Houses, Again, Ins and Outs of Construction Loans?

I'd just like to say that people worry WAY too much about housing. If you have a place to live then be thankful. Seriously. And stop stressing about everything else.

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Only in America do families insist on "more space". I stick by what I said. Learn to love the house you have. And make improvements that you can afford.

I thought construction loans were for NEW houses, not additions?? My friends just added on to their house and added a whole new kitchen, they used a home equity loan.

Um. Okay, I'm a construction manager by trade, so I've seen my share of remodels. I've also done a huge remodel/addition on my own home, while living in the home with a newborn and toddler. I've read your posts, and I'm here to tell you that doing a large addition to your home, while you're not sure if the house will appraise at the end of it, will drive you to divorce. I'm not being flip, I'm absolutely serious.

My advice to you is to "settle" for a house that isn't perfect. Houses aren't perfect, but you know what? If you can compromise on your dream list even a little bit, 45 days from now, your whole family could be living in a house that's twice as big. There, done! Problem solved! Remodeling a house? You don't even have plans yet. Those take a month or more even if they're fast-tracked. Then you have to apply for a permit. Then you have to bid out the project. Meanwhile, you've got to deal with the bank and their construction milestones schedule. Then you have to wait for the GC's schedule to clear up enough to start. Then you have to wait for the foundation to be inspected and signed off. Then the framing. On and on and on it will go. You won't be done by winter. It's not going to happen. You're on top of each other now? Just wait until there's constant noise and dust.

I'm not trying to be a negative Nelly here, just trying to give you a reality check. Unless you have the means to move out and rent somewhere while this project is being completed, I just wouldn't do it. Find a house you can live with, and move. That's my best advice.

I don't understand why you need a construction loan for an addition. If you don't have the cash for it, then why wouldn't you get an equity loan or line of credit against your current mortgage?

:)

**It is foolhardy, even if you do get approved, which is unlikely, to have two separate unrelated loans on the same property, especially when added together they equal more than the property is worth.So if you have half a mil in cash laying around, go for it. If not, you can only afford an addition up to the amount of equity you have in your house. Surely you have a mortgage officer to discuss this with since you've already contacted one before you started looking for a new house, right?

If you overbuild for your neighborhood, you will be upside down.

Several years ago, my husband and I considered doing that with our home. We even talked to a couple of builders. In the end, it would be too much house for our neighborhood. You never want to have the largest most expensive house on the block.

Personally, I would keep looking. We are in the process of remodeling our kitchen and I'm about to come unhinged! =)

I have never heard of anyone doing an addition that didn't either have the equity in the current home to do it or cash on hand. This is because additions are never worth more than they cost, they are always worth less.

You build a home you just build a home. With additions you are also demolishing part of your home in a way that doesn't destroy the rest of the house. It costs quite a bit and can never be recovered in the value. So I suppose if you don't have the cash on hand to at least cover the demo you don't have enough money to do the addition.

I didn't even catch the rental costs. Are you trying to make this as expensive as possible? I know someone who went up and out and lived there the same time. Love their house because you cannot tell it was ever smaller.

Who adds a 1500 sf to a 1200 sf home?!
It's cheaper to go out than up.
Sounds like your husband has champagne taste and a beer budget!

You know, life has just so few guarantees.
Especially financial ones.
My hunch is that if you can't afford the worst case scenario? Then you can't afford it. That's logic that has served my family well through the years.
Good luck.

ETA: maybe this will help you understand it:
http://www.bankrate.com/brm/news/mtg/20020515g.asp

I have a hard time believing that a 2700 sf home will fit in with 1200 sf homes and it will be very difficult to recover a reasonable proportion of your investment. I have a hard time believing this is the best solution and that there are really no reasonable home in your area. I suspect you and your husband are being much too picky.

We looked at doing an addition before we moved. Our initial bid of 70,000 became 170,000 once we put in all the things we wanted. And that didn't include the costs of things like replacing the fence and landscaping that would be ruined by the equipment, removing a mature tree that would be too close, etc. I am SOOOOOOO glad we didn't do that. By moving, we got what we wanted without the headache.

