home owner wanting to expand his house.

Hello my name is Sean.
A friend of mine has a house and he just changed his mortgage to 15 year from 30 years. He says his house is small but doesnt want to move. I know this is not really an investing question but I was wondering if anyone could help. He wants to know what the best way it is to go about getting a loan to expand his house. Experts of the forum please help!

Have a blueprint or a sketch drawn up of what he wants to renovate
in his home. Call a good reputable contractor to give him an approximate proposal as what it will take for the addition. Two Contractors if possible. Take the estimate with your blueprint to a mortage lender and talk them about the cost of a home improvemnt loan for the addition. Go to a couple of lenders. Get ER done.

how exactly does the home improvement loan work? can you or someone else explain? what is its advantage over a 2nd loan? should he change it back to 30 year if its at all possible?

Maybe you should have your friend work backwards on this one.
I mean, instead of finding out how much an addition would cost. Find out how much your friend can afford.
Go through a financial statement and add the cost of the build plus the monthly amount of loan cost. (add 20% of material cost)
Once you have some workable numbers, go to a reputable GC or builder and ask for quotes.
Estimates are ok, but quotes and material quotes are much better.
See what he or she has to work with, and then refine or expand the numbers to get what is desired.

Once you have some hard numbers to work with, then explore financing options.

I’d like to hear some alternatives to this advice, especially if I could pass this on to my customers. :wink:

Brandon

If your friend was smart, he would of waiting to convert his mortgage to a 30yr. He should of found a contractor to do the expansion, got the cost and then refi his home and pull out the money for the project plus about 10-15% extra just in case…this way he will only pay one closing cost… Of course the money he could get on the refi has to do with how much equity he has/will have in the home…

Now to avoid paying closing cost again, he may want to find out about getting a Home Equity Line of Credit (HELOC) which generally have no cost and you pay back based on what you use like a credit card. In fact many banks will just give you a credit card for your HELOC…

call some lenders and brokers up and talk to them as well…

Excellent advice given already. 5 years ago I doubled my house size with 3 car garage underneath. I did most of the work myself. I had enough equity in my existing home to get a construction loan, and then at the end of the project I refinanced my conventional mortgage.

Some thing I did not notice in the above posts that is ABSOLUTELY critical is that your friend needs to take their basic rough blueprint, which clearly states existing structures and improvements, and go down to your building inspector. Let the inspector (or person you have to deal with in your area) know that this is only in the idea stage and you want to know if it looks OK before setting everything in stone.

My town had a TON of regulations… and to make it short, I was told that I needed to get a variance to do what I needed to do. To apply for a variance you submit a large fee that is non refundable. Your city, town, township, or village board will then decide if you get it or not. Everyone on the other side of the table wants to throw around their power and I was very upset at this point. I went down to our local library and studied our city ordinances concerning real estate for half a day. I found 2 clauses to existing ordinances that allowed me to do what I wanted to do. I wrote a nice letter to our inspector and after being avoided for a few days, I went up there and asked if he got my letter. It was sitting right on his desk and he then admitted that I didn’t need a variance to do my project.

Your friends prospective contractors should know all the legal information as well. I would recommend that you friend should do some homework to make sure the project is feasible. This could save a lot of surprises.

Jeff