Financing a house addition

[Susie]

We're planning an addition to our house, adding a master suite over the garage of our side hall colonial, so that we end up with a 5 bed/2.5 bath instead of 4 bed/1.5 bath.  We don't have a good fix on budget yet, but I'm thinking north of $50k and south of $100k.  We plan to re-side the whole house as part of the project, since our siding is 35 years old and unevenly faded/impossible to match.  I've been planning to start reaching out to professionals about plans, budgets, etc. when we hit around $50-60k saved.

We've owned the house for 12 years, and have refinanced twice already:
2008 - purchased at 6.125% for 30 years (FHA)
2010 - refinanced at 4.375% for 30 years (FHA)
2019 - refinanced at 3.25% for 20 years (conventional)

In the last 12 years we've gone from about 97% LTV to about 70% LTV, while we prioritized other things (retirement, SL payoff, buying into my law firm, etc.).  We had been planning to pay cash for the addition, and have saved up about the first $40k this year.  We are just coming out of an ugly set of years financially, that included two maternity leaves in <4 years, two kids in daycare, two new cars, and our ability to save has significantly increased.  I expect we would probably have enough saved up by the end of 2021, but would defer project commencement until spring 2022 because winter is a bad time to have a project like this underway.

In the meantime, the amount of cash we have sitting in a savings account earning <0.50% is killing me.  All in, we have over $100k essentially earning nothing at all, $40k of which is earmarked for the addition.  I've been wondering if we should refi again (2.75% for 20 years or 2.625% for 15 years), dump the $40k against the mortgage to drive down the principle and monthly payment, and then do a home equity loan for part of the reno later.  I am not looking to take on much risk with the cash, since we're looking to use it soon-ish, but I would like for it to work a little harder for us than it is.

WWYD?

[simpsongal]

Honestly, I would open a heloc, hire an architect, and start planning. We spent $100k on an addition this year. It went light speed for a project of that size (hired an architect in July, broke ground in sept, finishing now). It all felt sort of fortuitous with the contractor we met.

I bet you end up bankrolling and amortizing more than you think. We ended up borrowing a little over $40k. I’m so eager to get our house projects done, and it just seems easier while the kids are young and I want to have the space earlier than later.

[Susie]

simpsongal, question about this, since you have some experience.  When taking out a HEL or HELOC, my understanding is that you're typically maxing out at 80% LTV between your mortgage and HEL or HELOC, so that means we could borrow about 10% of our home's value since we are at 70% LTV with our mortgage now.  That 10% plus the $40k we have in cash, would put us at $65-70k toward the project right now, and might be pretty iffy on being enough for what we plan to do.

However, I'm thinking with the transition from 4/1.5 to 5/2.5, our house will increase in value by maybe $30-40k or so.  Does the resulting increased value of the home post-project factor into how much you can borrow?  If so, I think we could potentially just go for it now.  I just don't want to run out of money with the addition sided in the new color and the rest of the house the old color, or the bathroom unfinished, KWIM?

[simpsongal]

Susie, I'm sorry I don't actually know the answer to your questions - my guess would be you would be limited to the value now, bc they're do an appraisal on your home for the HELOC. I would dip further into savings to make the addition happen, but I understand if you're not comfortable with that.

I wouldn't put the $40K into the mortgage, rates are already so low and you're just extending the time for the addition. The refi might make sense...I guess it depends on the cost (I hate rolling those closing costs into the borrowed amount). We ended up getting like $10K back when we did our refi, even though it wasn't a cash out refi.

So I would look into the refi, probably stick with a 20 yr b/c I expect a 15 yr won't be much cheaper and will cost you more per month. See if you get some money back from the refi, consider dipping a bit more into saving and get going on the addition

[k3am]

In your boat, I'd talk to a couple contractors now, let them know your timeline, and see if they can ballpark an amount you'd need to complete your project. I'd also talk to a real estate agent and get an idea of how much value your improvement would add, and with a broker to figure out financing options.

