203K or construction loan

[Bbqmustache]

We have some semi-major renovations to complete to make our home sell at a less than fire sale price.

New kitchen, new upstairs (taking out second kitchen, expanding bowling ally bathroom and making two actual bedrooms), removing most carpet and refinishing hardwood floors.  Good contractor on a referral, GOOD prices, should get all done less than $50K.

The 203k loan is attractive, but cumbersome; the more we learn, the more we are worried about their hoops.  Some financial institutions offer construction to perm mortgages, where you have a year to construct, then it turns into a regular mortgage after that year. 

Any one have experience with construction to perm loans?  Can you enlighten us about them?  Thank you!

[Drifterrider]

I have no experience with constructions loans but it sounds like you already own the home and want to improve it.  That wouldn't be a construction loan and I don't think it qualified for the 203K rehab.

Is the prospective return at sale high enough over the prospective injection of money to make it worthwhile?

I'd think a home improvement loan (second mtg, or HELOC) might be more attractive in terms of interest and fees.

[Bbqmustache]

You can use a 203 K loan to make repairs/upgrades to your home that you already own.  However, just talked with a credit union, and their HELOC is where we will go.  Upgrades to make home marketable will not price it out of the neighborhood.

HELOC features:

use up to 100% of Equity
Five year draw period (could be renewed after five years)
Interest only minimum payments those first 5 years
20 year repayment period after the first 5 years
No closing costs
No early closing fees

What we plan is auto paying from the get-go using a 20 year payoff schedule, and hopefully selling the home during those first five years.

[Drifterrider]

Do you have to own the house outright to use a 203K or can you get that with an existing mortgage (or does it work as a refinance)?

Edit.  Did some reading:  seems like you can use 203K for a refinance with improvements.

I think the HELOC is a better bet. 

[Bbqmustache]

In my research, I understand that 203K loans may only be used for owner occupied properties, but you can refinance into a 203K loan, the home does not need to be free and clear.