Post # 1
My DH and I bought a house in December 2011. I love our house, but there is only one bathroom, so we discussed adding a bathroom upstairs and bumping out the back to make the two upstairs bedrooms bigger. DH and I were talking the other night and he said that he thinks we should take out a loan to do the renovations this spring-or else we will never end up doing it-as then we will be TTC and life gets in the way.
Adding the bathroom will obviously add value to the house, but taking out a loan scares me! Has anyone does this or anyone with any advice about this?
Post # 3
I wouldn’t do this. Especially if you’re TTC. Yeah, another bathroom would be great, but what happens if the job costs $10,000+? That’s a lot of debt right there.
This is how people get into financial trouble. What happens if you then have some unanticipated expenses that also leave you in debt? Also, babies are expensive. When/how do you expect to repay that loan?
Not trying to be a party pooper, but another bathroom is a WANT vs. a need. For things like that, you really should save. Getting a loan is a quick fix that you might regret for many years. I wouldn’t count on it upping resale value (it might), but when do you plan on selling your house? I don’t think it’s worth taking extra debt on now for.
Post # 4
We’re starting to look into adding on to our home. We bought it in May of 2008. It’s 1 1/2 stories, so we’re looking to expand the upstairs…adding a master suite and another bedroom. Our current gameplan is to refinance the house and pull some money out there. We owe less than the house appraises for, so that shouldn’t be a problem.
Post # 5
I disagree with PP. I have spoken to a lot of home owners who are trying to do renos now that they have kids and it’s impossible. Bigger and bigger expenses come along because, you are right, babies are expense. And, yes adding a bathroom is a WANT, but it also adds value to you house. Bathroom renos always return the investment.
I’m in Canada so I’m not 100% sure how mortgages work in the US but my FI and I are in the same situation. We want to get renos done soon, but loans scare me too! I hate oweing people money! Anyway, we have decided to take out a loan and in one year we are going to get our house re-assed by the bank when we renew our mortgage (please excuse the improper terms… I am new at this). We will add that loan amount to our mortgage at that time because the value of our house will have increased. If we add 10,000 to our mortgage it increases our monthly payments by $40… Sounds pretty affordable to me. We will then be paying it off at lower interest rate… I hope this helps!
Post # 6
My parents took out a home equity line of credit when they recently renovated their kitchen and master bathroom. I believe that you have to have a certain percentage of equity in your home to even have this be a possibility though.
Post # 7
I took out a home equity line of credit to build a garage, and it was a really great decision. I went with a line of credit instead of a second mortgage because at the time I already had a second mortgage (back when I bought, you could still take an 80% primary mortgage and a 20% second mortgage to equal 100% of the purchase price, to avoid PMI without having a full 20% down, but you can’t do that any more in most places in the US). It really is the most sensible way to borrow money these days as mortgage rates are really low, and in most cases the interest you pay on those loans can be deducted from your taxes, making it even cheaper in the long run to borrow that money.
A few years later I refinanced, rolling the first and second loans and the line of credit all into one note; property values had gone up quite a bit so even with all those loans I was over the 20% equity threshold to not take any PMI, plus interest rates had gone down a notch.
It takes a REALLY long time to save up enough cash to do these big projects, and it takes a lot of self-restraint to not dip into those savings for other things, so if you want an expensive renovation, most folks will do best with a second mortgage or a line of credit. The only things to watch for are any annual fees on the LOC (which should be disclosed up front); any prepayment/early pay-off penalties (always worth watching for even in a first mortgage); and any requirement to keep the LOC open for a minimum amount of time (if you pay it off early but need to keep it open to avoid fees, it’s a big temptation to make another big purchase). On the plus side, a LOC that has been paid off but remains open is a HUGE asset for unexpected big expenses. I kinda wish I hadn’t closed mine when I did, as we had an unexpected very expensive roofing repair last year and while we made it all work out, it would have been much nicer to have done that at 4% interest and a long repayment option than trying to pay it all down before the interest-free 12 months on the loan we took expired.
Post # 8
thanks for all the input everyone! i would definitly want to talk with a financial advisor before we make a decision so we can completely understand everything. your input has helped and made me feel a little less scared 🙂
Post # 9
Check into any tax credits that may be available, it might help you decide if it makes sense to do it now, or if there’s a greater benefit to holding off. I know there was a reno tax credit here for a while. No clue about the details as I don’t own a home yet, so didn’t really pay much attention.
Post # 10
I would look at three things.
1. How much equity do you already have in your home?
You may not be able to get a loan for renovations unless you have money put into your house.
2. How long do you plan on staying in your house?
You can check online to average amount you’d get back when you sell your house. The bathroom is probably a sound investment at a 75 to 100% return but I’m not sure the bigger rooms would get you any money back.
3. Would the renovations make your house the most expensive in the area?
If most of the houses in the houses in your neighborhood are about the same, the renovations may make your house the priciest on the block and hard to sell later.