[hbomdiggity]

I’d proceed with getting the architect to draw plans now. Not sure about your area, but especially with covid, contractors are busy and are more likely to take you seriously (ie respond) if you have plans ready to go and give you a better estimate.

I’d also contact a broker about financing options because I wouldn’t want to wait. Borrowing money is so cheap right now.

[dr.girlfriend]

I'd definitely start with a contractor. I feel like I've heard you talk about the addition before and I am worried that it is going to cost a lot more than you are planning.

[Susie]

Dec 30, 2020 12:04:32 GMT -5 dr.girlfriend said:

I'd definitely start with a contractor. I feel like I've heard you talk about the addition before and I am worried that it is going to cost a lot more than you are planning.

You don't need to worry about us on this, lol.

Like I said, we're envisioning $50-100k.  We'll probably be in the high end of that estimate, but $100k is a ceiling that we are not interested in materially exceeding because it's around the tipping point where it makes more sense to move a mile or two down the road to an all-around bigger house, maybe spend a tad more to capture a few wants that aren't attainable even with the addition we're proposing, stay in the same school district, and be done.  I've seen your addition the many times you've shared on H&G.  I assume that's the perspective you're speaking from.  Trust that this project is going to be a lot smaller in scale and wow factor.  As in, really no "wow."  We don't live in that kind of house/lot/neighborhood.  

If it turns out I'm a little off, and this is a little over $100k, I'm open to the idea of only roughing in the 3/4 master bath we're planning, and finishing it later/DIYing slowly.  At least we'd get the extra bedroom in the short term, and we're pretty competent DIYers.

If it turns out that my estimate is really far off, we'll bag the project and start working with a RE agent to buy and sell.  Based on how common our proposed reno is in our 'hood, I don't expect that to be the outcome, but eyes are wide open on this. 

[formerlyak]

Dec 30, 2020 12:04:32 GMT -5 dr.girlfriend said:

I'd definitely start with a contractor. I feel like I've heard you talk about the addition before and I am worried that it is going to cost a lot more than you are planning.

This is an excellent point. We worked with an architect and got our plans exactly what we wanted. We got surveyed. Went through the process of getting the city approval for a variance we needed to do the remodel due to the way our house is positioned in our lot and updates to city code that put us out of compliance. When all that worked out, we started getting quotes from builders. Our max was $500k. We got several bids and all came back at around $650k. We were floored. So was our architect. She said she thought our $500k budget would be plenty, and she’s been doing this for nearly 30 years in our city. So getting some bids early can’t hurt.

We decided to pay down our mortgage aggressively and revisit in a few years. Comps in our neighborhood are currently selling for between $1.1 million and $1.2 million, and with what we owe, we’d be able to borrow the $650k we need and still stay in the 80% value range. With rates so low, we decided to call some potential lenders this summer, and all said that they have temporarily halted the cash out refinance options that would get us those rates because “rates are just too low”. And HELOC rates were not as good. And we aren’t risky borrowers. Our only debt is a small student loan and the remainder of our mortgage. Our credit scores are both over 800 and we have a good HHI. I was surprised it’s proving so hard to find a funding option.

With regard to your question about LTV on HELOC, it’s current value generally.

I hope you have better luck!

[mich1]

We just resided our house (2800 sq ft, 2 level) house and it was around $50k. I’m thinking you might have difficulty staying under $100k for doing both.

[k3am]

Susie, that's why I'd try to work on determining what a realistic budget would look like now. I'd hate to be planning and saving for a project a few years down the road and find out that even the high side of my estimate was too low. My options at that point would be spend more money than anticipated or be bummed about having to scrap the project.

[steamboat185]

We resided our 2100 sq ft house 3-4 years ago and our 1st floor is brick- it was 18k and that was after getting about 6 quotes and negotiating a lot. I’m sure it can vary, but we were surprised at how expensive that part was. Good luck!

