Help me finance my kitchen renovation
August 8, 2013 10:30 AM Subscribe
We bought our house last year with 15% down, knowing that we would need to redo the kitchen. We think it's going to cost about $25 - $30K. (Estimate is $19K without appliances or counters or cabinets.) When I contacted the guy who sold us our (FHA) mortgage at our local bank, he said that he was unwilling to lend more than 20% of the value of our house. Since we paid 15% down a year ago, obviously we haven't reached the point where we have paid 25% and can borrow another 5%.
Bonus time sensitivity: I'm pregnant, the baby is due at the end of February, and the kitchen layout is currently not very functional for something like a million baby bottles on a drying rack. Further snowflakes inside.
The mortgage guy at the bank suggested that we approach a bank or credit union where they're willing to lend 90% of the value of our place (it's actually a 2 family condo), obviously at a higher interest rate.
I have also looked into a 203K FHA Streamlined loan (which is limited to $35K - perfect for our needs) but I am having trouble finding a broker or any information at all about what the interest rates might be like (compared to a 90% loan) and I kind of don't know where to get started on all this. I've looked on the HUD website and it's a morass of info with a lot of dead links and without much specifically about WHERE I can talk to someone about a 203K streamlined or even what the damn interest rates might be.
We have good-to-excellent credit, earn a decent income, and have made all our mortgage payments on time. We actually have $25K saved but we don't want to use that for a kitchen reno - that's really emergency money in case one of us loses our job.
Kitchen details, in case it matters:
It has very little counter space and very limited cupboard storage - the layout as a whole is pretty non-functional. We have solved the storage issue with things from Ikea, but the counter space is still a huge problem and we have 2 kitchen islands already. There are other privileged people problems like a sink that doesn't drain, borked insinkerator (the drainage problem is obviously related to the insinkerator), not enough circuits (lights dim when the refrigerator cycles or when the microwave is on), no dishwasher, no rangehood, yadda yadda.
Notes:
We have a contractor we like and trust, the house was built in 1885 so there will doubtless be added costs with the electrical when we add circuits, there may be similar plumbing issues when we try to install the dishwasher.
Since the work is interior, there shouldn't be a problem with condo association permission (we are majority owners anyway.)
We live in Massachusetts, in a city which is very heavily regulated re: work permits and inspection, so that's also going to add expense.
I am not interested in hearing about ways to make the current kitchen workable. I'll do that if I have to, but this question is about ways to borrow this money. I would especially love to hear any experience that anyone has with a 203K streamlined loan.
The mortgage guy at the bank suggested that we approach a bank or credit union where they're willing to lend 90% of the value of our place (it's actually a 2 family condo), obviously at a higher interest rate.
I have also looked into a 203K FHA Streamlined loan (which is limited to $35K - perfect for our needs) but I am having trouble finding a broker or any information at all about what the interest rates might be like (compared to a 90% loan) and I kind of don't know where to get started on all this. I've looked on the HUD website and it's a morass of info with a lot of dead links and without much specifically about WHERE I can talk to someone about a 203K streamlined or even what the damn interest rates might be.
We have good-to-excellent credit, earn a decent income, and have made all our mortgage payments on time. We actually have $25K saved but we don't want to use that for a kitchen reno - that's really emergency money in case one of us loses our job.
Kitchen details, in case it matters:
It has very little counter space and very limited cupboard storage - the layout as a whole is pretty non-functional. We have solved the storage issue with things from Ikea, but the counter space is still a huge problem and we have 2 kitchen islands already. There are other privileged people problems like a sink that doesn't drain, borked insinkerator (the drainage problem is obviously related to the insinkerator), not enough circuits (lights dim when the refrigerator cycles or when the microwave is on), no dishwasher, no rangehood, yadda yadda.
Notes:
We have a contractor we like and trust, the house was built in 1885 so there will doubtless be added costs with the electrical when we add circuits, there may be similar plumbing issues when we try to install the dishwasher.
Since the work is interior, there shouldn't be a problem with condo association permission (we are majority owners anyway.)
We live in Massachusetts, in a city which is very heavily regulated re: work permits and inspection, so that's also going to add expense.
I am not interested in hearing about ways to make the current kitchen workable. I'll do that if I have to, but this question is about ways to borrow this money. I would especially love to hear any experience that anyone has with a 203K streamlined loan.
The only way you can get an FHA Streamlined loan is if your current loan is an FHA loan. THEN, they'll only loan you up to the existing mortagage (not more). Its for people who just want to reduce their interest rates on their existing FHA mortgage. Quicken Loans did our last loan at 3.85% 30-Year Fixed. So go to their website.
You may want a HELOC, Home Equity Line of Credit. Is the 15% you put down part of the home's equity? Or has your home lost value since you're purchased it? Any bank or credit union will extend you a HELOC on the appraised value of your home. Call around to see what banks and credit unions are offering.
Or take out a second mortgage. That's a way of avoiding any origination fees.
posted by Ruthless Bunny at 11:00 AM on August 8, 2013
You may want a HELOC, Home Equity Line of Credit. Is the 15% you put down part of the home's equity? Or has your home lost value since you're purchased it? Any bank or credit union will extend you a HELOC on the appraised value of your home. Call around to see what banks and credit unions are offering.
