Property is mortgaged – how do I finance more construction?

Question

Hi all, I own and live in a duplex in Connecticut and the property was just approved for a third unit. I have bids for the work that are very reasonable and after construction I’ll still have at least 20% equity in the property and better monthly cash flow so I want to build. The problem is that I already have a mortgage on the property and the lenders that I’ve talked to won’t lend when there’s a loan already in place. Has anyone encountered this before? What have you done/who have you used to finance a construction project? I’m planning on refinancing as soon as possible to consolidate the loans and use this as a buy and hold. Thanks for your help!

Jay Hinrichs · Answer

@Stephanie Cabral

once you put 100k into it whats your equity position then... if you can demonstrate 20 to 25% equity once you put in the 100k... then you may be able to go to a local commercial bank get that done then refi them out to lower rates... or the 203k route is probably your only hope for an actual loan.. other wise its borrow from friends or family..  HML or private will be very expensive in this situation.

Stephanie Cabral · Answer

@Brent Paul I have $50k in equity and construction costs are around $100k.

@Kris Lippi yeah I've considered a 203k loan, that's how I got my duplex actually, but it's such a cumbersome mortgage I'd really like to avoid it if possible.

I haven't considered a home improvement or construction loan - would my equity:cost levels qualify? Any recommendations?

Kris Lippi · Answer

Hi Stephanie,

Have you looked into 203k refinance loan? I did one on a purchase but they also do them for refinancing. There is a bit of overhead associated with the loan but I didn't find it to be all that bad and would be happy to let you know about my experience. Also I recently connected with @Jeff Onofrio who seems to be very familiar with the program if you had any questions.

Brent Paul · Answer

How much equity do you currently have in the home and what are the construction costs?

If you have very little equity you likely won't be approved by a bigger bank.

Most home improvement loans use equity in your house as collateral for the loan.

You could try calling smaller banks or credit unions to see if they would work with you.

Or wait and do a cash out refinance later