Best Loan Source for Large Renovation?

[Anonymous]

Hi, pretty basic question: I recently bought a house and am looking to do a large renovation (nearly doubling the size of the house). I will likely have the cash to do this (have not yet gotten bids), but I want to take out a loan to provide a cushion, with the idea that I pay this loan back in large part or in full in short order. I am trying to figure out the right product/nomenclature for research. I do not need a mortgage, and not sure a HELOC is the right thing because I just bought the house and have only 20% equity. Thanks in advance.

[Anonymous]

We were in this situation (had cash but worried about cushion / overruns) and did a HELOC, but we had more than 20% equity and waited a couple years after buying the house. You may want to look at a construction loan instead. Call up small local banks and ask about construction loans.

If the banks won't lend to you, you may need to sink that cash into the mortgage so that you have more equity, or else pay cash for the renovation.

[Anonymous]

You need a construction loan if the reno is major - a construction loan pays off the initial mortgage; during construction you only pay interest in the loan and then when you are finished, you close a mortgage to include the whatever remains of the original mortgage cost + construction costs you don’t pay down. Downside is, if you have a low mortgage rate, you’re effectively refinancing. However, typically it’s hard to get another form of loan bc you are effectively destroying the initial collateral on your mortgage, aka the house.

[Anonymous]

Thanks all. I would not want to refinance because even though I bought recently, I have a rate that is going to be hard to beat. Might be able to get a large revolving line of credit, but absent that, might just need to pay cash. Probably better in the long run in this environment.

[Anonymous]

Anonymous wrote:Thanks all. I would not want to refinance because even though I bought recently, I have a rate that is going to be hard to beat. Might be able to get a large revolving line of credit, but absent that, might just need to pay cash. Probably better in the long run in this environment.

I'm in a similar situation and this thread has been useful! We are going to be doing a significant reno and wouldn't want to risk a new rate, even though ours isn't great. It likely won't be any better soon. We are also thinking largely cash for the work but had been considering a construction loan.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Thanks all. I would not want to refinance because even though I bought recently, I have a rate that is going to be hard to beat. Might be able to get a large revolving line of credit, but absent that, might just need to pay cash. Probably better in the long run in this environment.

I'm in a similar situation and this thread has been useful! We are going to be doing a significant reno and wouldn't want to risk a new rate, even though ours isn't great. It likely won't be any better soon. We are also thinking largely cash for the work but had been considering a construction loan.

Same here. I would prefer not to use cash. Have you come across any credit unions or fintech companies focused on this right now? I would think there's a large amount of new homeowners nationally who fall into this category.

[Anonymous]

Only thing I can think of is a HELOC but like you said you'll probably not get much out of it since you just purchased the home.

[Anonymous]

There's a company called renofi.com that will do home equity loans based on the value that you are constructing.

[Anonymous]

Unfortunately in this case you need to do/ pay for the work first before you do the HELOC to reimburse yourself for cost overruns.

If you can’t temporarily get the cash there are some credit unions that will do helocs to 90% LTV. Depending on the amount of the costs overruns I would probably use a zero interest credit card and then put on a heloc to pay it off when done. But I have 3 credit cards with 6 figure limits (and I have another few hundred thousand in personal lines of credit) so it really depends on the actual amounts.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Thanks all. I would not want to refinance because even though I bought recently, I have a rate that is going to be hard to beat. Might be able to get a large revolving line of credit, but absent that, might just need to pay cash. Probably better in the long run in this environment.

I'm in a similar situation and this thread has been useful! We are going to be doing a significant reno and wouldn't want to risk a new rate, even though ours isn't great. It likely won't be any better soon. We are also thinking largely cash for the work but had been considering a construction loan.

Same here. I would prefer not to use cash. Have you come across any credit unions or fintech companies focused on this right now? I would think there's a large amount of new homeowners nationally who fall into this category.

PP here. I haven't started investigating yet, so I'm not sure what products may be out there. We are selling our prior house next, and plan to use proceeds for renovation. We have been working with a financial advisor who suggested considering a construction loan. Looks like mortgage rates fell a bit today, so who knows what comes next. But it seems like a lot to risk in advance, without knowing final rate.

[Anonymous]

When we did a construction loan we locked in our final rate as part of the package, but this was 6 years ago, we used SunTrust now Truist, but I am not sure they still do these. We did about a 400K Reno and folded about 350K into the new mortgage.

One thing to look out for if you do this is that there is a time limit on the rate lock and the construction has to be complete before your lock runs out. Need to be careful on timing and prepared for permitting and construction to take longer than expected. I think it was called a single close construction loan.

[Anonymous]

Several have suggested credit unions. Are there any in particular that are easiest to work with? Contact names or recent rates would be useful.

[Anonymous]

Be sure and get enough money. We took out a mortgage to do reno based on prelim builder estimate. By time plans final, cost had gone up 50%, house was already mortgaged, and we needed a Heloc on top of the mortgage to complete. The only good news was that mortgage rates were a lot lower when we did the original loan. By the way, we fired the original builder who gave us the lowball price estimate.

[Anonymous]

Anonymous wrote:Several have suggested credit unions. Are there any in particular that are easiest to work with? Contact names or recent rates would be useful.

Lafayette fcu
Navy fcu

[Anonymous]

Why do people do this? What is the point of buying a house with the intent to double the size? Is it purely about location?


- Concerned neighbor who is not interested in living next to your construction site for the next 2 years