Best financing options for a home rennovation project, approx. 100k?

July 9, 2018 5:55 AM

I bought my home 10 years ago under a home rennovation loan in which I rolled a certain amount into my mortgage for basic home rennovations (it was a foreclosure). I've unfortunatly had some circumstances in which I have had to refinance once, but I am in good standing and it is a very affordable home for me. I believe it is in a great location that if I were keep it, and add some sq footage on and another bathroom I would make more equity and my daughter and I would be able to stay a little longer in that home. I love the area, and I have a yard, and it is very affordable given the high costs in my area. My home is one of the few homes in the neighborhood that hasn't had some sort of rennovation done, and still only has one bathroom. If I were to sell the home as is, with a few updates, I would walk away with a little under 100K to put towards a new home. But, if I can come up with a way to roll 100k into the mortgage for me to add square footage, a bathroom, and much needed exterior/interior repairs, I think I would end up making more and it would help me out in not have to move to a more expensive area. I am just not sure what sort of loan would allow me to do that, or what would be my best options- has anyone had experience with taking out a different loan for a project that could run me 100-125k, and rolling it into mortgage, or using equity?
posted by MamaBee223 to Home & Garden (6 answers total)

I believe it is in a great location that if I were keep it, and add some sq footage on and another bathroom I would make more equity and my daughter and I would be able to stay a little longer in that home

If you're really only going to be there a little longer (a few years?), I think you need to seriously consider the possibility that the sort of work you're planning won't recoup its cost when you come to sell. It you're doing it so that you'll have a home that is suitable for the long-term, it is quite possibly a decent investment, but I'd be wary of doing such major work on a property you're intending to sell in the relatively near future.
posted by howfar at 6:02 AM on July 9, 2018

Response by poster: That's true. Heres some more information that may help.... home values are very high where I live, my current mortgage is 250k and I have a one story 1,000 sq ft. home with 3 bed/1 ba. Most of my neighbors have added up, or out, and have minimum 2 bathrooms. If I were to sell and try to buy something with comparable living space (or yard, I have a 1/4 acre yard), it would be at minimum 450k, which I can't afford right now on my income alone. If I were to add 100k into my home, that is affordable for me and would give me a few years in the house until I have to consider my daughter's school district, but at that time with adding on I assume I will have the same amount in equity as I did now. I'm kind of stuck in this home right now, and in desperate need of repairs and work done that I feel my best bet is to do everything at once and try to get another bathroom in while I'm at it. houses with 2+ bathrooms sell in my neighborhood for min 50k more than where I'm at now. I just don't know how to go about trying to get another loan or to come up with that money to roll into my mortgage... I can afford a 350k mortgage on my own, I just can't afford any higher being a single part with one income, and if I were to just try to move, I would never find something at 350 do-able for my daughter and I, due to the high cost of living in this area (Northern Virginia/DC area)
posted by MamaBee223 at 6:08 AM on July 9, 2018

Best answer: I think these are your main options - talk to a mortgage broker or local credit union (or Quicken loans) about a cash-out refinance. Find out how much you could pull out of your equity and what your new payments would be, write that down. Then see about a HELOC which is essentially a line of credit with a max amount set to your equity. It’s pay as you go and pay off as you go so for something where you have repairs here and there can be a good option. If your alteration adds real market value (like adding a bedroom or a bath) you could inquire about a construction loan. Wells Fargo does those but ask locally as well to see if there’s someone closer to you. Those can get you the most money but have many requirements and you’ll have to work with a licensed contractor who is comfortable with their requirements.

Now you have your numbers. Get with a residential designer and pay for a consultation to discuss what you want to do - adding a bath. Then talk with a contractor for ballpark pricing. See how the numbers align.
posted by amanda at 7:12 AM on July 9, 2018

Get some bids for the work you'd like done, and call whatever loan officer you used previously, if you liked them. Get some actual numbers going here. Also call up a real-estate agent, maybe one you've used previously, and ask them to tell you what might make the house sell for more, or sell quickly, or whatever. You need to be working with real numbers which we can't really give you here from the internet. You need to be working with local people who know the local market. However, having nearly $100k in equity is really good position to be in - it may be that the best move is to fix what needs fixing and continue paying down the mortgage.
posted by everythings_interrelated at 7:19 AM on July 9, 2018 [1 favorite]

Best answer: I agree your math isn't adding up if you are planning to sell (DO you need to sell when she is school-age? Are the schools that bad?)

You are saying you have $100,000 in equity now, but if you put $100,000 in renovations in (via loans) you will get $150,000. Basically you are losing $50,000. Doing the renovations makes sense if you are staying long term, but not if you are going to move in five or ten years. Renovations are rarely recouped in five years and there is always a chance that home prices will go down.

If you can afford a $350,000 mortgage and have $100,000 equity you can get a place for $450,000 right now. Would that be enough to get you in a home/neighbourhood you want? Or, can you make peace with the local school district and stay? (Moving is expensive, staying put permanently would be my preference)
posted by saucysault at 7:21 AM on July 9, 2018 [4 favorites]

To answer the question in the title, I can't say it's best for you, not knowing your credit score and such, but an FHA rehab (203(k)) loan is a possibility in your situation, assuming you, a contractor, and an appraiser can agree on a scope of work that doesn't leave you underwater as soon as construction is complete. The "new" (post-2010ish) mortgage insurance requirements make FHA loans a bit expensive, though.

Apparently, Fannie Mae has a similar product without the punitive mortgage insurance policies, but I don't know anything about it beyond its existence and that depending on your situation, may be a reasonable alternative assuming you don't have the financial resources to get a bank to do a conventional construction loan.
posted by wierdo at 8:24 AM on July 9, 2018