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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Financing an addition?
We're still in the process of getting estimates but my next step needs to be financing.
I honestly have no idea how these things are normally funded. The way I'd like to go is to take my current mortgages (which is an 80/15 financed mostly with Wells Fargo but the 15% was financed elsewhere) and roll the addition into one big mortgage (rather than having 2 or 3). Is that how it is normally done or is the addition usually financed separately?
Also, how do appraisals work? I'd imagine I'd need to show that the "new layout" of my home will appraise at a certain value not to exceed my mortgage. Is that how they will base whether or not I have at least 20% equity?
One more thing, how does the contractor get paid? Does the mortgage company pay him? Do they give me the money to pay him? We may need some other HVAC work done that I will contract separately that I'd like to roll in too.
I know so much has changed since we did our last mortgage because of the economy. Plus I've never done this before.
If it matters, our credit is excellent.
TIA!
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Posted 6/30/09 11:14 PM  |
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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Re: Financing an addition?
bump, anyone done this recently?
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| Posted 7/1/09 2:41 PM |
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GoldenRod
10 years on LIF!
Member since 11/06 26792 total posts
Name:
Shawn
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Re: Financing an addition?
When we financed our addition, we didn't have to worry about rolling other things up, or the appraisal issue, so I can't address those.
As far as paying your contractor, the bank will give you a check (or deposit it directly into your account), and you pay the contractor directly from that money. You should have a payment schedule worked out with the GC. We had our payments broken out into about 20 different payments. Roughly based on each major milestone. That keeps the GC paid, and with money to go to the next stage, and you don't have to front a lot of money just to have them walk out in the middle of the job.
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| Posted 7/1/09 3:55 PM |
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Pumpkin1
LIF Adult
Member since 12/05 3715 total posts
Name:
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Re: Financing an addition?
I have never done this, but, I think it would make sense to start with the bank and make sure you have enough equity in the home to get cash out. If you bought recently and the home value decreased, you may run into some problems. If it were me, I'd want to have financing lined up before I took any further steps.
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| Posted 7/1/09 4:13 PM |
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Rycois
Blessed with 2blue/2pink
Member since 12/05 13341 total posts
Name:
J
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Re: Financing an addition?
This is how we did it - or are doing it. Since we don't have a lot of equity in the house, and the HELOC we would get would barely cover anything, we refinanced and pulled out more than the original loan. So say my current mortgage was for $500K, I called the bank and found out what the max I could take over that was. So, say they let me refinance for $550K, I got the check for the additional amt ($50K).
ETS: We starting to get quotes after we figured out what kind of loan we could actually get - so we knew what we were dealing with when meeting with contractors.
Message edited 7/1/2009 4:33:42 PM.
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| Posted 7/1/09 4:32 PM |
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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Re: Financing an addition?
Posted by SweetCaroline
This is how we did it - or are doing it. Since we don't have a lot of equity in the house, and the HELOC we would get would barely cover anything, we refinanced and pulled out more than the original loan. So say my current mortgage was for $500K, I called the bank and found out what the max I could take over that was. So, say they let me refinance for $550K, I got the check for the additional amt ($50K).
ETS: We starting to get quotes after we figured out what kind of loan we could actually get - so we knew what we were dealing with when meeting with contractors.
This is a similar situation to mine and I'm definately going to contact the bank tomorrow to discuss with them.
I'll use rough numbers. We don't have a lot of equity in the home because of the market so a HELOC is not possible. Here is the scenario (using hypothetical rough numbers). I currently owe $350k. $300 with wells and $50 with another bank. I'm probably looking at $100 to $150k to do the addition so the total mortgage would be about $500k max. Based on today's market with the new addition the house would most likely appraise over $600k and that is being conservative. Therefore I will have 20% equity based on an appraised value. that's the way I see it in my small mind. But i'm unclear if the bank will still view the house as it was when I bought it or will it take into consideration the improvements we're making when they look at how much money I can "pull out".
I think I'll have to get on the phone with some banks tomorrow to see what the going rates and schemes are these days. Back when we bought the house mortgages were so much easier. Who knows now.
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| Posted 7/1/09 4:44 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Financing an addition?
I don't think they are going to take into account your addition when it comes time to re-fi and cash out, simply because the addition wouldn't be built yet. They have no guarantee from you that is what you are going to do with the money.
So I would try to estimate what your house would appraise for now... and then subtract 20% from it (because most banks won't loan past 80% LTV), and that is what you can borrow up to.
