Equity Loans for House renevation/addition

Homerboy

Lifer
Mar 1, 2000
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I'm trying to settle an "dispute" of sorts so somebody help me out here..

Ok first the numbers:
$145K outstanding on mortgage
$19K on home equity loan

The house is assesed ~$205K
How, if possible could I get ANOTHER equity loan to do a ~$10k-15K addition onto the house?

On a related note, once the addition is done (extra bedroom) the FMV of the house and Im sure the asseement would likely go up, which in turn ups the equity correct?
 

Squisher

Lifer
Aug 17, 2000
21,204
66
91
Usually you can get 75% of the equity you have.

$250K-$145K-$19K=$86K

$86K X .75 ~ $65K
 

Vic

Elite Member
Jun 12, 2001
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Originally posted by: Squisher
Usually you can get 75% of the equity you have.

$250K-$145K-$19K=$86K

$86K X .75 ~ $65K
No. All that matters is the final combined loan-to-value ratio (CLTV, the amounts of the 1st and 2nd combined divided into the value of the property), and not any percentage of remaining equity.
Nor will lenders care about FMV. Just AS-IS value at time of closing only.


Homerboy, almost no lender out there does 3rd mortgages anymore. You will need to pay off your existing 2nd with a new larger 2nd if you want more cash out. Based on the figures provided and assuming an acceptable property, you should easily qualify provided you have the credit and verifiable income.

What's the dispute?
 

Squisher

Lifer
Aug 17, 2000
21,204
66
91
I didn't mean as a third mortgage. But, when I was lookinig for a home equity line of credit that was the formula they quoted me.

 

Vic

Elite Member
Jun 12, 2001
50,422
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Originally posted by: Squisher
I didn't mean as a third mortgage. But, when I was lookinig for a home equity line of credit that was the formula they quoted me.
Perhaps at your local bank, but not as a generally accepted underwriting standard.
 

Homerboy

Lifer
Mar 1, 2000
30,890
5,001
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You will need to pay off your existing 2nd with a new larger 2nd if you want more cash out. Based on the figures provided and assuming an acceptable property, you should easily qualify provided you have the credit and verifiable income.

I guess that make sense. take out 1 "big" loan to pay off the equity loan and get cash out so theres just 2 loans remaining: the initial mortgage and the new, larger equity loan.

I sitll dont undertand how an equity loan to make additions/improvements onto your house work since the assesment/FMV value of the house will be greater once the construction is complete so you will in turn naturallyhave more equity built in then...

Are rates typically lower on home improvement loans vesus say a loan to buy that shinny new speed boat?
 

Mill

Lifer
Oct 10, 1999
28,558
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Originally posted by: huesmann
w00t for you! More debt! The American Way!

Not necessarily. If he builds more equity by making the addition it would outweight having the debt. He might have more debt, but he'd have a higher net-worth. Now, this assumes that he increases the value of the house, has a decent rate, and makes his payments on time if not quicker than on time.
 

huesmann

Diamond Member
Dec 7, 1999
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Does building an addition to a house ever really increase the value of the house by the cost of the addition? If you spend $20k on an addition to a $200k house, is the value of the house $220k the day the addition is complete?
 

isasir

Diamond Member
Aug 8, 2000
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Originally posted by: Homerboy
I sitll dont undertand how an equity loan to make additions/improvements onto your house work since the assesment/FMV value of the house will be greater once the construction is complete so you will in turn naturallyhave more equity built in then...


Remember, a bank is loaning you money before you've even started construction. If, immediately you refuse to pay, and you didn't start construction on the house, the bank would want to know approx. how much the house is worth if they have to take it.
 

Homerboy

Lifer
Mar 1, 2000
30,890
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Remember, a bank is loaning you money before you've even started construction. If, immediately you refuse to pay, and you didn't start construction on the house, the bank would want to know approx. how much the house is worth if they have to take it.

Ok you lost me, I dont see how that answers my question. I realize that with a construction loan (as with any loan) the bank is taking a calculated risk in loaning you the money. However, once the construction is complete, the risk is lowered as the value of the house is increased through the loaning of that money...

huesmann does raise an interesting question. If you drop $10k into a addition/imporvement, does that raise the value of your house $10k? I would assume that has a lot to do with the market in your area and even more so what the improvement is... if its adding a bedroom/bathroom (which is the case here), I can forsee that helping the FMV on your house quite a bit (difference between the average 3 and 4 bedroom house in my neighborhood is ~$20K). Versus if you took out a $10k loan to put in a new driveway or redo the roof something less "important" to the resell value and appeal of your house.
 

Vic

Elite Member
Jun 12, 2001
50,422
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Originally posted by: Homerboy
I guess that make sense. take out 1 "big" loan to pay off the equity loan and get cash out so theres just 2 loans remaining: the initial mortgage and the new, larger equity loan.

I sitll dont undertand how an equity loan to make additions/improvements onto your house work since the assesment/FMV value of the house will be greater once the construction is complete so you will in turn naturallyhave more equity built in then...

Are rates typically lower on home improvement loans vesus say a loan to buy that shinny new speed boat?
No. This is just a home improvement loan, not a construction loan. The bank is only concerned about the AS-IS value of the house. As far as they are concerned, they are just giving you cash and you probably will go out and splurge on a shiny new speed boat. It's best for you that way, unless you want then controlling every aspect of your home improvement project....
Luckily, you already have the existing equity, so no worries.
 

rahvin

Elite Member
Oct 10, 1999
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Just refinance and with cash out. That way you combine the two mortgages into one, hopefully get a lower rate and get the cash you want for the addition.
 

Homerboy

Lifer
Mar 1, 2000
30,890
5,001
126
Originally posted by: rahvin
Just refinance and with cash out. That way you combine the two mortgages into one, hopefully get a lower rate and get the cash you want for the addition.

well Im already at 5.6% on the mortgage and 6.8%(?) on the equity tough to get those lower.

the ~$35K equity I have now is nice no question, but I really cant take another equity loan out on that based on the responses above.

Maybe I should just go talk to a person at Wells Fargo (current holder on both loans) and see what they suggest/can do. I cant believe this doesnt happen often.
 

huesmann

Diamond Member
Dec 7, 1999
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If he does a refi, that just lengthens the time he'll be paying out on a big chunk of change, yes?