We did a combination of a HELOC and cash out refi. We did a HELOC amount that we thought we could pay over a short (3 year) period. It worked well for us - we had a very low mortgage amount relative to house value so plenty of equity.

Yes, do not do a construction loan if you have an alternative. We've done them twice, once for a substantial addition and once for a tear down new build. Many good banks with the best pricing do not even offer them, and they have tons of fees and usually pretty poor terms.

Thank you!

We are also looking into this and it seems that the options are: HELOC, cash out refinance or construction loan (which then either needs to be paid back or refinanced into the existing loan balance - some banks do construction to permanent loans with only one closing, and those tend to be 5 or 7 year ARMS). With construction loans, there are costs for bank inpsections at various points, so I would think that the HELOC or a cash out refinance make the most sense in your situation.

Bumping. Anyone?

I posted this on the Real Estate forum but didn't get many relevant responses. We are about to borrow about 200K for an addition on our home. We have access to a HELOC that more than covers this amount. We've been planning to use the HELOC but now I'm wondering if we should explore other options first.

Are there better loans than this for our purpose? The HELOC interest rate is prime + 1/4. We would like to put ourselves on a schedule to pay off the HELOC within 10 years.

Also, are there any types of loans that need to be secured before you sign a contract for the work on the home? (I have no idea how construction loans work, obviously).

Thanks.