The FHA 203k loan would work great for your purposes. Feel free to give me a call for more details and to discuss further. This is a loan program our office particularly enjoys.
Senior Loan Originator
NMLS #: 222407
A basic example for a home equity loan to qualify:
Your home value $240,000
Your current mortgage balance $100,000
Your new equity line $100,000
Your 20%equity cushion $40,000
Most people do not have this kind of equity, and most people do not have free and clear homes. You can actually get a 203k loans if your house mortgage balance is higher that what your current home is worth. My other example illustrates this.
Furthermore, there is a common misconception that you need to use FHA approved contractors. There is no such thing as a 203k approved contractor. Contractors are validated by the lender. In most cases, the lender will make sure the contractor has at least 5% of the renovation budget in credit or in their bank account. They also look for excessive federal tax liens. The approval process is really easy. Who would want a contractor to start a $100,000 job on their house that couldn't produce $5,000 if they needed to? How would they be able to run to Home Depot or some other supplier to buy materials to start work, in a pinch, etc.?
You need to sign an INDENTITY of INTEREST FHA disclosure regarding your contractor that YOU SELECT. The contractor can’t be related to you. This is as much to control “kick backs” as stop you from employing your out of work brother-n-law.
What I'd suggest is sitting down with a local lender and see what's available to accomplish your objective.
A Simplistic Example:
2 bedroom house 1 bathroom worth $100,000
Add 2 bedrooms and a bathroom for $80-100,000
The aftermarket comparables are $220-$240,000 for a 4 bedroom 2 bathroom house in your area
Your 203k loan to value would be based on 110% of $220,000 on the low side
$220,000 x 1.10% = $242,000
97.75% of $242,000 = $236,555
The pay off on your first mortgage is $110,000 and you are slightly upside down on your home.
In this case you are slightly upside down your home and the 203k would still work.
We can help you with this. The main concern on a 203k loan, is the value after the repairs are completed. Give me a call or send me an email to discuss.
Smart Mortgage Centers
firstname.lastname@example.org / http://www.smartmortgageinc.com
I'm actually considering doing this myself. I've asked two mortgage brokers who have advised me to go directly to the bank and speak with a loan officer there.
I recommend speaking with a Loan officer who is familiar with these loan types.
I would be happy to help
Senior VP of Mortgage Lending
773 290 0455
A home equity line of credit may be a better option, and these are available, with the long term plan being a financing of the finished product, retire the 2nd loan and lock in a low rate for the future.
I am looking forward to hearing what others have to say, please let us know what you decide to do and how it all works out.
I believe a 203k can only be used during the purchase of a home, not for a refi. What you are looking for is a construction loan. How much equity do you have? Maybe you can just get an HELOC for the work.
Best of Luck,