Home Addition - Construction Loan?
My partner and I have lived in a small two bedroom, one bath home for almost five years. We've recently started talking about building on an addition to our home that would double the square footage (going from 960 to 2000+). We don't really have any idea where to start as far as securing financing for this project. Are there any good websites or other reading materials that anyone can suggest to help walk us through our options? When we first purchased the house we were told that we'd probably need to get a construction loan when we decided to add on, and that upon completion, we'd roll our existing mortgage and construction loan into a larger mortgage. This sounds reasonable, but I'd like to explore all options and just familiarize myself with the process before it becomes a reality. Any assistance that anyone can offer is greatly appreciated.
Re: Home Addition - Construction Loan?
The normal structure of a construction loan is a short term 1 year loan that you have to refinance into a new conventional mortgage loan once the construction is completed. So, this process costs you two sets of closing costs and you have to re-qualify for the new loan once the home is completed. Construction loans are hard to get, the interest rates are much higher to offset the risk, they have a very tight time table, and the bank is breathing down your neck the whole time with prescheduled mandatory inspections that you have to pay for. Needless to say, a construction loan can be a big headache. If you have any equity in your home, a home equity line of credit is the easiest and cheapest way to go. A home equity loan has low fees and can be spent as easy as cash.