Finance a MAJOR renovation – best way?
I live in an older house (1942) in a very good neighborhood of Long Island where my immediate neighborhood home prices are starting over $400K. Many are selling and bought over $550K to a $MM.
This home needs some MAJOR renovations, like remove and rebuild an addition done poorly in 1950’s; expansion build up by converting an upper 1/2 story on one section to full story with a true attic above it; total roof and siding ripoff and replace; new windows; etc etc.
I am trying to decide what is best way to finance this work. An architect and builder told me it could be anywhere from $80K to $100K. As with most of the renovations already started and done on this house, some things wind up being bigger jobs after work starts. Hidden problems revealed after walls opened up, stuff like that.
The neighborhood definitely will support putting that much money into this house. Even $150K of work on top of what is outstanding on my primary mortgage would not put this house at the upper limits of home prices here within a 300 foot circle of my front door.
Anyone with experience with “rehab” loans (ie 203K Rehab) , both from perspective of homeowner and from builder? I am concerned about the timeline of completion with a 203K Rehab, that unseen problems need fixing that takes extra time and money. I’ve read that the banks want everything done in a certain period of time, with no extra costs.
Any other ideas/advice?
Replies
If I am not mistaken those rehab loans are for houses where there is not enough equity in the house until it is finished. Not unlike a new construction loan.
It sounds like you might have enough equity in the house to either get a 2nd mortgage or refine the whole thing and pull out enough cash to do it.
See how much you can get out of it on a regular HELOC or refinance. That's usually the cheapest money you can buy. If you cannot get all you need in equity, consider doing it in 2 phases. After the first phase, you may have enough equity for the second phase.
The 203k rehab loan is an FHA backed loan. It is good for a home that the banks won't finance because of its lack of completion or other risks. We had a 203 k on one of our homes. Since it's a government backed loan , there is more than the usual amount of paperwork involved , and a little more red tape thrown in.
It sounds as if you could take out a home equity loan or refinance in your neighborhood. Our only choice was 203k as the house was already under construction and not finished. Some bankers told us to finance the construction on our credit cards and when the home is finished they would be glad to loan us money.
phil.... i'd sit down with your refi guy.. if you don't have one, i can recommend one..
and i'd lay out what you want to do.. probably set it up with a 2d equity short term to cover the construction cost and then roll the whole nut into a refinance..
the rates are great right NOW.. but no place to go but up..
if you can get a fixed price on your scope of work.. then refi now and put your equity money in the bank so it will be there for the disbursements
if you can't get a handle on it , then go the 2d equity route
the money is out there , begging to be borrowed.. but as we both know... someone has to pay it back..
Mike Smith Rhode Island : Design / Build / Repair / Restore
>> am trying to decide what is best way to finance this work. An architect and builder told me it could be anywhere from $80K to $100K.
From the brief scope of work you described, don't be suprised to see that grow, possibly double.
Eric
It was not clear from your post if you intent to fix it up and sell it or remodel it and keep it. You will get very different answers.
Just because homes sell for more than your current equity, that is no reason to borrow. Our homes sell in excess of 1.5M and I will tell you we have no interest in servicing a loan of that size, or even close. Just cause you can - doesn't mean you should. If you intent is to keep the house, then your will need to plan to service the loan.
If you intend to sell, then the rehab loan may not be a good option, as there may be exclusions.
Sounds like you need to define your goals and limits first.
Definitely will continue living here. Neighborhood is great. I couldn't buy what this place will be for same money.
Except for the inconvenience of rebuilding/remodeling, it makes more financial sense to rebuild this for less money than to buy someplace else.
I would definitely talk to some bankers. A home equity loan has the advantage of being tax deductable, on top of interest rates that are generally lower than other types of loans already. If you took out a construction loan the interest would not be tax deductable, though interest after the work was complete and the loan converted to a mortgage would be. If you have enough equity to cover the loan, then you are a good risk to the bank and they like people like you.
Banks vary greatly in their willingness to loan on renovations and construction, so just because a couple of banks are no's, others may be quite willing.
You should already have checked your credit report and your credit score.
Looks like the 203K loan has too many minuses, as I suspected.
Too bad I never find a stack of gold bullion whenever I tear open a wall here!