Home Renovation Options?

[poops]

Good Day!

Looking to explore options for financing some much needed home renovations. We need some repairs on a brick foundation, would like to replace the existing roof, and replace current cracking stucco siding with fiber cement siding.

House recently appraised for $600k. $170k is due on the first mortgage. Rate is 3.125. $125k is due on the second (HELOC). Rate has been rising from a recent low of 3.0 to current of 4.675. With the fed's recent increase, it's sure to rise even higher.

Based on quotes received for the needed work, we estimate ~$150k is needed to complete all the work.

Doesn't make sense to refinance the first mortgage. We'll leave that as is.

One question is if it's wise or even an option to 'refinance' the heloc and take out some cash from equity to finance the work?

Another question is whether to just take out some kind of home equity or home renovation loan to fund the work?

It's going to be close to impossible to find a lender willing to take a third position on the collateral...

Addtional data point. The first and second mortgages are in the wife's name only. We did a quit claim adding me to the title almost six months ago. Seasoning period will be satisfied in less than a week. I pay the mortgage and heloc myself. Wife has been a homemaker for the last 7 years.

Any insight or recommendations?

Thanks in advance!

[MortgageMama]

Abolutely leave that first mortgage alone. You may want to explore refinancing the HELOC with a higher loan amount as you mentioned. You may even have luck at a local bank or CU that offers a fixed rate for a period of time (i.e. 2 years and then adjusts to current market).

[ShanetheMortgageMan]

I'd also lean with getting more on a HELOC right now.  If the Fed Funds/Prime rate increases you'll want to keep your eye on what 1st mortgage interest rates are doing because even though your 3.125% is a great rate, it'd only be 38% of your total mortgage debt so the blended interest rate between both portions may get to a point that it's higher than if you refinanced everything into a new 1st mortgage.

[poops]

Reviving this 'old' thread...

Should I consider the 203K Homestyle Renovation product as an option for financing the home repairs? What are the advantage/disadvantages of the 203k? The property is a SFH and serves as a primary residence.

Maybe do a cashout refinance of the HELOC (7.275% rate) at a 15 yr term.

Thoughts?

[ShanetheMortgageMan]

The big advantages of a renovation loan are being able to borrow money to do renovations when the current condition of your home wouldn't pass an appraisal, but the planned renovations would bring it up to passable condition, as well as when the current home value wouldn't allow you to access sufficient equity to do the renovations, but the 'after repaired' value would.  If you are in either of those situations, other than having the cash yourself, then a renovation loan might be the only solution.  Additional benefits would be that your contractor is not only beholden to you, but beholden to the lender if they want to get paid for the renovations they agreed to complete.

The disadvantages of a renovation loan are it usually has a higher interest rate than a regular mortgage, additional lender and/or 3rd party fees are charged to oversee the renovation, your contractor has to work with the renovation department to become approved (usually just requires a resume, licensing & insurance), all renovation/repair items must be approved by the lender, you have a finite amount of time to complete the renovations in, and there is a draw/re-inspection process each time the contractor needs funds.

Since it appears you have plenty of equity to access and if your home in its current condition would pass an appraisal, then a renovation loan doesn't seem like it'd be the right fit and you'd be better off doing a traditional cash out refinance or obtaining a HELOC/2nd mortgage of some sort.  Keep in mind that your HELOC limit can reduce after you obtain it, meaning if the bank feels that home values are declining then they can freeze your HELOC and/or reduce the maximum limit you can borrow on it.  This can be risky if you are in the middle of your renovation project and your HELOC spigot is suddenly turned off and you are forced to find alternative sources to fund the remainder of your project.

[Citylights18]

I guess I would think in terms of what is going to give you the lowest payment.

First Mortgage 170k at 3.125%

HELOC 125k at 7.275%

Future equity line 150k at ???

If you did something like a TD home equity loan at 4.49% to combine the HELOC while taking another 150k out then your payment is $1,391.75 for 275k financed. 

With a unison home loan they'll give you 17.5% cash (for 600k that's 105k) with a share of the future appreciation of your property but at completely no cost. They do charge an origination fee (when I inquired it was 3.9%) but otherwise you don't have to pay anything and you can pay them off after 3 years. As far as lien position I believe they will accept as low as 4th lien.

https://www.unison.com/access-equity/

What you could do then is write a home equity loan with TD for 170k ($860.36) and then double up with 105k from Unison to create a lower overall payment. If you want to save even more money finance the 170k as interest only (at 4.49% roughly $650) a month.

But I think in general equity lines work better for you when its for lower amounts oppposed to mortgage sized loans. Divide and conquer what you owe into smaller pieces that you can pay off in total instead of fixing into a huge $2000 dollar a month payment you'll never get rid off. Think cash flow first IMO.

[Mdowning30]

Lightstream has decent home improvement loans.

[poops]

Thanks for the input.

A local credit union is offering 2.99% for 12 months on a HELOC then, a reset based on prime + on the 13th month.

I know this is a risky option, but all signs point to a mild recession later this year with the fed probably lowering rates within the next 12 - 18 months. I can also always refi to a hopefully lower fixed rate with another lender before that 13th month.

Thoughts?

Thanks in advance!

[poops]

Quick update...

Recently closed on the HELOC with low introductory rate of 2.99% for 14 months. Will reset at prime - .5 upon expiration. 

I'm betting rates will be lower at this time next year. At which point I'll refi.

Off to do some home reno...