How to finance addition

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Topic Author
idealtrucks
Posts: 40
Joined: Wed Nov 07, 2018 11:56 am

How to finance addition

Post by idealtrucks » Wed Mar 13, 2019 7:22 am

Good morning,
Here's my situation, not including retirement accounts
Age 33
3 year old kid, and one due in July. Plans for no more
Household income before tax - 115k
55k cash
130k taxable accounts
mortgage - 85K remaining at about 4%. House would probably appraise for around 150k
about 20K outstanding debt for car and rv.

Current house is about 1900sf. The addition would be another 576sf

I'm going to build an addition on to accommodate another child we are about to have. Estimated cost 60k.
Should I pay for this from my cash and taxable accounts, or look at another option such as home equity loan? I haven't went to the bank yet to see what the rates are but I know they aren't as good as they once were. I have nearly perfect credit.
Last edited by idealtrucks on Wed Mar 13, 2019 7:54 am, edited 2 times in total.

Nissanzx1
Posts: 486
Joined: Wed Jul 18, 2018 11:13 pm

Re: How to finance addition

Post by Nissanzx1 » Wed Mar 13, 2019 7:32 am

Let’s get your age, house hold income, number of children, current and planned square footage etc.

I generally take the “do no more harm” approach to additional borrowing... but it could make sense in your case.

chevca
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Joined: Wed Jul 26, 2017 11:22 am

Re: How to finance addition

Post by chevca » Wed Mar 13, 2019 7:37 am

I'd probably pay from cash and taxable rather than look at financing it. For a HELOC you would likely only be able to get up to 80% of the home value, so you would probably still have to take some from cash or taxable anyway.

A $60k addition to a $150k house... that doesn't seem like a good idea to me. Will it actually increase the value of the house that much, or just make it slightly more than the surrounding houses? Is selling and moving to a house that fits your needs an option?

Topic Author
idealtrucks
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Joined: Wed Nov 07, 2018 11:56 am

Re: How to finance addition

Post by idealtrucks » Wed Mar 13, 2019 7:57 am

I updated the original post with some more information that was requested.

Selling and moving to another house isn't an option. We are in a good location and like it. I'm also not exactly sure how much the house is worth. That's what it appraised for 7 years ago, when I bought it from a bank foreclosure for 125. I've since done remodeling inside, and finished the basement, so perhaps more

I'm hoping it will be less than 60k, but I'm not sure about the HVAC system yet. I'm getting a quote on that this week. The existing system in my house is 25 years old, and I may just replace it all at the same time, instead of putting a small mini split in this addition.

Nissanzx1
Posts: 486
Joined: Wed Jul 18, 2018 11:13 pm

Re: How to finance addition

Post by Nissanzx1 » Wed Mar 13, 2019 8:08 am

I have to be honest you you. 1900 Sq Ft is plenty big for your family.

If you admit to yourself that this is a “want,” I would pay off RV and Car from Cash and find as cheap as possible HELOC for the addition. Sure wish it could wait another year to save more cash.

Primary mortgage, Heloc, Car Payments, RV Payments, all add up to risk for you. Make sure you are ok with that. No way would I want to sell off my taxable for this reason. It will not add $60K in value to the home, but the tax assessor will be glad to add 25% to your property taxes (and higher insurance).

Keep $25K- $30K Cash out for your Emergency Fund whatever you do.

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: How to finance addition

Post by rkhusky » Wed Mar 13, 2019 8:11 am

Pay for the addition out of cash and taxable accounts. Once the addition is finished, get a HEL and replenish the cash and taxable accounts. You will qualify for a higher HEL once the addition is completed.

Topic Author
idealtrucks
Posts: 40
Joined: Wed Nov 07, 2018 11:56 am

Re: How to finance addition

Post by idealtrucks » Wed Mar 13, 2019 8:14 am

Nissanzx1 wrote:
Wed Mar 13, 2019 8:08 am
I have to be honest you you. 1900 Sq Ft is plenty big for your family.
I agree with you, but the way it's laid out, 900sf is a finished basement, completely underground and the wife says no bedrooms in the basement. Only 2 bedrooms upstairs and she says boy and girl can't share the same room. Trust me, I've tried to fight that battle :)

Jack FFR1846
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Re: How to finance addition

Post by Jack FFR1846 » Wed Mar 13, 2019 8:15 am

Park the RV right up against the house. Open the door. There's your extra room.

Sort of not even kidding.
Bogle: Smart Beta is stupid

Topic Author
idealtrucks
Posts: 40
Joined: Wed Nov 07, 2018 11:56 am

Re: How to finance addition

Post by idealtrucks » Wed Mar 13, 2019 8:18 am

Jack FFR1846 wrote:
Wed Mar 13, 2019 8:15 am
Park the RV right up against the house. Open the door. There's your extra room.

