Financing Home Improvements

[AerynLee]

We bought a 100 year old house last fall and are doing a lot of efficiency/functional improvements this year. We're getting quotes in and things are adding up. So far we have paid $25k out of pocket for work done and downpayments on work that will happen in the next few months, and we have another $73k coming up* with $28k in savings and $10k in federal tax credits that will come back to us.

How would you finance this? I plan on borrowing $50k somehow and paying for the rest from the savings. We both have stable jobs and reliable cars so we have been comfortable living with ~$3k Efund for many years. We just bought the house last fall with 15% down (we oddly got a better interest rate than if we'd done 20% and PMI is very minimal) so we have little to no equity to pull from. Credit scores are above 800 and current DTI is 18%

Options I see now are:

• Unsecured loan from the bank 36 months at 8%
• 401k loan 60 months at 4.5% but losing on market gains until paid back
• Game credit cards by putting everything I can on rewards cards and transferring to 0% interest ones for 20 month, rolling to a new credit card later if needed. I'm not sure what all I can put on a credit card though. The companies doing the two larger projects accept them, but may have not allow that much
• Pull out ROTH IRA contributions for no taxes/penalties (my least favorite option)
• 12 month 0% financing for the basement work for a 6% fee (about $1600), then one of the other options for the rest
• Something else I haven't thought of?

*Breakdown of $73k in expenses for those curious. The two largest expenses we got two bids for and they were very comparable in both cases
$27k balance of basement waterproofing and foundation repair
$4.5k balance of insulation
$34.5k geothermal HVAC (current systems are 20 years old)
$4.5k replace unstable stairs - involves removing plaster and lathing from under the stairs, but the amount could go down if lumber goes down before he starts the project
$2.5k custom cabinetry to make completely unfunctional areas functional

[nereo]

I recently did a lot of the types of renovations you speak of on our 120 year old home

First, there’s the obvious questions about whether you can afford this and what is urgent, what can be delayed and what would be just “nice to have”.  I’ll assume you’ve made those decisions, but spending $34.5k on a HVAC system seems like something that should be put off if your primary questions is “how do we pay for all of this”. 

[WVstache]

My wife and I purchased a home that is about the same age (115 yrs old).  Maybe some of what I've learned/experienced will help you.

Take your estimated budget and timeline and double it.  At a minimum.

You may have quotes from contractors, but there is probably fine print of some sort for when they run into something unexpected. 

I budgeted $50k for our renovation.  That is with me doing all the work.  Roofing, window replacement, new HVAC system, electrical, drywall, flooring, etc.  Material costs, permits from the city, engineering drawings in some instances, inspections, carrying costs (taxes, insurance), and tools.

The actual cost is closer to $100k.

I question if you can afford this. 

[charis]

I don't understand why all the projects have to be done at once. We bought an almost 100 year old house and have spaced out non-urgent updates over the last decade. 

[WSUCoug1994]

If you have a reasonable amount of post-tax investments - you could always do a Pledged Asset Line - a very low interest loan against your investments.  We use ours occasionally (mostly for home improvement projects and emergencies) and it is great for these kinds of projects.  Keep everything in the market and pay a small amount of interest during the loan. 

This is ours - https://www.schwab.com/pledged-asset-line

[dadbod]

I'd also encourage you to investigate whether you really have no or very little equity.  Property values have been on a tear lately and interest rates are still low.

Also, half of your cost is in the hvac.  We've been limping along for six years with a 20 year old hvac system.  There are occasional repair calls but so far they've always been able to fix it.  Maybe postpone this?

[KYFIRE]

As others have mentioned, are you replacing or installing a geothermal HVAC? 

I spent less than half that for a 5ton 20 SEER unit ($14k).  I ended up using a private loan through my credit union, was 1.75% for a 1 year which at the time was same or cheaper than a HELOC rate without requiring all the paperwork.  Not sure what rates are out there now.

