Construction Loan - Help Needed

[douglee25]

I'm looking for some advice from people who may have more knowledge in this area than I do.

Situation - Getting married in another year and need more space in the house. Right now the two main shortages are bedroom and bathroom space. A close third is living room space. My house was built in the late 60's. Anyway, the wifey and I have talked about moving back to PA, but the housing market is considerably more expensive in the area we'd like to live. I proposed living here for the next 5 - 7 years and pay down the entire house and remaining debts. She agreed but said it would be tough to live here because of the space issue. That led us to the remodeling path which I have been going down for the past couple weeks.

I put my AutoCAD skills to work and drew up a set of plans and put together a scope of work for a few contractors. By the end of tomorrow I will have completed 3 walk-throughs. I don't have any estimates in yet, and trying to read the residential construction market isn't fairing too well for my own personal estimation purposes.

Problem - The economy blows and banks don't want to lend. My speculations lead me to believe that the current equity in the house is much much lower vs. a year ago. The equity built up may/may not be enough to fund the remodeling project.

I have called about 6 banks, some who even specialize in construction loans or speculative construction loans (loaning money based off the speculated equity after construction), and not a single one is lending for personal loans or construction loans. The only type of possible loan is the equity loan, which again, may/may not even be a possibility. It's amazing that location plays such a big role in the housing market. Just 20 minutes away and the same house goes for another $75k to $100k, just by crossing the river. I would qualify for the equity loan if that were the case. I'd rather avoid purchasing another house and just pay this one off and use the money for a hefty down payment on a house in PA a few years down the road. I'm trying to think 'long term' and do the more financially responsible thing.


My question to everyone is are there any other ways to fund a project of this sorts? Is there some type of loan or option I'm not aware of? Anyone else in this situation recently? I'd appreciate any feedback that might help.

Thanks again.

Doug


Edit: My house has 3 bedrooms. I've contemplated knocking down the wall to adajcent bedrooms and making two beds into one. The one thing that is stopping me is resale. A family is going to want 3 bedrooms vs. 2 bedrooms. If anyone thinks that would be a better option, feel free to comment on that option as well.

 

[Nehalennia]

Doug
A guy I trust tremendously and may be able to help and guide you is a mortgage broker here in WA.
He and his Wife Stephanie own ALG mortgage. Both are very, very knowledgable.
Give them a call.
Mark or Stephanie Silverman
425-284-4200

 

[chuck1]

Doug,

Where are you?? Have you talked with your bank. Most construction loans are going to be an In-House local bank loans and a lot of that is based on you and your relationship with your local banker. Have you to talk with your local banker and see what they can do. As to your

"location plays such a big role in the housing market"

the number one rule of Real Estate is "Location, Location, Location" If your neighborhood is going to be used for small families then by all means don't turn it into a 2 bedroom home. Have you talked with a local realtor? Have then do a CMA for you to see what has been selling in your neighborhood.

Hope it helps.

 

[Mr Salt]

Real estate is all about location, but I see you know that already. Just something to think about. Will the addition make you the most or one of the msot expensdive homes in the area? If so, that may be the reson the banks aren't interested in lending. Of course you are not looking in the best of markets either. When you add the loan to your current mortgage, will you be upside down as to loan to value? Do you have enough equity in the house to take out a home equity loan? I am sure these are all things that you thought about but they are things you will have to address a lender with. In these times you will have to sell the lender on the deal and assure him beyond a shodow of doubt that you can repay and that there is sufficent equity in the house.

Mr Salt
2001 540 CPMY
Caterpillar C-12s
Cape May, NJ

 

[douglee25]

Doug
A guy I trust tremendously and may be able to help and guide you is a mortgage broker here in WA.
He and his Wife Stephanie own ALG mortgage. Both are very, very knowledgable.
Give them a call.
Mark or Stephanie Silverman
425-284-4200

I will call tomorrow. Thanks Todd.

Doug,

Where are you?? Have you talked with your bank. Most construction loans are going to be an In-House local bank loans and a lot of that is based on you and your relationship with your local banker. Have you to talk with your local banker and see what they can do. As to your the number one rule of Real Estate is "Location, Location, Location" If your neighborhood is going to be used for small families then by all means don't turn it into a 2 bedroom home. Have you talked with a local realtor? Have then do a CMA for you to see what has been selling in your neighborhood.

Hope it helps.

I did call the local bank Wachovia where my current mortgage is through. I called the loan dept which I don't believe goes through the local branch though. I've done my own CMA's in the neighborhood, and the pricing is all over the place. Again, this market is so non-typical, I'm unsure how to obtain good assessment without actually paying for one.

Doug

 

[Larry&Leisa]

As Chuck said, your local realtor can probably help with the assesment to give you an idea. The bank is going to want a current appraisal from one of their people however.

 

[douglee25]

Real estate is all about location, but I see you know that already. Just something to think about. Will the addition make you the most or one of the msot expensdive homes in the area? If so, that may be the reson the banks aren't interested in lending. Of course you are not looking in the best of markets either. When you add the loan to your current mortgage, will you be upside down as to loan to value? Do you have enough equity in the house to take out a home equity loan? I am sure these are all things that you thought about but they are things you will have to address a lender with. In these times you will have to sell the lender on the deal and assure him beyond a shodow of doubt that you can repay and that there is sufficent equity in the house.