Sort of not even kidding.
Haha...I suggested the exact same thing to the wife too. I hate spending money

stoptothink
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Re: How to finance addition

Post by stoptothink » Wed Mar 13, 2019 8:20 am

idealtrucks wrote:
Wed Mar 13, 2019 8:14 am
Nissanzx1 wrote:
Wed Mar 13, 2019 8:08 am
I have to be honest you you. 1900 Sq Ft is plenty big for your family.
I agree with you, but the way it's laid out, 900sf is a finished basement, completely underground and the wife says no bedrooms in the basement. Only 2 bedrooms upstairs and she says boy and girl can't share the same room. Trust me, I've tried to fight that battle :)
Good luck with that, financially this is a terrible move.

chevca
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Re: How to finance addition

Post by chevca » Wed Mar 13, 2019 8:25 am

Why $20k in car and RV loans and sitting on $55k cash? Those should probably be gone by now. Although, if the car loan is 0%, I could see hanging on to that. I would knock out some of that debt before borrowing more money. Or, just stop borrowing all together pay off the current debt outside the mortgage, pay for the addition rather than finance it, and then live on pretty much easy street with only the mortgage and family bills to worry about.

pacodelostigres
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Re: How to finance addition

Post by pacodelostigres » Wed Mar 13, 2019 8:29 am

From everything you've posted, you don't need it and can't afford it.

Nissanzx1
Posts: 486
Joined: Wed Jul 18, 2018 11:13 pm

Re: How to finance addition

Post by Nissanzx1 » Wed Mar 13, 2019 9:21 am

idealtrucks wrote:
Wed Mar 13, 2019 8:14 am
Nissanzx1 wrote:
Wed Mar 13, 2019 8:08 am
I have to be honest you you. 1900 Sq Ft is plenty big for your family.
I agree with you, but the way it's laid out, 900sf is a finished basement, completely underground and the wife says no bedrooms in the basement. Only 2 bedrooms upstairs and she says boy and girl can't share the same room. Trust me, I've tried to fight that battle :)

Hahaha I get it. The spouse isn’t feeling the weight here and I think if I’m you, I wouldn’t sign on. Next year it will be a new kitchen or don’t forget the obligatory new suburban every Mom “needs”

Of course I’m half kidding, but half serious. No way I’m doing anything before July.

The basement could be done for less than half the cost even with egress. I think she’s being unreasonable here. When my spouse is being unreasonable, we have a BIG old time-out and talk. It almost always works but I’m in sales full disclosure...

Ybsybs
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Re: How to finance addition

Post by Ybsybs » Wed Mar 13, 2019 9:38 am

idealtrucks wrote:
Wed Mar 13, 2019 8:14 am
Nissanzx1 wrote:
Wed Mar 13, 2019 8:08 am
I have to be honest you you. 1900 Sq Ft is plenty big for your family.
I agree with you, but the way it's laid out, 900sf is a finished basement, completely underground and the wife says no bedrooms in the basement. Only 2 bedrooms upstairs and she says boy and girl can't share the same room. Trust me, I've tried to fight that battle :)
If 900sf is the basement, then I'd say you have a 1,000 sqft house. Not sure about your area, but in mine, a house that small would be very difficult to sell. Many more buyers in my area are interested in a 3BD house than in a 2BD house.

Having anyone sleep in a place with only one exit (a door and no windows, as would be the case with many basements) is unsafe and might even be explicitly against fire code.

Kids can share a room, but it'd be very nice if they didn't have to. Renovations I've experienced always took longer than I wanted them to, so I'd be pushing to get this one started and finished soon to avoid having it going on through the transition to a two kid household.

I would do this addition as soon as possible.

TheOscarGuy
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Location: Where I wanna be.

Re: How to finance addition

Post by TheOscarGuy » Wed Mar 13, 2019 9:58 am

idealtrucks wrote:
Wed Mar 13, 2019 7:22 am
Good morning,
Here's my situation, not including retirement accounts
Age 33
3 year old kid, and one due in July. Plans for no more
Household income before tax - 115k
55k cash
130k taxable accounts
mortgage - 85K remaining at about 4%. House would probably appraise for around 150k
about 20K outstanding debt for car and rv.

Current house is about 1900sf. The addition would be another 576sf

I'm going to build an addition on to accommodate another child we are about to have. Estimated cost 60k.
Should I pay for this from my cash and taxable accounts, or look at another option such as home equity loan? I haven't went to the bank yet to see what the rates are but I know they aren't as good as they once were. I have nearly perfect credit.
I would pay cash.
I would not touch my emergency funds -- I don't know if the 55K has a % in emergency funds as well.
If you don't have money now, I would save all of it before doing any work.

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Meaty
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Location: Texas

Re: How to finance addition

Post by Meaty » Wed Mar 13, 2019 10:15 am

chevca wrote:
Wed Mar 13, 2019 7:37 am
I'd probably pay from cash and taxable rather than look at financing it. For a HELOC you would likely only be able to get up to 80% of the home value, so you would probably still have to take some from cash or taxable anyway.