So if your house is currently worth 500k without the addition, you probably won't be able to borrow more than 400k.
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| Posted 7/1/09 5:04 PM |
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Rycois
Blessed with 2blue/2pink
Member since 12/05 13341 total posts
Name:
J
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Re: Financing an addition?
And most of the time, they only give you a percentage of what the house appraises at. For us, I think we need to maintain a certain ratio (value vs. loan) and that's were we maxed out. Needless to say, we have to come up with a little $$ on our own.
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| Posted 7/1/09 5:14 PM |
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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Re: Financing an addition?
thanks...i just talked to them and their basically telling what you're telling me which means this grand plan might not even be able to come to fruition.
I'm bummed.
BUT, there is one contractor who does have a program through Chase so i might look into it.
She said in this market they don't do "future value" loans even though the future value we're talking about it within 6 months but as we know a lot can change.
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| Posted 7/1/09 5:38 PM |
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-Lisa-
---------------
Member since 5/05 6530 total posts
Name:
Lisa
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Re: Financing an addition?
the appraisal will be based on the value of your house now, not what your house would be worth if you add the addition.
There are ways to do an appraisal contingent on a hypothetical condition or subject to the completion of plans, but thats not the norm, and in today's market, I don't see any lender doing that.
eta: I got interrupted while I was writing this (I started it before your most recent post) and now see you got the same info above...
Message edited 7/1/2009 5:52:15 PM.
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| Posted 7/1/09 5:48 PM |
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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Re: Financing an addition?
Message edited 7/24/2009 9:52:43 PM.
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| Posted 7/1/09 8:56 PM |
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KLSbear
LIF Adult
Member since 1/06 1908 total posts
Name:
Karen
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Re: Financing an addition?
It's generally not a good idea to take money out of the 401K. You lose all the compounding. If your parents are willing to take a loan on their equity that might not be a bad idea but I'd put all the agreements in writing re: paying interest, rate of repayment, etc.
Just be aware that it can be risky to make financial decisions based on home values right now. We're fighting with Chase right now because they dropped the line of credit on our HELOC based on some arbitrary assumptions that are wrong. They have our home way undervalued based on average value models that are not accurate, they didnt' do an appraisal and they have wrong information on our actual equity in the house vs. primary mortgage due. They won't even talk to us about it, we just have to fax info, wait up to 2 weeks for a response and may have to pay for an appraisal. You don't want to find that you're half way through your building, only to have them pull away any remaining credit so be careful.
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| Posted 7/1/09 9:14 PM |
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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Re: Financing an addition?
Message edited 7/24/2009 9:53:34 PM.
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| Posted 7/1/09 9:30 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Financing an addition?
Posted by lbelle821
The only way I would consider using our 401(k) is with the intention of having it all repaid within 6 months (the time it takes to get the work done, reappraised and refinanced). I wouldn't want to do it long term.
I wasn't even thinking my parents until my mom brought it up and it seemed like it would make more sense. They could get the equity out of their house, they trust me to know that I wouldn't leave them high and dry but I would want something in writing like you said because, and god forbid, something happened to my and DH I would want him to also have some responsibility for this piece of the financing.
What guarantee do you have that your house with the addition will appraise for what you think it will? Lenders are really picky about appraisals and LTV lending restrictions right now.
Especially houses priced in the range you are looking at. A 50k drop in appraisal value in the span of a few months is not impossible.
I personally wouldn't do it as you are cutting it too close. It's a poor financial move IMO.
As far as the 401k goes, I wouldn't mind borrowing from a 401k if I needed it for a downpayment on a new house you are buying for a temporary period while you are trying to sell your current house. I guess I am a little more liberal in my views regarding that. But you see the difference in this scenario is borrowing from your 401k to purchase a house is more secure since you should already know what your current house is going to sell for (you shouldn't borrow 401k money until you have a signed contract).
In your case regarding borrowing until you get your house appriased with the addition, that's just a bunch of "what-ifs". Too risky. KWIM?
Also realize that if you do indeed decide to borrow against your 401k, that 401k loan is going to count against your debt to income ratios. You may not qualify for a house/mortgage that high since you will now have added debt.
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| Posted 7/2/09 7:53 AM |
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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Re: Financing an addition?
Message edited 7/24/2009 9:54:02 PM.
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| Posted 7/2/09 8:36 AM |
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