Your posts make it seem like this move is critical and the only one you will ever do again so it has to be perfect. I know people who move every 3-5 years. Just move someone you can live comfortably for the next few years if you don't have what you want right now.

Bad idea to build up. You say that you have the equity so why are you wanting a construction loan? I was in the mortgage business for 20 years. I've done a lot of loans for clients who built up. My clients were mostly in Naperville, LaGrange and Hinsdale. Their stories were brutal. One couple ended up divorcing but they couldn't sell their house because they owed more than the house was worth, I think the house went into foreclosure cuz neither could afford it.

The other HUGE problem is you will go absolutely nuts doing a build. They NEVER go as planned. You will go over budge at least 50%. You will have workers in and out non stop. If your house is that tiny, you and the kids will always be in their way. Your house will always be dirty. Expect to add a few months to the completion date. Don't get me started with the permits. What county are you in? It takes quite a bit of time to get everyone lined up for inspections, permits, that can hold up a project. In Kane county my friends contractor had so much trouble with the village, it took an additional month just waiting, and this was just for their basement. The list of horrors goes on.

If the build doesn't appraise out (they rarely ever do), you will have to cash some investments in.

The market is *good* if you are in the right area. Houses by me are selling with multiple offers and higher than the asking price. You would be better off to keep the search going instead of building up, it doesn't sound like your area is worth building up in since you say houses are "grossly under priced & everything else sits", why would you want to invest more for no appreciation?

I Say keep aggressively looking. I would rather live in a 1200 sq house than a tiny house under construction w 3 little kids while homeschooling.

First - no dog/pets until you move and have room for one.

Second - trying to double your living space by remodeling is not a good idea. You think you're going nuts with the noise now? Wait till you are living in a constructions site for months on end with plaster dust EVERYWHERE. People divorce over stuff like that.
Seriously - watch The Money Pit (one of the greatest movies EVER).
Take notes - watch it again - repeat as necessary.

Third - if you need a bigger house just get a bigger house. There will be things you don't like but you will have room (and make sure it's in a good school district). You don't have to live in it forever and when the house of your dreams becomes available, you can always move again.
Or just rent a bigger house and sell the cracker box you are currently living in.

oh, my dear. this sounds like a nightmare looming over you like a sith lord.
your husband IS being a huge PITA. but trying to live (and homeschool) through construction on a massive addition that will never give you a decent return on your investment is a truly terrible idea.
whap him upside the head and insist that he be far, far more reasonable in his requirements. then whap yourself and be more flexible too.
worst case scenario, you move for a few years into a house that sorta works, and maybe have to move once more again when both of you actually figure out what you really want. since neither of you knows right now, it's going to be hard to find a perfect solution.
one thing is for sure though- THIS isn't it.
sorry, hon.
khairete
S.

Your posts about looking at homes, dream homes, your husband's picky list, your own....don't bode well. If you do a huge addition and still end up house-hunting in a few years (two years? Maybe, from what you write and your close, close following of the market), you will end up having sunk a lot of money into an addition and then moving anyway. It's fine to do an addition, even one that is much larger than your area usually sees, as long as you plan to stay there for years and years to come. That is the part I would put into boldface italics with capitals if I could: IF you plan to stay there for years and years to come. If you do an addition, it needs to be what you and he want to LIVE in until the kids are done with high school, maybe with college, or don't do it. If you are doing it with the idea of "how does this affect the house's potential future sale in a few years" -- you are not committed to staying in place. You have done a ton of house hunting and you seem extremely invested in the idea of a house whether it's the one you have, only bigger, or a new dream home. I would worry that the intense focus on the housing market, how it will change, etc. would end up making you dissatisfied whatever happens.....And your picky husband will be JUST as picky over an addition/renovations as he has been about houses you've seen while house-hunting.

