Financing Home Remodel?

We are in process of remodeling 1 step at a time. No way would we finance. We pay cash as we go to contractors we find and hire and who adher to our extreme pickiness.

If you can't pay cash as you go, dont do it. It is not worth going into debt. Stay debt free. Plus you pay cash you usually get a discount because the contractor has no finance charges or extra charges incurred through a credit card.

Don't finance. Delayed gratification

We took out a construction loan during the project, then when the remodel was done, refinanced it into one primary mortgage. The bank was involved every step of the way and paid the contractors directly. The contractor had to show the bank that work was done before getting paid, so it was actually great for us, having them kinda oversee the financial part of it.

My sister took a totally different route. She and her husband paid for their remodel with cash, equity from their other properties and credit cards. They paid the contractor directly and paid as they went along. In the end, they got a nice house, but 4 years later, there are still things that weren't *completely* done. Because they were paying personally, didn't have a third party overseeing it all, and there was really no set loan amount that they couldn't exceed, I think they went WAAAAAY over budget and their contractor fleeced them.

Two totally different approaches. End result: we both got our remodels, we're both happy with out houses, but OUR experience was much less painful.

If it is for a HUGE undertaking and not just a room - I would get a construction loan then when the work is done - have my home reappraised and refinance it and the construction loan into one and be done with it.

Check into it. Your bank should be able to help you out.

GOOD LUCK!!!

Remodeling IS expensive!! You CAN control the costs and the hours workmen are on the project.

Pick your items out before hand...don't wait until the last minute.
make sure your plans are feasible - and permits are given (sometimes they can take a while - then you are paying for people to stand around....)

GOOD LUCK!!!

In the past: took out a big loan (including several months worth of Loan / mtg payments) so it could collect interest while I did jobs in sections (ideally during low work periods so things were cheaper, ditto buying materials ahead). I always planned on a 'build year'. In my case, flipping wasnt the aim. Avoiding cap gains taxes were the aim which means same house for 2 years. Build year and live year. Then sell.

THIS time

I started doing ALL the small work myself in cash. Like ripping out the stairs, changing the floor levels, drywall, etc. on a month by month basis. I still bought materials ahead (got a steal on hardwood, so had it in my basement for 2 years). Because we couldn't afford a big loan. But 200 one month, 100 the next, 400 after that, etc. on small work was doable.

The 'plan' had been that I'd finish school, work for a year, and we'd pay cash for the big work (essentially doubling the footprint).

Not gonna happen (divorce). So IF I complete this remodel it will be done with a big loan. The only way we could have done cash was to have it be a 'we', with one entire salary going into savings for 1 year.

RULE when taking out a loan: always always always budget your remodel, add 1/3, AND have mortgage payments built in (I did 6mo) in case of job loss. You don't want all your money out to subs and get a pink slip!

My niece's husband works construction and they paid cash as they went along. They have a huge beautiful home that him and his friends built from the ground up on evenings and weekends.

One of my other friends worked as an engineer during the day and knock out the wall on the back of their house and built on a huge family room with a fireplace and gorgeous bay windows the kids could sit in and read. His house value went down though, it made it more per square foot than the neighboring homes so it lost per sq. foot value. I don't understand it but since the house had more sq. feet but could not be sold in this neighborhood for much more than the other homes it lost value.

Another friend went through the credit union at their work and had contractors come in and basically add a whole house to their existing house. The new addition had a full basement with 2 bedrooms with windows that can be used as an escape with french drains under them since they are below the ground level, a closet under the stairs that was reinforced to be a store shelter, a large TV room, etc...the main floor was the master suite and a kids bedroom. They also had a laundry room made out of the old master suite with the ironing board, washer and dryer, sewing area, food storage cabinets, large closets for off season wardrobes, a large table top in the middle for folding clothes and the surface was suitable for using a rotary cutter so it was for cutting out quilting scraps and garments. There was a quilting frame suspended from the ceiling too so that if she was working on a quilt of any size she just adjusted the corners to fit the size and she could pull it up or down when she wanted to work on it.