Mr Salt
2001 540 CPMY
Caterpillar C-12s
Cape May, NJ

The addition I'm looking to do is a hair larger than the average addition in the neighborhood, but the physcial shape of the house is identical. In fact, the actual cost increase of what my neighbor has done to what I'm looking to do is minimal. Therefore, I would say the addition is comparable. I don't think after the addition I would be upside down in the loan to value area. I could take out a home equity but I don't think it would cover the entire construction cost. I am trying to avoid putting out a large portion of personal funds as I'm trying to use it for other things at the moment. This addition is just to make this house more confortable for the next 5 years while we get everything else in order for the long term. It's a well thought out plan; it just doesn't seem to be panning out for this initial funding portion.

Doug

 

[chuck1]

IMHO - Forget the calls you need some face to face time with them in this market. Not sure how you did your own CMA, but a Local Realtor should do one for free. If you are seriously thinking about having to sell you home and buying a bigger one as one of your options.

MR Salt gave you some great info, you never want to have the most expensive home in the neighborhood.

 

[douglee25]

IMHO - Forget the calls you need some face to face time with them in this market. Not sure how you did your own CMA, but a Local Realtor should do one for free. If you are seriously thinking about having to sell you home and buying a bigger one as one of your options.

MR Salt gave you some great info, you never want to have the most expensive home in the neighborhood.

Face to face wouldn't hurt with a realtor. I just don't think moving right now is the answer to things. I have to put too much work into this house in the past 3 years, that moving now would just not pay out.

And yes, Mr. Salt brought up some valid points. Stuff I've already considered, but excellent points nonetheless.

Doug

 

[Nehalennia]

In this case Chuck, my recommendation of having Doug talk to Mark or Stephanie will give him some guidelines. They really know their stuff and aren't the typical "pump it through brokerage. They know the ins and outs of this stuff and depending on the state your in may be able to assist in establishing the loan or telling you who in your state to look for.

 

[Bill Z]

Chuck,
Please pm me on this matter. I am a private lender which may be a bit more expensive rate wise but may suit your needs and reduce your overall interest and closing costs. This may or may not match your future plans but is worth discussing.

 

[chuck1]

In this case Chuck, my recommendation of having Doug talk to Mark or Stephanie will give him some guidelines. They really know their stuff and aren't the typical "pump it through brokerage. They know the ins and outs of this stuff and depending on the state your in may be able to assist in establishing the loan or telling you who in your state to look for.

Great point Todd and agree 100%. IMHO - The whole sub-prime crap has gotten the small construction lending back to the local level where it should have been in the 1st place. A bank in NY is not going to back a small construction loan in GA anymore.

 

[Nehalennia]

Great point Todd and agree 100%. IMHO - The whole sub-prime crap has gotten the small construction lending back to the local level where it should have been in the 1st place. A bank in NY is not going to back a small construction loan in GA anymore.

I agree. I just think Mark can really give Doug the low down on what's going on and how to approach it.

 

[douglee25]

Chuck,
Please pm me on this matter. I am a private lender which may be a bit more expensive rate wise but may suit your needs and reduce your overall interest and closing costs. This may or may not match your future plans but is worth discussing.

PM sent. I think you meant Doug though, not Chuck. :smt001

Doug

 

[mwph]

Im going to be the minority here but here goes........

If you have to borrow any money, borrow just enough to rough in the addition. Pay cash as you go to complete the job yourself. Yes it wil take longer. Yes it will take up some nights & weekends. The biggest yes of all comes from not being maxed out on your equity now and @ resale time.

 

[sprink56]

You might not like this answer in the short term but may appreciate it in the long term.

Stay in the house for a year. Don't spend a dime on it. See where this market is in a year. i suspect we will begin to see an upswing over the next 12 months. Things will look much better then. If they don't...then you haven't lost any thing.

In a year from now you may be able to sell, move to a home with more room and make your 'Woman God" happy.:thumbsup:

 

[douglee25]

You might not like this answer in the short term but may appreciate it in the long term.

Stay in the house for a year. Don't spend a dime on it. See where this market is in a year. i suspect we will begin to see an upswing over the next 12 months. Things will look much better then. If they don't...then you haven't lost any thing.

In a year from now you may be able to sell, move to a home with more room and make your 'Woman God" happy.:thumbsup:

:smt043

Yeah, that might be what happens in the end. I am still going to explore a few options and see what turns up.

Doug

 

[waterlogged]

Here's the approach I recently took.

First, get a fee based appraisal (on your own) to see where you stand. Have the appraiser prepare an estimate of market value based on your remodeling plan. Depending on where you are, should cost $300 - $350. Then you'll know if it all makes sense. This will have a lot more weight than a CMA.

Pull your FICO and verification documents, etc and armed with all that info, start talking to local banks. You'll have a much greater chance of success if you have all your documentation up front.

In my situation, I purchased a bank owned home and had pretty good equity going in so I financed the renovations through an equity line. Once the renovations are complete, I'll convert to a standard 80% LTV mortgage.

It was a "fun" process, especially in south Florida.

 

[douglee25]

Here's the approach I recently took.

First, get a fee based appraisal (on your own) to see where you stand. Have the appraiser prepare an estimate of market value based on your remodeling plan. Depending on where you are, should cost $300 - $350. Then you'll know if it all makes sense. This will have a lot more weight than a CMA.

Pull your FICO and verification documents, etc and armed with all that info, start talking to local banks. You'll have a much greater chance of success if you have all your documentation up front.

In my situation, I purchased a bank owned home and had pretty good equity going in so I financed the renovations through an equity line. Once the renovations are complete, I'll convert to a standard 80% LTV mortgage.

It was a "fun" process, especially in south Florida.

Good info. I will keep it in mind.

Doug