Financing a Renovation

[lb2006]

Have any of you financed a major renovation? If so, what did you use for financing? Home equity, personal loan, etc?

We're working on a major house overhaul (demo right now) and plan to get bids for work we can't complete ourselves soon.

What did you find to be the best for you in regards to financing? Thanks!

[lys]

We saved for the projects we wanted to do and then used the savings.
For a Home equity - you will need equity above 20% in your home

[simpsongal]

I hate to get MM on you, but you should really save the cash - especially if you're doing cosmetic work like a kitchen or bath redo. I could see borrowing if you're expanding instead of buying and selling a new home. Even then, I'm not sure I'd feel comfortable taking out a HELOC.

[wawa]

Jun 22, 2012 8:06:24 GMT -5 simpsongal said:

I hate to get MM on you, but you should really save the cash - especially if you're doing cosmetic work like a kitchen or bath redo. I could see borrowing if you're expanding instead of buying and selling a new home. Even then, I'm not sure I'd feel comfortable taking out a HELOC.

yup.

sorry...it sucks, but it's true. Unless you have absolutely no choice on living with it as is for a while, I'd avoid financing a reno. The only exception is buying a total or partial gut job of a house and getting a construction/renovation loan from the getgo.

[FoxInFiji]

Jun 22, 2012 8:10:39 GMT -5 wawa said:

Jun 22, 2012 8:06:24 GMT -5 simpsongal said:

I hate to get MM on you, but you should really save the cash - especially if you're doing cosmetic work like a kitchen or bath redo. I could see borrowing if you're expanding instead of buying and selling a new home. Even then, I'm not sure I'd feel comfortable taking out a HELOC.

yup.

sorry...it sucks, but it's true. Unless you have absolutely no choice on living with it as is for a while, I'd avoid financing a reno. The only exception is buying a total or partial gut job of a house and getting a construction/renovation loan from the getgo.

This. Now you see why renovations take so long to get to. Start saving and take this time to really plan out what you want. Collect inspiration pictures and go from there.

[wawa]

Jun 22, 2012 8:49:39 GMT -5 FoxInFiji said:

Jun 22, 2012 8:10:39 GMT -5 wawa said:

yup.

sorry...it sucks, but it's true. Unless you have absolutely no choice on living with it as is for a while, I'd avoid financing a reno. The only exception is buying a total or partial gut job of a house and getting a construction/renovation loan from the getgo.

This. Now you see why renovations take so long to get to. Start saving and take this time to really plan out what you want. Collect inspiration pictures and go from there.

Also...this sometimes means that the renovation itself gets dragged out a bit. We haven't pushed things off intentionally for money reasons, but it has worked out that the seriously stretched timeline of our reno has allowed us to pay for most things OOP without touching our savings. It's money we would otherwise be putting in savings...so it's not like magic money from nowhere, but it's nice to not have to juggle things back and forth between accounts.

Just something else to think about.

[simpsongal]

Another thing to consider - doing things piecemeal can be more expensive, so plan accordingly. We decided to take walls down and live w/an old kitchen and old floors. It turns out we might have the money to do the floors afterall, and a few other upgrades. It probably would have been cheaper to sign a contract for a complete package of upgrades, but we just couldn't commit to that amount (limited cash on hand).

And definitely have an efund - because renovations usually cost 10-20% more than you budget (we found pipes in our walls that need to be moved at an added expense).

[lb2006]

It is a total house overhaul, we are also adding quite a bit of square footage - architect is finishing the drawings for permits. It is a multi-year remodel, not something we plan to have complete within one year.

We plan to do most of the grunt work of demolition - as well as remodel work for hvac, flooring, electrical. The majority of our cost will be framing & windows (adding lots of windows).

Although it would be nice to save & save to fully fund our renovation, it is not likely. I appreciate everyone's feedback.

[Deleted]

We don't finance anything. My opinion is if you can't pay cash then you can't afford it. We save what we can and do projects as we have the money not one major overhaul that requires a loan.

[emoflamingo]

If you're adding onto a house and not just gutting it, that's a little different. I haven't done this, so I can't give input, but I wouldn't call that a "renovation" though.

[vanillahip]

Woah wait- did you really mean to make it sound like you're currently demo-ing, but haven't worked out the financing? Bad idea! Don't start until everything's laid out!

In your case- a personal loan would not be a good move, the interest rates are crazy. HELOC would be your best option from a cost-saving standpoint, the interest rates are lower and you only pay back what you take out (so you could get a HELOC for, let's say, 100k and only end up using 70k of it, you're not paying crazy interest on the left over 30) but that'll only give you enough money for the reno if you currently have a lot of equity to start with. A renovation loan is pricier but they'll loan you money on what the home WILL be worth after the reno (so let's say you currently have 20% equity of a home that's worth 100k, your renos will make it worth 200k, they could loan you up to 80k.... kwim?) Don't quote me on that, please, I have never taken a reno loan out but it was a facet of our research in looking for our next home (hunting now) that I looked into to gather info on every option before I crossed it off our list.

We'll be buying (hopefully sooner than later but who knows?) to renovate our next home, we're hoping to pay cash for the home and get a HELOC but we may end up with a small mortgage and small HELOC at the end of it all, just depends on if we can find a good enough deal. In our current home all reno has been paid for with cash.