Again, additions are great and people here do them -- they even do ones that, as another person here put it, are "overbuilt for the neighborhood" and won't make back what was paid for them, if the house were sold. But if they do that they are committing to stay and building what they want to live in for a long time to come. Can you and your husband make a firm commitment like that, or are you both going to end up always a bit dissatisfied, always eyeing the market, looking "just for fun" at houses, doing a lot of "what ifs" and still feeling you didn't get what you wanted.

Not the answer you wanted, regarding dollars and cents and loans, but something to consider well before you talk to anyone about a loan.

A couple of things to keep in mind...no matter how much you 'budget' for the addition, it will ALWAYS cost more! Second, how big are the homes in your neighborhood? If all of the houses are around 1200sqft, then I don't think it's in your best interest to have a house that is 2700sqft. You'll never make your money back.

I have a neighbor that did what you want to do. He then tried to sell his house. Well, three years later the house is not sold and is sometimes not rented. There is no backyard to speak of and the actual addition has some issues as it does not match the basic home so it is disjointed in appearance. The workmanship leaves a lot to be desired and a bedroom does not have easy access to a bath.

The house is the largest on the block. The builder who built all the houses on the block built different style and sizes to fit the lot and the range is from 1200 to 1500 square feet. I know very modest but 20 years ago that was a decent size. Now days that same house would be over $180,000 or more depending on size for the lot.

You two need to really sit down and look at house plans and find things that you like that are common. He likes two floors you like splits. How long will you live in the house - retirement? Will you be able to get up and down a two story home? What about a basement? Can you finish it off if it is not done or redo it so that you have more room? Who is going to do the yard work? How much house can you really afford within a budget and I don't mean the top of the line? Do you have a retirement fund and college fund started for your children? If you answer no you can't afford a new house and you will need earplugs. Otherwise you guys are going to wind up divorcing over buying/building a house.

the other S.

PS One person cannot maintain a house and raise children and do yard work. The only way that is possible is with a lot of paid help.

I might sound tacky, but could you get some sort of prefab structure as a playhouse/school house? It could still look like it matches your property.

I am not sure about the permits. It seems a lot cheaper that other options.

The ones I have seen look super nice and modern.

I googled something:
http://www.barnpros.com/barn-plans-products.aspx?itemid=1...

Remember that if the market is a buyer's market and you're buying more house than you're selling, this is a very good time for you to buy... You also said once your house is so desirable it'll sell in a minute. So selling a hot asset in a weak market is very much to your advantage. But if you don't want to do that, I agree with everyone's horror stories about remodeling. I was just talking to a friend who is good friends with someone I used to work with. Super nice guy. From such a wealthy family there are buildings named after them at a very very prestigious university... He and his wife don't work. They don't need to. They remodeled a house beautifully. They have NO money worries. They have full time help for their 2 kids. They don't work. He's a bit nitpicky but the wife is apparently very easy going and said it almost drove them to divorce. There was a counselor profiled in the WSJ years ago who specializes in marriage counseling for couples remodeling or building a home. Having said all that, you don't have a garage in Chicago?? Aside from the noise, building one shouldn't be very disruptive. And what about just adding a really big FR for now? Maybe with a bathroom. That would alleviate a lot of the overcrowding for homeschooling and not disrupt your actual living area now too much. Noise again but at least not displace you. Then when kids are older etc you can build up. Otherwise, I agree with others to just be less picky about the house you move into.

ETA: I see your husband wants the big addition... Sometimes men I think are operating at such a higher level vs actually looking at reality and details bc they leave all that to us. You may have to sit him down and outline options and tell him to pick one. New house or small addition for now. Once he sees details of money involved and needed for a big addition as well as timeline, permits etc or what he has to pay for his dream house and really processes it, he may come around and start compromising.

I understand your stressing about space. we lived in a 700 sqft. home for two years - the lack of space and room for withdrawing drove him nuts (as in seriously it was exacerbating the depression he was experiencing).

But I would caution you to build an add on with an additional loan on your home. In most cases it will be just a bad idea. You will almost never make the money back that you put in and it can make your house harder to sell once you do decide you're done with it (most additions that we have seen when house hunting were awful).

