If you purchased this home with little or no money down (which was possible 5 years ago) and the value isn't what it used to be (as is the case with much of America right now) your options may be limited to non-existent.
If, however, you have good credit, income and plenty of equity in the home, your options are wide open:
HELOCS still exist and can be used for renovation purposes.
FHA 203k's let you borrow more than the home is currently worth (if the upgrades brign it into line with current sales in the area - which is a might big "if")
And if you do have plenty of equity, you can always go the Cash-Out Refi route.
Basically, I'd need to know a lot more about you, your home, and your current financial situation before I could give you any meaningful advice.
I am a 203k Loan Specialist at Wintrust Mortgage. This program would allow you to update your home and also do an addition. There are guidelines we would have to follow so a discussion would be the best thing at the moment for you to have. For a Single Family Home the loan limit with rehabilitation is $410,000 so if you already owe $410,000 for example this will not work for you. However if you owe $200,000 and have an small equity position at the moment than an addition and rehab work could be done up to $410,000 and or up to your income qualification. Please checkout my website http://www.chrisdepaepe.com. I do about 10 of these loans per month and it is critical you deal with someone who actually closes this type of transaction and specializes in this product. Please feel free to give me a call as well if you need more info, the website will have some general information for you to read over.
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Good advise here. I'm surprised no one has asked you if you want to stay in your home. Do you want to stay in your home?
If you're considering selling you may need to short sale the property based on other factors, i.e. what is the fair market value of your home vs balance due, is there a financial distress, etc...
Have you tried a loan modification? If not, why not start there? Talk to your lender, see where that gets you. As Matt Bukovy pointed out there may not be too many options for you based on your financial scenario. Talk to him & let him guide you, he seems to have the proper perspective.
Good luck! If you need a free market analysis, I'm here to help.