A $60k addition to a $150k house... that doesn't seem like a good idea to me. Will it actually increase the value of the house that much, or just make it slightly more than the surrounding houses? Is selling and moving to a house that fits your needs an option?
+1. Pay cash. Also agree you are over improving the house
"Discipline equals Freedom" - Jocko Willink

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Flobes
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Re: How to finance addition

Post by Flobes » Wed Mar 13, 2019 10:36 am

idealtrucks wrote:
Wed Mar 13, 2019 7:22 am
I'm going to build an addition on to accommodate another child we are about to have. Estimated cost 60k.
Nissanzx1 wrote:
Wed Mar 13, 2019 8:08 am
I have to be honest you you. 1900 Sq Ft is plenty big for your family.
idealtrucks wrote:
Wed Mar 13, 2019 8:14 am
I agree with you, but the way it's laid out, 900sf is a finished basement, completely underground and the wife says no bedrooms in the basement. Only 2 bedrooms upstairs and she says boy and girl can't share the same room.
pacodelostigres wrote:
Wed Mar 13, 2019 8:29 am
From everything you've posted, you don't need it and can't afford it.
My immediate neighbors, on both sides, were in the very same situation: one girl, one boy, 2 bedrooms upstairs, basement.

Both arrived at same solution: kids bedroomed each in their own room upstairs; parents moved en suite to the basement (with large windows and window wells for egress, daylight and fresh air).

onourway
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Re: How to finance addition

Post by onourway » Wed Mar 13, 2019 10:40 am

We are in a similar layout/size house, with a slightly larger family (3 kids). We had one large master bedroom we were able to split into two bedrooms when we had the 3rd child, so we now have 3 bedrooms on the main floor, and a guest room in the basement. If you are happy with your house/location/overall living situation I don’t agree with others that the primary factor should be over-improving the house. You want to have a place you are happy and comfortable in, and $60k on an addition is barely worth worrying about. You would likely spend far more than that in the long run by moving to a more expensive place - especially if it turned out you were unhappy in the new place.

I’d pay for the addition out of a combination of your cash and selling taxable. Then re-build that buffer by paying yourself the same amount every month you would have paid the bank had you taken a loan.

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GoldStar
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Re: How to finance addition

Post by GoldStar » Wed Mar 13, 2019 10:44 am

I'd take half from taxable and half from Cash - replenishing both over time as if you are paying back a loan.

Topic Author
idealtrucks
Posts: 40
Joined: Wed Nov 07, 2018 11:56 am

Re: How to finance addition

Post by idealtrucks » Wed Mar 13, 2019 1:23 pm

Thanks for the advice and opinions! Looks like the consensus so far is to use cash and taxable. The cash does include my emergency fund, which I've typically kept at $30,000. The rest is some that I would have otherwise invested, but knew this was coming.

$60 may be high, but just estimating high. What do you all think would be a reasonable amount to spend? The two bedrooms right now are 12x12 so, not much room to split them up.

The estimate I got from the contractor to completely finish the outside of the addition was 34k. This was with the interior walls framed up and nothing else. I'm just estimating on the rest: HVAC system, and me finished the rest (electrical, plumbing, insulation, sheetrock, flooring) myself, so only materials on it. My estimate may be totally off. I'm guessing 10K in materials inside and maybe 10K if I have to have my HVAC system totally replaced

boomer_techie
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Re: How to finance addition

Post by boomer_techie » Wed Mar 13, 2019 5:22 pm

idealtrucks wrote:
Wed Mar 13, 2019 7:22 am
Current house is about 1900sf. The addition would be another 576sf
576sf is about 20.5' x 28' or exactly 24' x 24'. That's not exactly just an extra kids bedroom...

Original house: 2 bed 1000sf w/ finished basement.
Expanded house: 3 bed 1576sf w/ finished basement.

Three bedrooms in 1576sf is very reasonable. A house like that likely fits in any neighborhood that had a 1000sf house. Therefore, you aren't over improving.

<no comment regarding financing or affordability>

SC Anteater
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Joined: Thu Jan 10, 2019 6:50 pm

Re: How to finance addition

Post by SC Anteater » Wed Mar 13, 2019 6:07 pm

Ybsybs wrote:
Wed Mar 13, 2019 9:38 am
idealtrucks wrote:
Wed Mar 13, 2019 8:14 am
Nissanzx1 wrote:
Wed Mar 13, 2019 8:08 am
I have to be honest you you. 1900 Sq Ft is plenty big for your family.
I agree with you, but the way it's laid out, 900sf is a finished basement, completely underground and the wife says no bedrooms in the basement. Only 2 bedrooms upstairs and she says boy and girl can't share the same room. Trust me, I've tried to fight that battle :)
If 900sf is the basement, then I'd say you have a 1,000 sqft house. Not sure about your area, but in mine, a house that small would be very difficult to sell. Many more buyers in my area are interested in a 3BD house than in a 2BD house.

Having anyone sleep in a place with only one exit (a door and no windows, as would be the case with many basements) is unsafe and might even be explicitly against fire code.

Kids can share a room, but it'd be very nice if they didn't have to. Renovations I've experienced always took longer than I wanted them to, so I'd be pushing to get this one started and finished soon to avoid having it going on through the transition to a two kid household.

I would do this addition as soon as possible.
I agree -- a 3bd is way more desirable than a 2bd, and an addition would probably be worthwhile.

My son and daughter did share a room for a long time -- 9 years -- but they're twins, so that's different.

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