I think a better approach would be to check your expectations for a new home and keep looking. A good compromise would be to look at houses that are under your budget for a new home, but that could be upgraded to meet your picky points before you move in. With all the cash we are talking about that you would be spending on architects, loan fees, rental and such, I can see that going a long way in a renovation of a home that just needs a bunch of upgrades to meet your style.

I agree with Hell on Heels. In fact I wish I could send her 20 flowers.

We did a major remodel on our house four years ago. We moved out for 2.5 months while the heavy stuff was done.

Looking back I wished we'd just dumped it and bought something else at a discount (that was after the market hit the skids down here in southern FL).

Here I sit 4 years later with a house that is still a shade too small for us, but with a GORGEOUS kitchen and family room! LOL! I will have to blast my husband out of here with dynamite. We have had it on the market twice in the last 1.5 years and can't get enough for what we have in it with the remodel (though we have gotten closer as the market has improved).

Sell and buy the size that YOU NEED. Don't worry about the style. Just get more SF. Put in new flooring and appliances and live with it for awhile.

JMO.

ETA: Not sure if this matters but we did NOT add square footage to our house - we stayed within our existing footprint. We have about 2400 SF. But we homeschool and work from home. So it's cozy. :P

I don't get how 1200sf is too small! I am in 1000sf and it is plenty!

You need to look at the pros and cons of the construction.

If you are adding a second floor I don't think you can be residing in the home.

If you are adding room(s) to the side or back you will have to deal with the noise, dirt and strangers around your home until it is done (and they are NEVER done on time).

Remember that with any remodel new problems are found. Sometimes poop happens and stuff breaks, and sometimes contractors find very bad things behind the walls that eat into your budget (it happens to everyone).

You and your husband need to make a list of what you love/hate about your current home and if you can change it. You should also make a list of what you can and cannot live without in a new home (make it a 1 to 10 list). You both have to compromise and find what you both like/love/need in a home.

It sounds like building this addition could keep you in your current house for the long-haul, so I wouldn't worry TOO much about the appraisal. I'd just start saving for it. $1200 for mortgage application fees seems very high--our application on our last mortgage was $400, from Key Mortgage Services (you can look them up online if you want). The guy we were working with (Jim Francis) is awesome and extremely knowledgeable--so much so that we've ditched the mortgage broker we've been using for the past 6 years.

And no, I don't think building big in your neighborhood will negatively impact you. That's what our market is like--older smaller homes with McMansions peppered in, and rebuilds, additions, etc. Your area is awesome and should be able to bear it.

I will say this. One of my friends husbands worked his way through college at BYU working construction. He was very very skilled at it.

They got a house in my town and as their family grew their house became too small. He built on to their house. A very nice addition too. Perfect work.

Their house sat and sat and sat because they had it way over priced for the area it was in. They couldn't sell it. I think he finally had to let it go back to the lender with no anger on either side, the lender actually made the offer to them and basically they walked away without owing anything. They'd lived in it just a few years so they still owed a lot.

Adding on increases the square footage. Therefore when the houses in the area are selling for....$50 per square foot and they have a thousand less in footage you have a house that costs way more than the other houses are selling for. Most families don't want a house that is basically worth less than the others in the neighborhood. It will never be worth it's value so it sells for way less per square foot than theirs. This effects their house sale prices in the long run.

We've also been talking to an architect about construction loans and remodeling. You will get a loan for what your remodeled home appraises for at the end of the project. If the market tanks, you will have to come up with cash. It's easy to say things will be up by the time you are done, but be prepared in case something happens.

Several people already mentioned, but think it's worth it again, if you are staying there forever, make a list as picky as you want (and can afford) and do it. But don't live through a remodel if you plan on moving in the near future. You will not get your money or sanity back! Another thing to note, sometimes going bigger on a remodel ends up with better value per square foot on the addition. We were looking to do a small addition on the back, but the cost per square foot was so much higher than doing a second floor.