I’d definitely talk to a contractor-we did that years ago when we thought we could remodel our kitchen for 20k he helped us realize we needed to save some more.

[winecat]

Jan 1, 2021 0:45:09 GMT -5 steamboat185 said:

We resided our 2100 sq ft house 3-4 years ago and our 1st floor is brick- it was 18k and that was after getting about 6 quotes and negotiating a lot. I’m sure it can vary, but we were surprised at how expensive that part was. Good luck!

I’d definitely talk to a contractor-we did that years ago when we thought we could remodel our kitchen for 20k he helped us realize we needed to save some more.

So it was $18k for about 1,000 sq ft?  I'm assuming you didn't reside the brick part? 

[mlkgls]

I am no expert by any stretch of the imagination, but I took out an HE loan this spring for a large project and I seem to remember 70% LTV being the max threshold for some loans when I was researching. I think it was state dependent though and everyone I spoke to while trying to find the best rate used my latest assessed value when calculating the LTV ratio.

Good luck! This was my absolute least favorite part of the entire project.

[steamboat185]

Jan 1, 2021 0:52:50 GMT -5 winecat said:

Jan 1, 2021 0:45:09 GMT -5 steamboat185 said:

We resided our 2100 sq ft house 3-4 years ago and our 1st floor is brick- it was 18k and that was after getting about 6 quotes and negotiating a lot. I’m sure it can vary, but we were surprised at how expensive that part was. Good luck!

I’d definitely talk to a contractor-we did that years ago when we thought we could remodel our kitchen for 20k he helped us realize we needed to save some more.

So it was $18k for about 1,000 sq ft?  I'm assuming you didn't reside the brick part? 

A bit more square feet because of the way the house, windows, and garage are attached, but it was expensive! We got quotes from some companies that were almost double.
Edit that included soffits and fascia and foam board insulation. The siding alone was 13, but not sure you can do that without soffits and fascia. The insulation was 1k.

[winecat]

Jan 1, 2021 11:05:33 GMT -5 steamboat185 said:

Jan 1, 2021 0:52:50 GMT -5 winecat said:

So it was $18k for about 1,000 sq ft?  I'm assuming you didn't reside the brick part? 

A bit more square feet because of the way the house, windows, and garage are attached, but it was expensive! We got quotes from some companies that were almost double.
Edit that included soffits and fascia and foam board insulation. The siding alone was 13, but not sure you can do that without soffits and fascia. The insulation was 1k.

oof.  I believe we're in the same city or close.  My house is just under 1,000 sq ft so that's why I asked.  The soffits and fascia will have to be done too.  And I need insulation too.  ::: cries ::: 

[Susie]

Jan 1, 2021 10:02:01 GMT -5 mlkgls said:

I am no expert by any stretch of the imagination, but I took out an HE loan this spring for a large project and I seem to remember 70% LTV being the max threshold for some loans when I was researching. I think it was state dependent though and everyone I spoke to while trying to find the best rate used my latest assessed value when calculating the LTV ratio.

Good luck! This was my absolute least favorite part of the entire project.

Our house hasn't been appraised since 2010; when we refinanced last year the credit union waived an appraisal and used a number that I gave them as a good faith guess based on recent sales in my neighborhood.  We would likely use the same credit union (where we do most of our banking) for the HEL.  I think we'd be ok to go up to 80% LTV, based on their website:

--

Borrow up to 80%* of the equity in your home for loans $250,000 and under.
Borrow $5,000 - $500,000 on primary residences and $5,000-$350,000 on vacation homes.
Get cash in a lump sum
Fixed rate for the life of the loan
5-, 10-, and 15-year terms available
Repayments can be made bi-weekly or monthly

*The appraised value multiplied by 80%, less the remaining balance on any existing mortgage for loans $250,000 and below. The appraised value multiplied by 75%, less the remaining balance on any existing mortgage for loans over $250,000 up to $350,000. For loan amounts greater than $350,000 up to $500,000, the maximum CLTV is 75% for loans closing in first lien position and 65% for loans closing in second lien position.