She got her dream home and it was easy. Well, we were there practicing for our singing group the day they broke ground, While we were singing the man came to the window and knocked to get her attention. She left the piano and went out in the back yard. When she came in she had a sill grin on her face...she said "We are not hooked up to city sewer...we have a septic tank". The house was sitting on99% of an acre and when it was built that was sufficient to have a septic tank.

The house had been sold to them and to the previous owners as being on city sewers. They had been paying for sewer all that time. They got a huge refund from the city, so did the previous owners and then the ones who had missed informing the Realtor when they sold it got to pay fines and penalties for not informing the Realtor of their mistake.

They didn't have to pay too much extra to get on city sewer which they did go ahead and do.

So, remodels can be done okay, they can be a hassle, they can be a huge mess that is not worth it, they can even devalue your home in the event it needs to be sold.

SO you need to find what works for you and go with it.

We take a huge chunk of our income tax return each year and remodel part of the house. If we can't afford it in cash, we don't do it. I figure we'll be done by the time the mortgage is paid off lol! We are in the middle of filing bankruptcy due to losing a business a few years ago, and our credit has been bad because of that. The positive side of that is that we CAN'T take out loans, so it forced us to be more creative. We do a lot of work ourselves. Anything like gutters, we hire someone for that, b/c we can't chance my husband getting hurt and losing work and I'm scared of heights.

Hubby and I are currently saving for a big build. My plan is to save a bunch of cash, but finance the rest. We will pay cash for the new garage, and then have enough enough cash to take out another loan. I don't think we will have enough equity, given this housing market. I wish we could do it all in cash, but we are taking about a big addition (150k)....We'd be saving forever.....When we do it, though, we will do a 20 year loan, not 30.

For smaller remodels around the house, we always pay cash, or use zero percent financing and pay it off before the bill comes due.

Many years ago we did some home improvements. We took out a home equity loan. Since rates are very low at this time and the interest is a deductible expense on your taxes it makes sense.

Just recently we did an $18,000 kitchen and bathroom remodel. We've been saving money for years. So we were able to pay for the remodel without taking out any loans.

In general you should not take out loans (original mortgage and home equity) of over 80% of your current home's value.

Thanks for asking this question. I am curious too. I just bought a new house in Carmel (a little south of you, but possibly in the same cost of living bracket). I asked for a quote to get some work done and set a budget and time frame (the contract knows my current house is in escrow and we have to move before school starts). It took forever to get prices from the contractor. He kept on saying the changes he was suggesting are not expensive. Finally after waiting weeks (he was busy on another job) i caught him off guard and he said the bathroom alone will be $55K. I was so shocked. He suggested moving the master bed/bath to the other end of the house (away from the kids bedrooms) so the bathroom would have been from scratch and then moving the laundry room into the old master bath location (i didn't even get that price from him since i felt it would not be worth it to move the bathroom in the first place). I am bummed that it is so expensive (i'm guess over $100K if we did it), because it was a good idea. Oh and when i caught him off guard he said the other client was in town for 3 weeks and he needed to finish that job that he had been working on for 2 years. i do not think this contractor is unusual, but it does show me, HGTV Property Brothers is not realistic.

i made it clear we have $X(cash) to spend and not a dollar more (i had my own buffer incase something unknown popped up) and asked what can you do on my wish list before we need to move into the house this summer (we were a little vague because we didn't know when the house will close but before August). I can not believe how we (my husband and I) said this and assumed his plans would be for this price and timeframe. He some how interpreted it as here is your plan for the future when it fit into his schedule and we had more money.

We did a fairly substantial remodel last year - the entire kitchen plus knocking down 2 walls, and some minor work in 2 other rooms. We saved for several years rather than taking out a loan. One thing we learned was that the pricing for the same work can vary drastically from contractor to contractor. After the first two quotes came in way over our budget, we joined Angie's List (www.angieslist.com) and found a contractor based on reviews there. His quote was in line with what we'd expected (and how much we'd saved), and was fully itemized. The project stayed pretty much right on schedule and within the budget, and we were very happy with the quality of the work. The reviews on Angie's List were spot on! There is a fee to join, but it was only like $30 for a year's subscription - definitely worth it since it saved us a huge amount of money, and we didn't have to compromise on what we wanted.