is usually slightly higher than you would pay with a home equity loan, but if you can really afford to put $1-2K a month down you will pay it off quickly. I used a personal loan when I did my home renovations.

Just another thought. If you can afford to pay an extra $2K a month, why don't you just save that for a year and a half and avoid paying any interest?
posted by bove at 8:40 AM on April 20, 2009

Sorry, it would take more than a year and a half to save $70K, but in a year or a year and a half, the credit markets shouldn't be quite so tight, and you wouldn't have to borrow as much.
posted by bove at 8:41 AM on April 20, 2009

Have you checked with your local Credit Union?
posted by torquemaniac at 9:12 AM on April 20, 2009

Home equity line of credit? Another refinance for the loan value plus $70K of your equity?
posted by jasper411 at 10:34 AM on April 20, 2009

IANA--CPA, but a home equity loan is best option because the interest is generally tax deductible. A home equity line of credit is another (tax deductible?) option, but the interest rate is variable and I do not see them going down in the future.

I would check with more than one bank but I can see why BOA turned you down if you went the home equity route and are in a state like Texas. In Texas, total mortgage debt, including the amount of any existing mortgages plus the projected home equity lien, cannot exceed 80% of the home's current fair market value. In your case, the maximum amount a HE loan could be is $20,000 assuming you have a $300,000 principal balance on the purchase loan ($400,000*.80 less $300,000).

I would really hesitate to take out a non, tax-deductible loan for improvements to your real property. Is it possible to do your project in stages--i.e. garage first, then bathroom or vice versa? Not only will one improvement increase the FMV of your house (which will increase equity and amounts available to borrow against) but it will also give time for the credit markets to thaw a bit.
posted by murrey at 10:35 AM on April 20, 2009

You should be able to get a home equity line of credit. We have about 75k equity in our house and we were able to get about 20k to make improvements. The bank was a little more detail-oriented than they have been in the past. They sent an appraiser out to measure our house and to inspect all of the rooms - in the past they've just done a drive-by and called it good.

You may not be able to get the entire 70k at once, but you should be able to get part of it. You may have to cobble together the entire amount from other sources, or do the project in stages.
posted by Ostara at 10:43 AM on April 20, 2009

For everyone saying a Home Equity Line of Credit is the way to go... I'm not in the market for money or have any major projects planned, but I just got a letter yesterday from Countrywide/BofA saying they basically are canceling my paid-off $60k HELOC that I briefly opened when I bought my house. I have perfect credit and I pay extra off my mortgage every month to shorten the terms.
posted by mathowie at 9:18 AM on April 21, 2009