--

But we might need a new appraisal.  The one from 2010 is both old and low.

[mich1]

Jan 1, 2021 11:05:33 GMT -5 steamboat185 said:

Jan 1, 2021 0:52:50 GMT -5 winecat said:

So it was $18k for about 1,000 sq ft?  I'm assuming you didn't reside the brick part? 

A bit more square feet because of the way the house, windows, and garage are attached, but it was expensive! We got quotes from some companies that were almost double.
Edit that included soffits and fascia and foam board insulation. The siding alone was 13, but not sure you can do that without soffits and fascia. The insulation was 1k.

This house was 100% siding, no brick, so that might account for the discrepancy.  We did hardiplank, which needed to be painted and the price included painting.  It also including rebuilding a privacy wall.  However, the soffits and fascia were in excellent shape as was all the structure under, so no insulation.  

The house work was completed the day before the governor shut down everything last March.  

[ny96]

Dec 30, 2020 20:06:00 GMT -5 formerlyak said:

Dec 30, 2020 12:04:32 GMT -5 dr.girlfriend said:

I'd definitely start with a contractor.

This is really interesting. We’re looking to do a major remodel soon in the same range as you, and I believe in the same city. We have yet to find a contractor, but my husband is an architect and has been working on plans for god knows how long. I hope we can get this done, within budget.

[formerlyak]

ny96 we are definitely in the same county. We got our bids about 18 months ago now, so maybe things have changed with the pandemic. I will never forget our architect’s reaction. She was shocked. We weren’t doing anything fancy or out of the ordinary. There was some drainage and ADA stuff the city wanted that we had no say over, but that only added like $10k. There are also some environmental upgrades required by our city - energy and water savings stuff - but we would have done that regardless of if it was required. Everything else was fairly basic. We weren’t even moving the kitchen and the new master bath was going to be directly above where an existing bathroom is so we didn’t have to move plumbing.

[ny96]

Jan 2, 2021 11:14:43 GMT -5 formerlyak said:

ny96 we are definitely in the same county. We got our bids about 18 months ago now, so maybe things have changed with the pandemic. I will never forget our architect’s reaction. She was shocked. We weren’t doing anything fancy or out of the ordinary. There was some drainage and ADA stuff the city wanted that we had no say over, but that only added like $10k. There are also some environmental upgrades required by our city - energy and water savings stuff - but we would have done that regardless of if it was required. Everything else was fairly basic. We weren’t even moving the kitchen and the new master bath was going to be directly above where an existing bathroom is so we didn’t have to move plumbing.

I guess we’ll see. We will be adding a second story and moving the kitchen into our current dining room. I keep asking H to wrap up the planning stage so we can move on, but he has never designed a house before and said he is having so much fun that we have yet to move forward.

[penguingrrl]

I mostly lurk over here and post on CE&P but I have also seen you post about this potential addition for a really long time. It sounds like your family truly does need the space, so I would probably do what it took to do it now. However, some words of advice. My mother is an interior designer, but works more on the architectural end, not the decorating end (i.e. designing layouts and floor plans) and has an architecture degree. She is having the best year of her career professionally right now. New clients who call are told to wait a few months because she can’t take on more work. Contractors are busy and scheduled for a year or more out. People who have been stuck in their homes and not traveling have all decided to do the renovations they had planned. If you start the process now it may take longer than you’re thinking to actually break ground given that climate.