Or take out a second mortgage. That's a way of avoiding any origination fees.
posted by Ruthless Bunny at 11:00 AM on August 8, 2013
I purchased my house in 2012 in Connecticut with a full 203k loan. Even though the work fit the guidelines of a streamlined 203k, my broker's lender only finances the full version. The whole process was relatively painless (and the streamlined should be even more so). If you do go the 203k route, make sure that you and your contractor do a bit of research into what to expect throughout the process.
I found my lender by going to the Connecticut affordable housing website and e-mailing/calling lenders that were listed as knowing how to do a 203k loan- it's a very specialized loan with a lot of room for error so it's important to choose a broker/bank that knows what they're doing. For Massachusetts, you can go here (the link to participating lenders is on the right).
My loan was at 3.75% (I purchased 1/4 or 1/2 point, I can't remember) in March 2012. Rates have changed obviously, but that should give you some idea.
posted by eunoia at 11:57 AM on August 8, 2013
I found my lender by going to the Connecticut affordable housing website and e-mailing/calling lenders that were listed as knowing how to do a 203k loan- it's a very specialized loan with a lot of room for error so it's important to choose a broker/bank that knows what they're doing. For Massachusetts, you can go here (the link to participating lenders is on the right).
My loan was at 3.75% (I purchased 1/4 or 1/2 point, I can't remember) in March 2012. Rates have changed obviously, but that should give you some idea.
posted by eunoia at 11:57 AM on August 8, 2013
I realize you're more worried about borrowing the dough, but keep your eye on the actual costs of this project.
For example, can you do any of the work yourself? There's no reason to pay a contractor to do the demolition. If you don't want to do it yourself, hire a couple college kids with sawzalls and pry bars.
Also, even if you like and trust your contractor, you owe it to yourself to get at least 3 estimates.
posted by sixpack at 12:00 PM on August 8, 2013
For example, can you do any of the work yourself? There's no reason to pay a contractor to do the demolition. If you don't want to do it yourself, hire a couple college kids with sawzalls and pry bars.
Also, even if you like and trust your contractor, you owe it to yourself to get at least 3 estimates.
posted by sixpack at 12:00 PM on August 8, 2013
Response by poster: Thanks, everyone. This is all very useful and has really helped me clarify my thoughts. We do have an FHA loan now. We also have 15% equity in the house (housing values have gone up if anything, we're in a "hot" area) - which is partly why I was surprised my mortgage broker was stuck on the loan-to-value ratio and couldn't do a HELOC - but I suppose since they are small and local, they are probably also pretty conservative.
Next steps are going to be meeting with lenders in person (headnsouth, I didn't realize the rate info isn't usually online, but that makes sense) and yes - since the financing seems to be taking a while, we will get a couple more contractor bids, just to make sure.
posted by data hound at 1:28 PM on August 8, 2013
Next steps are going to be meeting with lenders in person (headnsouth, I didn't realize the rate info isn't usually online, but that makes sense) and yes - since the financing seems to be taking a while, we will get a couple more contractor bids, just to make sure.
posted by data hound at 1:28 PM on August 8, 2013
You could try LendingClub.com, which I presume is probably the biggest peer-to-peer lending operation in the US. In my opinion the company runs a very professional operation (I have lent small amounts of money there so I'm familiar with it). I've seen plenty of loans there for home improvements (although the majority of loans there are for credit card debt consolidation).
posted by Dansaman at 8:45 PM on August 8, 2013
posted by Dansaman at 8:45 PM on August 8, 2013
Mod note: A few comments deleted. The OP is specific about the sort of help they are looking for: "I am not interested in hearing about ways to make the current kitchen workable. I'll do that if I have to, but this question is about ways to borrow this money," so let's stick advice on getting a loan. Thanks.
posted by taz (staff) at 3:10 AM on August 9, 2013
posted by taz (staff) at 3:10 AM on August 9, 2013
Some other thoughts:
Your retirement plan may have a loan option, where you could loan yourself the extra cash you need and pay yourself back with interest over time. I wouldn't do a normal distribution since that is subject to early withdrawal penalties, but the loans typically are not as long as you don't default. Low interest rate and you're not paying the interest to a third party. Of course this comes at an opportunity cost if the market were to suddenly have a huge surge in value.
When I had to connect my house to sewer the contractor was actually willing to finance some of it for me. It was at 10%, but I had to get it done and could only come up with about 2/3rds of the cash.
You may be able to get help from family members too.
posted by jeffamaphone at 10:04 AM on August 9, 2013
Your retirement plan may have a loan option, where you could loan yourself the extra cash you need and pay yourself back with interest over time. I wouldn't do a normal distribution since that is subject to early withdrawal penalties, but the loans typically are not as long as you don't default. Low interest rate and you're not paying the interest to a third party. Of course this comes at an opportunity cost if the market were to suddenly have a huge surge in value.
When I had to connect my house to sewer the contractor was actually willing to finance some of it for me. It was at 10%, but I had to get it done and could only come up with about 2/3rds of the cash.
You may be able to get help from family members too.
posted by jeffamaphone at 10:04 AM on August 9, 2013
One option would be to spend your savings on the remodel, then get a home equity line of credit and have that be your emergency fund while you rebuild your savings. You would save a lot in interest by not borrowing the money, and you could take cash out of the HELOC if you have an emergency.
posted by medusa at 6:53 PM on August 9, 2013 [1 favorite]
posted by medusa at 6:53 PM on August 9, 2013 [1 favorite]
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posted by headnsouth at 11:00 AM on August 8, 2013