Tuesday, April 04, 2006

Let's talk money for a moment

So we're at the final stages of planning for the renovation project. And that's everyone's favorite: getting the loan.

We've had reasonably good luck with our local bank, so I went to them asking about optionsf for a 2nd loan or line of credit. The end result was that they offered a loan covering about 75% of the estimate for the build, at an interest rate that a month or two ago would have seemed obscene. So I did a little more investigating. It turns out there's this thing called a "home construction rehab" loan designed just for projects like this. Sort of.

On the phone, the HCR loan sounds like a sweet deal. They appraise your current home, look at the plans, and come up with what they think the net worth would be after the addition. They will then loan you up to 80% of that net worth. This amount pays off your existing mortgage, and usually gives you plenty of additional money to do the build. It's kind of like consolidating your debt before you even manage to get yourself into debt. But there's some strings.

First, they don't just give you the money. They pay off the current mortgage for you (at a higher interest rate, by the way), and then based on the construction bid they set up a set of milestones at which they provide a sum directly to the builder. So he might get $10k at the start, then another $20k when the foundation and walls are up. But it's up to the bank to decide those milestones. Sounds kind of like an accountant deciding on the right health care coverage, huh? But wait, there's more.

In order to provide us those "draws" of money, they have an inspector come out and check on the completion of those milestones. so if the walls were supposed to be completed, but they are only 90% done, no money. Sounds like a real hassle.

And to top it off, they want over nine thousand in closing costs.

In the end, our local bank is making it easy. We'll have money on Tuesday. This weekend, I get to demolish a deck.

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