My DH and I live in a 1500sqft home with our two kids, in a HCOL area. While the home works for us for now, we are contemplating an eventual reno/addition to the home in order to make it one that will work for us for many decades to come. What we would want to do is far beyond our DIY skills (which are few-to-none), and would require $$$ beyond what our cash savings would support. (We could probably cover half of the expense with cash.)
I realize that for some mmm'ers this is already a facepunch-worthy post. That's fine, I get it. Per mmm principles we've thought long and hard about our priorities and how to use our hard earned $$$. This is a high priority and we may be willing to sacrifice other things (i.e. earlier FIRE) to get it.
Having said that, we are in the information gathering stage so that we can really think through the options and their feasibility - perhaps we'll change our mind after we've examined all the possibilities. Here's where I could use some mmm help:
Currently our home is worth $600k and we owe $420k on a 3.75% 30-yr fixed mortgage. We have $875k in cash and investments.
For purposes of this post, let's assume we would need to borrow $200-250k for the reno, funding the rest of an estimated $400-450k addition ourselves.*
I am trying to understand what financial options we have available for the amount we would need to borrow:
(1) Get a construction-to-permanent loan. This one has been the easiest to research so far; we would refi our existing mortgage and wind up with a single mortgage at the end. How much we could borrow would be calculated off of the future value of the house. I don't really like this option because we would lose the 3.75 interest rate we currently have, I'm guessing we would wind up at 5% or higher.
(2) Cobble together a bunch of different loans: get a HELOC; borrow from one or more retirement accounts. Obvious down side that borrowing from retirement accounts seems like a bad idea, and I'm not sure if/how this would get us to $200-225k.
(3) Home improvement loan. This is the one that I'm not totally sure exists? I think my ideal thing is to get a 2nd mortgage based on the future value of the home, leaving our existing mortgage intact. But either I'm not looking in the right places, or these kinds of loans are rare/unusual? When I google "2nd mortgage" HELOCs come up. But I would only be able to access ~$60k through a HELOC because it's based on current home value.
(4) Home equity products. I'm not sure this is the right name for them but there seems to be a new loan product on the market that gives the lender an ownership stake in the home that they realize upon a future sale of the home. Here's one example:
https://www.unison.com/home-improvement-uho/?utm_source=google&utm_medium=search&utm_campaign=UHO-Massachusetts&utm_content=Home-Improvement&gclid=EAIaIQobChMI9anR_5-Q3gIVgeDICh3EIA1fEAAYBCAAEgJB9PD_BwE I'm very much side eyeing this product; anybody know more than I do? Is it always and obviously a bad deal (like whole life insurance) or does it depend on the particulars?
Right now I think #3 would be our best option if it actually exists. Is option 4 even worth looking at? And, are there any options I haven't considered yet?
--
** We live in a town of $1-2million homes that are 3-4 times the size of ours; one of the largest estates in town is two doors down from us. So overbuilding isn't a concern.