[AerynLee]

The HVAC is the most expensive upfront (actually tied with the basement work, but I've already paid the 20% deposit on that) but that is almost the entire $10k tax credit we'll get back later ($500 is from the insulation). Until I just looked I thought the 26% credit stopped this year but I guess it's good through 2022, then goes to 22%, then goes away. I obviously want to take advantage of that, preferably at the highest rate.

There are a few other reasons to do it this year that all combined made us decide to do it now rather than later.

• Federal tax credit
• Utility rebate with an unknown expiration date (when they run out of money?). Not huge at $1500 but not nothing. This amount is taken off the upfront price
• Adding vent runs to the upstairs. It's an old house and so there is currently only one vent upstairs and it is not cutting it. We want the upstairs to be our master bedroom but can't right now because it's 5-10 degrees hotter or colder than the main floor
• Propane. We hate being on propane and want it gone asap. The tank is currently empty (after filling it twice this winter and still running out before it actually got warm enough to keep the house above 50F) which seems like a good time to get rid of it
• Coordination with basement work. We're having drain tiling put around the perimeter of the basement which means the current furnace needs to be moved out of the way while they work. We want it moved anyway since it's nowhere near the rest of the utilities so we're going to coordinate and have it replaced/moved when they do the basement work so we don't have to deal with it more than once

As for why we're doing everything this year, well, that's the pared down list. This is what DH and I have decided are important enough to tackle immediately. Some of it is marital compromise (the house itself was important to me, moving in the direction of being able to finish the basement is important to DH) and some is spending to our values (making the home as efficient as we can is worth spending a bit extra to me). The cabinetry is arguably frivolous, but it's the cheapest thing on the list and will make the kitchen and master closet much more functional making it worth the $2.5k now

After we've paid off this bit of work in two years we'll start looking into the list of other projects that are less critical

Take your estimated budget and timeline and double it.  At a minimum.

You may have quotes from contractors, but there is probably fine print of some sort for when they run into something unexpected. 

We went into this knowing that it would be expensive, time consuming, and full of surprises. After a bit of a fiasco with a contractor when we first bought the place, I've been very careful to vet the contractors, looking at reviews and BBB ratings. On the two big projects they've been very thorough looking at everything in and around the house to take everything into consideration. The HVAC guy actually wants to bring out an electrician and the well company before finalizing the bid to make sure there's no surprises there. And the foundation guy put an extra $4k into his bid in case there aren't proper footings under the house which could go away when they start the work. Hopefully this minimizes the surprise extras.

If you have a reasonable amount of post-tax investments - you could always do a Pledged Asset Line - a very low interest loan against your investments.

That's a good suggestion, but no post tax investments yet

I'd also encourage you to investigate whether you really have no or very little equity.  Property values have been on a tear lately and interest rates are still low.

I may look into it more now that I have the total we need. When I asked my bank about options a few weeks ago they estimated we could get $14k out in equity. But my house is pretty rural so it's hard to value. Our appraisal at purchase came back at the exact amount we were under contract for (which did not help my opinion of appraisals...)

As others have mentioned, are you replacing or installing a geothermal HVAC? 

I spent less than half that for a 5ton 20 SEER unit ($14k).  I ended up using a private loan through my credit union, was 1.75% for a 1 year which at the time was same or cheaper than a HELOC rate without requiring all the paperwork.  Not sure what rates are out there now.

As I said above, we're replacing propane so this is a new geothermal system. Some of the cost is expanding ductwork to the upstairs. He did say that the unit he put in the quote is about $3k more ($2220 after the FTC) than another unit we could do but it's a fully variable speed unit so it will handle humidity better. Our last house had an oversized ac and could not keep up with the humidity because it just didn't run long enough. I do still need to run it by DH to see what he thinks (I just got the quote last night and DH worked late so we didn't discuss it yet) so that is a possibility for some savings

I talked with both my banks (USAA and a local bank) and they both quoted about 8% which is the best I've seen for unsecured loans looking around online

[GuitarStv]

I don't understand why all the projects have to be done at once. We bought an almost 100 year old house and have spaced out non-urgent updates over the last decade. 

