View Full Version : Best way to add on to your house?

03-27-2011, 08:48 AM
Okay...we've decided to add on to our house. We have gotten a few quotes for the work and now we're just wondering how exactly to go about financing the work. I know paying cash would be the BEST idea....but for those of you that have financed a 50,000 or less addition on your home, what did you find was the best way to do that?

Did you refinance in order to add that in, or did you just get a loan for that amount? We have enough equity but we're currently at 5% and I really don't want to go any higher, although interest rates might be lower now...I don't keep up.

And when you add on to your home like that, what are the 'rules'. It has to be 100% complete and inspected before the loan is approved/finalized? We've not added on to any of our homes before, only done small stuff like the roof, siding...etc and those didn't require any kind of inspection.

Thanks !

03-27-2011, 08:52 AM
I used to work in a law office that did lots of real estate closing work. A lot of people just got home equity loans.

On a side note, whatever you are quoted, add 20% to it. Costs usually tend to run over. DH is a contractor and we did work to our house last year so when we got quotes we had all the bases covered and he made sure that there were certain things in the contract. Partway through the renovations we made some changes (and I'm glad we did) that weren't in the original quote. We ended up spending another 10% of the total cost.

03-27-2011, 11:36 AM
Is there a way to avoid the 20%? I mean if you go through getting the house refinanced in order to do the work....does the loan not go through until the work is complete? How would they factor in any kind of increase in the cost?

03-27-2011, 11:56 AM
Coming from somone who did a major bathroom remodel, completely gutting the bathroom and doing-it-ourselves, the 20% is for material costs. It doesn't matter how great of a planner you are or how great a carpentar/tiler/electrition/plumber, you may cut a piece of wood, tile, or sheetrock incorrectly and you need to account for both mistakes and the unexcpected (like the discovery of termite tunnels in the process of gutting and needing treatment to the house). That's just the way it is with construction. Think of if this way, whatever funds you don't use, you can always pay back right away.

Good luck with your new addition!

03-27-2011, 12:40 PM
We added on a bedroom and laundry room about a year ago.

I don't remember the specifics as to why, but we had to take out a loan to cover the construction first (I think it was $30K), and once all of that was finished, we refinanced (mainly b/c the APR was lower than our original one.) When we refinanced, it was done with "cash out" to pay off the first loan.

We just priced rates through a few banks, then chose one and went with it. The guy handled everything, but it was still a pretty stressful ordeal. (Having to get it inspected at various stages of completion, meeting timelines, etc.)

Thankfully we had a great contractor, b/c I wasn't that impressed with our loan guy.

Anyway, it all worked out for the best, and I now love my house. :) Oh, and on a really positive note, after the refi, our monthly payment is about the same as it was before, but we now have a much larger and more spacious house, so it was worth it. :)

03-27-2011, 02:58 PM
We used a home equity line of credit to do ours. You can apply for it/get approved before anything even starts with construction. You have a check book and can pay off contractors as you need to. You make payments back based on the amount of money that goes out. (Eg if you have a $50K line of credit, but have so far only paid out $10K- that is all you're paying interest on.)

03-27-2011, 03:03 PM
Is there a way to avoid the 20%? I mean if you go through getting the house refinanced in order to do the work....does the loan not go through until the work is complete? How would they factor in any kind of increase in the cost?

If you don't make any design changes mid-way through the process or don't run into any problems, you may stay exactly on quote. When we did our work, once they tore all the siding off the house they discovered we had termites. That added some money both in hiring an exterminator and in having to replace some rotted/eaten wood. Luckily for us, it really wasn't bad. We made a design change and ended up adding two more windows to the family room. It was the best time to do it as all the siding was off the house, but it was an extra expense, both labor and materials. We made some other smaller changes too as things progressed.

Its better to factor in an extra 20% and have the money, rather than not and then be stuck and not able to finish or finish it the way you want.

03-27-2011, 04:38 PM
We did an addition during the "boom years" when housing prices skyrocketed. We needed more space but couldn't afford a bigger house at the inflated prices. We refinanced our loan and pulled out all the equity up to 90% of the value of the house, which was pretty much exactly what it was going to cost to build the addition. We stayed on budget. When construction was complete, we had the house re-appraised by the mortgage company and then the value had gone up enough so that we owed less than 80% off that value, so had the PMI taken off.

03-27-2011, 05:15 PM
We put an addition on our house in 2005. We took out a home equity line of credit. In my situation, we had our house appraised first, then were able to take up to 80% of the equity- ex. we owed $101,000 the house appraised for $160,000. we were able to take out $47,200. We hired a contractor to handle everything, and didn't go over budget for the construction, although we purchased the carpet and lighting fixtures separately and the contractor installed them.

I do not remember any inspections at all, maybe the contractor handled it. We did have to get a permit from the town and maybe they did a drive by inspection for tax assessment:confused3 because according to our town taxes our home jumped in value by $105,000:scared1:

03-27-2011, 06:51 PM
Thanks everyone....we've gotten so many quotes it's crazy. It starts from 15,000 to 50,000 for the same exact work. It's so hard to know exactly who to go with....and some will do all the finish work and others said that they would just do the outside finish work, but with a loan I thought it had to be 100% complete before they would approve the pay out. Anyhow.....we really have to get started soon now that it's warming up outside. Thanks again for all the input and sharing your experiences :)