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July 9, 2009
Renovation finance 101
Hi, we are looking to buy a 2 BR apt that needs work (new kitchen, bath tiles, floor resanding, etc.). This would be our first buy. How do we go about financing a renovation? After we put down our 20% and closing costs, we will still have some cash reserves, but not enough to pay for the whole reno. Can we get a loan for that (assuming good credit, income, etc.)? How does this work?
Thanks!
Comments
You can definitely get a Home Equity Line of credit (which is a loan basically) but I am sure someone with experience in that can comment.
Posted by: Kensingtonian at July 9, 2009 4:06 PM
I think you are looking for a home equity loan.
Posted by: Ysabelle at July 9, 2009 4:08 PM
I thought the home equity loans were no more.
You can also get an FHA construction loan wrapped into the mortgage, but the points are higher and all this jazz and we decided it wasn't worth it.
Third option: DIY and go slow. Good if you don't need structural and mechanical work, which it sounds like you don't.
Pay someone to do the floor refinishing before you move in. It doesn't have to be that much -- 80 cents to $2 per sf depending on who does it. Kitchen and bath can wait. Bath tiles you can easily do yourself. Depending on what kind of kitchen you're looking for it, some can be done yourself. Or you could also go with an unfitted kitchen -- just appliances, metal counters as in restaurants, shelves, etc. Obviously you will have to hire a plumber to attach sinks, stove, etc.
Posted by: mopar at July 9, 2009 4:20 PM
If this is a coop, everyone will have to be licensed.
Posted by: mopar at July 9, 2009 4:21 PM
Oh and give yourself at least 5 percent extra for surprises. Shouldn't be too many in a coop though.
Posted by: mopar at July 9, 2009 4:32 PM
Eek, sorry, apt, of course you won't want an unfitted kitchen. Borrow away! I've seen people spend as little as $5,000 for an Ikea kitchen they installed themselves -- though you could probably easily spend $20,000 or $40,000 for custom cabinets and stone counters.
Posted by: mopar at July 9, 2009 4:38 PM
if you don't have to renovate now, wait. save some more cash. live in it a little to see what you want to do to the place. Plus see where mkt goes so you can decide how much or how little you want to put into the renovations
Posted by: more4less at July 9, 2009 4:42 PM
Right, I know about home equity lines of credit, but wasn't sure about the current market... Rates will be significantly higher than mortgage, no? And can we get the home equity loan at the same time we buy? Or do we move in and live there for a while and then apply? Or can we just get a bigger mortgage? We want to get started on it asap, if we decide to get this place. Thanks for all the helpful comments!
Posted by: littley at July 9, 2009 4:46 PM
littley, mopar makes a good point. If the bath and kitchen is functional, I would do bare minimum (Floors and painting) and move in and you can save a little and do bathroom and kitchen while you live there. It'll take some coordinating but I know people who have done it and even though they wished they did it before moving in, things didn't go too bad, just were inconvenienced for a bit. I bought 2 years ago and was offer Home equity line of credit right with the mortgage but not sure how it is now with the current market. Speak to the bank you're doing your loan with now and/or shop around.
Posted by: Kensingtonian at July 9, 2009 4:52 PM
what mopar says, make sure you do the floor! Put it on your credit card! Once you move in you'll never get another chance. Do the rest as you can afford it. And you can always upgrade appliances one at a time.
Posted by: denton at July 9, 2009 5:18 PM
With 20% down it is unlikely a bank will recognize any equity to secure another loan. It depends on the appraisal vs what you paid. Ask your mortgage lender what they think.
Posted by: edifice rex at July 9, 2009 5:34 PM
This govt program includes renovation costs in the mortgage. The 203k loan. Not sure about eligibilities but its worth checking out.
http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm
Posted by: guikazoid at July 9, 2009 5:37 PM
Definiitely paint and have the floors sanded before you move in... it's affordable and really will give your new home a visual lift... then wait awhile, save, and do the kitchen and bathroom reno later on.
Posted by: bren at July 9, 2009 6:00 PM
Don't coops have rules against home equity lines of credit? They don't want you to put down less than their rules require. So, for example, if coop rules require 20 percent down, you'd have to put down more to qualify for the HELOC according to them. I think my coop had a rule like this, but I'm not sure.
Agree with painting before you move in, also. Though it may take you a while to choose the colors, do it before you move in anyway.
Posted by: mopar at July 9, 2009 11:42 PM
In a coop the coop would have to approve the HELOC and would not normally approve anything above its requirements (if 20%, that's it).
And bren is right: do floors, paint neutral -- get to know the light at different times of day. and save for renovating later -- you will be glad you did not rush into it.
Posted by: BH76 at July 10, 2009 12:35 PM
203k Loan.... See link below for details like Eligible Properties, 203K Eligible Borrowers etc..
We used it when we were renovating our building.
Posted by: nako at July 10, 2009 2:30 PM
Not building but 4-family home.. :-)
Posted by: nako at July 10, 2009 2:35 PM
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