I’m also not certain that your proposed budget is feasible. Before buying our house almost 4 years ago H and i were planning to buy my mom’s house and renovate it. It’s a small 1950 cape that hadn’t been renovated. The first floor is somewhere around 800 square feet. We planned to dormer both sides upstairs so that we could squeeze three bedrooms up instead of two and then redo the kitchen and open it up to the living room. The lower half of the house is painted concrete and we planned to repaint it but keep it as it’s in great shape (so major savings on siding costs there). It was a fairly basic design and my mom designed it with budget in mind. We took it to her architect friend who thought we could do it for roughly $100K. Then we spoke to 3 separate contractors, each of whom said $250-300K! We were shocked, including my mom who works in the field. It seemed like so little scope, it wasn’t even something that had to go through our stringent planning board as we were neither going taller nor outside the footprint of the original footprint. We were fortunate in that we were able to get comprehensive plans drawn up for free since it’s my mother’s field so that we could show a true plan to the contractor to get an order of magnitude estimate.

[Violet]

steamboat185, winecat, I think steamboat's price is right on par. I resided for $15k. The house is 80% brick. The sided part is literally 6 ft tall around a 2000 sq ft house...basically nothing. I got quotes for LPSmartside & Hardie cement, both were the same price. I think the only way to get cheaper is to go vinyl if you can.

Susie, If it's a common reno in your area, I'd find out how to look up your local permit records. Some areas list all of that information online and it's been a good gauge for me to figure out what my neighbors are spending to replace the exact same driveways or add a garage, etc.

[mlkgls]

Jan 1, 2021 15:29:09 GMT -5 Susie said:

Jan 1, 2021 10:02:01 GMT -5 mlkgls said:

I am no expert by any stretch of the imagination, but I took out an HE loan this spring for a large project and I seem to remember 70% LTV being the max threshold for some loans when I was researching. I think it was state dependent though and everyone I spoke to while trying to find the best rate used my latest assessed value when calculating the LTV ratio.

Good luck! This was my absolute least favorite part of the entire project.

Our house hasn't been appraised since 2010; when we refinanced last year the credit union waived an appraisal and used a number that I gave them as a good faith guess based on recent sales in my neighborhood.  We would likely use the same credit union (where we do most of our banking) for the HEL.  I think we'd be ok to go up to 80% LTV, based on their website:

--

Borrow up to 80%* of the equity in your home for loans $250,000 and under.
Borrow $5,000 - $500,000 on primary residences and $5,000-$350,000 on vacation homes.
Get cash in a lump sum
Fixed rate for the life of the loan
5-, 10-, and 15-year terms available
Repayments can be made bi-weekly or monthly

*The appraised value multiplied by 80%, less the remaining balance on any existing mortgage for loans $250,000 and below. The appraised value multiplied by 75%, less the remaining balance on any existing mortgage for loans over $250,000 up to $350,000. For loan amounts greater than $350,000 up to $500,000, the maximum CLTV is 75% for loans closing in first lien position and 65% for loans closing in second lien position.

--

But we might need a new appraisal.  The one from 2010 is both old and low.

My HE loan this spring used the 2020 county assessed value and didn’t require an appraisal, but my refinance this fall did require a new appraisal for some reason.

Take what I’m about to say with a huge grain of salt because I tend to over research things to the nth degree. My 2 cents - It sounds like you may have time on your side so I would encourage you to thoroughly explore both options you listed in order to make sure the renovation vs moving is worth it to you. I was able to do this last year before ultimately deciding to go ahead with my project and it gave me added confidence that my decision was the right one, for me. My initial plan had been to save up another 1-2 years and cash flow, but I couldn’t be happier with how it actually turned out. 

[winecat]

Jan 2, 2021 20:17:32 GMT -5 Violet said:

steamboat185 , winecat , I think steamboat's price is right on par. I resided for $15k. The house is 80% brick. The sided part is literally 6 ft tall around a 2000 sq ft house...basically nothing. I got quotes for LPSmartside & Hardie cement, both were the same price. I think the only way to get cheaper is to go vinyl if you can.

Susie , If it's a common reno in your area, I'd find out how to look up your local permit records. Some areas list all of that information online and it's been a good gauge for me to figure out what my neighbors are spending to replace the exact same driveways or add a garage, etc.

oof.  /cries  I have no idea the differences between other siding and vinyl and the pros/cons to each and even if vinyl is an option.