Hi Chris,

I guess the question is how to finance the addition? I was thinking at the end of it, I want to keep my 1st mortgage, and the 2nd would get rolled with the addition debt into a second mortgage, but do they give mortgages based upon the planned value assuming I have plans etc?

The existing 1st and 2nd you have won't likely agree to remain in place while you rip their collateral apart (at the risk of tossing in the towel midstream.)

What you need is a renovation/construction loan. Your lendable value will be determined by the projected finished value. There are various ways to make this work with renovation financing, but you definitely need a lending specialist for this.

Luck!
Dave Donhoff
Leverage Planner

Chris,

I bow to Dave's vastly superior expertise in how to get the loan (he's the man, when it comes to home financing questions), but I want to raise the question about whether you need one.

Your situation may be unusual, but in these days of declining house prices I would think that your prospective $80-100K investment in the addition may, or may not, yield you a $100-150K increase in market value. Are you sure you want to do something like this now? Would you do it if you knew you would only break even on the cost of the construction, or worse, would only get 75-80% of the cost back at sale if you had to sell soon for some reason. (I realize you may not plan to sell, but stuff happens.)

Of course, you may live there for many, many, years and get the cost "repaid" in the utility to you as you live there for a long time. Or you may live someplace where real estate is still booming, or it may not matter to you financially. But the days of reno-mania on the assumption of guaranteed increase in "home value" are long past (if they ever really existed).

Are you basing your current value on an up-to-date professional appraisal, or just recent "home prices", and how have you arrived at the putative value post-reno?

Just askin'

Molly~

I have to agree with Molly - she put things in a very tactful way (which is why I hesitated to answer at all), but I did wonder whether your idea of what your house is worth now is based on current values (since the 'recession' and with the bottom having fallen out of the RE market all over), or just what it would have been worth e.g. 2 yrs ago if nothing had changed. And for someone to take the chance you are looking at, possibly in hopes of recouping, did strike me as exceedingly optimistic, even if you happen to be in a lucky small area that so far has been unaffected much by the downturn.

What Molly said.

I appreciate the reponses....

to basically address what Molly said, no I don't have a professional appraisal yet.

I am basing it on market prices I've seen in my town. Currently besides one bank owned property the lowest house listed is at 395K. and the house next to me, which is small too, but differnet in a number of ways just sold for 380. I guess my point is I know I'm below these by some but I'm really at the floor of my area so I don't think my values are too far off.

As far as the 450-550, right now i'm a 2/1 and would change to a 4/3. Pretty much all the decent looking 3-4 br colonials in the area are 500-700 listing. Assuming things are moving at all, I would think I'd at least get 450K as a final appraisal.

Just as an FYI after buying the house, we did put 40K into remodeling the kitchen, current bath and rewiring/replumbing the house. This has helped "increase" the value somewhat. At the height I would have expected $410-$425 for my house.

I don't like the idea of the expendature now either, however there is a reason. As of now as a 2br/1bath, if we do have kids, it will be tight. However the driving force as to why do it now, is that our roof is failing. It requires a complete rip off and replace of 2 layers of asphalt and one of ceder and completely plywooding the roof. Cost to do it from 2 companies so far os $11-12K.

So the thought is it will cost 10%-15% of the cost to do the dormer to do the roof. We've been talking about doing the dormer since we bought the place. Lets just do it. Right now I feel we're undervalued for the size due to the number of bedrooms. 2/1s are not popular, and we're actually decent sized and a great layout, but it is holding the value of the home back which is why I feel that we can recoop most of the construction costs if we sell.

I would just insulate and do the roof and trade up in a year or 3, but closing costs are terribly expensive on Long Island.
My closing costs to purchase were 15K, throw on another 15K-20K for the RE to sell this one, and we're 1/3 of the way to putting a topper on mine. We still may just do the roof, I just want to know my options.

Just to clarify, I'm not doing this to sell and get more from my house and if its worth a little less than the construction costs so be it.

As much as I do think i'll like the product I wish I could afford some of the houses everyone posts on the forum here. What goes for 150-300 in other places seems to go for 600-1000 by me.