Financially Speaking

We are in the midst of figuring out how to finance our remodel and, more importantly, the twins.  Because I am new to most of this financial stuff, I thought I'd share some of the things we've learned, in case you, or some random googler, needs some information on what financing a remodel involves.  (I'm talking mostly about financing the remodel.  We aren't financing the twins beyond eating nothing but ramen noodles from January until August of next year, when we're paying $2000+ a month for three children in daycare.  Y.I.K.E.S.)

First, some basics about how we are approaching this.  Our remodel has to cost less than $120k, so that we do not have to get a jumbo loan.  When you hear all the news about current low interest rates, it applies only to loans under $417,000.  Over that amount and I think the lowest interest rates are around 7%.  For all of my friends and family in NYC and CA, bless your little high mortgage paying hearts.  We actually have the option of going a bit more than $120k for our budget, but we are not going to tell our contractors. 

We are also planning on doing a lot of the remodel ourselves to save as much money as we can.  We're going to paint.  We're going to put in the baseboards and crown molding. We're using laminate instead of granite.   We are going to finish one bedroom and bathroom ourselves.  We are going to build the master closet organizational system ourselves.  We're going to re-use or kitchen cabinets when we move one wall.  We're making the remodel of the downstairs bathroom (the "Butt Ugly Bathroom" as it's known) and the claw foot tub for the master bath optional. Those can wait several years (approximately 5 years, when the twins are out of daycare!) before they are done.  Whatever is optional for us to get an occupency permit, if it doesn't fit in the budget, it's not getting done.

Another key issue is that we're going to have to move out the house while they remodel.  They are taking the top off our house.  No roof on the house means, well, no roof over our heads.  That means we have to rent a house for about, oh, 4 to 6 months, while they do the remodel.  Perhaps now, you're thinking, hmmmmm, rent and mortgage?  ARE YOUR OUT OF YOUR EVER LOVING MIND?!?!?!?

Here's where Dave's hard work comes in.  He has found that banks carry a whole bunch of different "products"  to help with remodels. Some fully expect that you are going to pay mortgage and rent at the same time.  (Assholes)  Some will let you only pay accruing interest on the mortgage and renovation loan.  (Not really a bargain, but not as assholishly unrealistic)  And we think that the state employee credit union allows a 6 month grace period where you don't pay anything on the loan.  (WOOHOO!  Except that interest gets rolled into the final loan and eats up a significant part of our wiggle room to stay under jumbo loan size).  The good news is that we've found a rental for quite a bit less than we're paying now that would allow us to pay interest during the remodel. So that may be workable.  

At the end of the remodel, the bank then refinances everything---the mortgage and the renovation loan---into a new 30 year loan.  (Or a 15 year one, I guess. Bwhahahahahah! Those folks can afford both mortgage and rent)  Our goal is to end up with this final loan at one of the non-profit banks (banking services?) in which we are members.  Why?  If we choose an ARM, at the state employee bank, the max the interest rate could increase after 5 years is 1.5%.  At Wells Fargo, it could go up a full 5%.  If we go for a fixed-rate loan, USAA just has better rates and services than we've seen elsewhere.  I also feel like I can trust a non-profit better to not take advantage of us over a for profit bank (trying to make up profit for bad decisions over the last decade).  

So that is all I know about how one finances a remodel.  I have to be honest that I freaked out a bit last week when I found out that the new plans add more square footage (and more $$$) than we had originally planned.  But I still think we're in the ball park to get this thing done.  And if we're not, well.  I don't know what we'll do if we're not at least in the ball park.  Actually, I do know what we'll do.  The architects have already said they would work on the drawings until they get the plans to the budget we need.  

There you go.  YIKES.  Here we go!