+1

Slow waaaaaaaaay down.  If something isn't critical (hole in the roof causing flooding) you can take years to shop around and consider/re-consider exactly what it is that you're doing.  Maybe even learn to do it yourself.

[Cassie]

When we were young and bought a old house we fixed it as we saved the money. It took 14 years. Some was hired out and some we did ourselves. We lived with a ancient furnace for a few years. A roof became a priority when we had a leak. 

[Ecky]

We bought an old house and have been practically slaving on it nearly every evening for the last 3 years. We're probably 35k into it in materials. Had we hired out all of the work, it would have been waaaay north of 100k.

We knew it needed siding. What we didn't realize was the extent of the water damage when we pulled off the siding. It was sheathing, and in places insulation, and in places even the studs needed to be cut free of the interior drywall. You really don't know what you're going to uncover in an old house. I agree with the above sentiments - take whatever contractors have quoted you, and double it, just to be safe. If you can't cover that, you're taking on too much at once.

[secondcor521]

https://www.youtube.com/watch?v=R3ZJKN_5M44

[Sibley]

Do you have practical experience with old houses? I have a 100 year old house. I know the challenges that you can get into just trying to do simple things, and I haven't really tried to major work. Houses simply were not built the same way they are today, with different materials, different techniques, and you can't work with them the same as a new house. Add the element of time and it gets even harder.

Unless you have extensive experience with old houses, you are in over your head and you're in the phase where you think you're good but that's because you're just ignorant. Slow WAY down.

Tax credits come and go. Rebates come and go. Technology changes. Code changes. The fact remains that you do not have the cash to do all this work.

Here's the order of things that you do:
1. Fix the things that are falling down now.
2. Fix the things that will make things fall down in future.
3. Everything else.

You seem to be mixing a whole lot of everything else into your wish list, and you can't afford it. So stop, categorize everything into those buckets.

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More generally - you are aware that you likely can't just put insulation in the walls, right? Not without problems at least. Old houses need to breath. They don't have vapor barriers, they rely on air flow to handle any moisture that gets past the exterior. Insulation can be added pretty easily to the attic, just watch that you don't cut off air flow. Air sealing around doors, windows, and the rim joists (attic and basement) are very DIY friendly and also pretty much the only things you can do without messing things up, at least unless you want to spend lots of money adding the vapor barrier in some way.

Are you on K&T, old Romex, or what? What condition is the wiring in? How old is your electric box? Is it a circuit box or fuses? Have you mapped the circuits? How concentrated is the living areas on individual circuits? Unless the electric has been updated, you may have $20k in costs right there if its bad enough to need replacement. Plus the related work to fix the damage from fixing the electric. And if you have K&T, you can't insulate the walls, its a fire hazard. You would have to run new wires and remove or disconnect the old.

What's the plumbing made of? How old is it? Are there old sealed leaks? Indications of pipes rusting from the inside? Are any galvanized pipes clear, or do they have build up? Are the original cast iron drains and vent stacks still in place? How much have they rusted?

Do you have city sewer or septic? If sewer - what's the condition of the main line out? If septic, what's it's condition?

What's the status of lead or absestos in the house? No, they're nothing to panic about, but if you have them (you do, somewhere) then abatement can ballon your costs very quickly.

Do you have plaster and lath? What's its condition? Are there indications of keys breaking off? If so, how extensive, and what's your plan to deal with it?

With old houses, you need to worry about a lot more than the fun energy efficient stuff. The house is 100 years old. That means that the plumbing, electric, and everything else is potentially 100 years old. This stuff does not actually last forever, and it will need attention and money, potentially lots of it. Make sure you know these things before you sink money into optional projects.