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Home Equity Loan vs Cash Out Refinance

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  • hightower
    replied




    We are currently remodeling our house with a HELOC. Easy flexibility to have the credit line for the next 10(?) years, etc. Costs very little – didn’t have pay to refinance or get a higher rate for a “cash out” refinance. Maybe at your ratio they over look that, but I couldn’t find that.

    HELOC is easy. And – 5 days, and 2 pages of paper work, not the 2 months and 300 pages it took to get our last mortgage. Time is worth something too.

    And, throw cash at it as fast as possible to avoid interest (even if you can deduct it).
    Click to expand...


    Yeah, we would have loved to have a natural brick home, but since it is already painted, we have to keep it painted. Plus, the houses in our neighborhood were built with the older type of very soft, porous, handmade brick that was meant to be painted and was necessary to protect the brick.  Homes built later (around 1900) were made with harder, machine made brick that could be left unpainted.

     

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  • adventure
    replied
    We are currently remodeling our house with a HELOC. Easy flexibility to have the credit line for the next 10(?) years, etc. Costs very little - didn't have pay to refinance or get a higher rate for a "cash out" refinance. Maybe at your ratio they over look that, but I couldn't find that.

    HELOC is easy. And - 5 days, and 2 pages of paper work, not the 2 months and 300 pages it took to get our last mortgage. Time is worth something too.

    And, throw cash at it as fast as possible to avoid interest (even if you can deduct it).

    Leave a comment:


  • adventure
    replied




    1. Exterior Painting.  Its a large, old brick building and there’s a lot of prep work involved. $9800
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    Oh please don't paint over brick!!

    Edit - oh well:


    The exterior brick is already painted unfortunately and its long over due for a new coat (lot’s of chipping paint).

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  • GXA
    replied
    We currently have a major remodeling project that we are about to start.  I plan to pay for it as I am able to and access our HELOC when needed.  If we do tap into our HELOC, it will be paid off by the end of the year.

    I would recommend opening the HELOC if it is fee-free or low fee.  Beyond this project, you never know when an opportunity may arise and you need to get your hands on some capital quickly.

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  • GoneBoating
    replied
    Was faced with similar situation about 10+ years ago. 100K overrun on a 400K+ remodel/addition. I chose the HELOC, not the Re-Fi (even though I qualified). My HELOC provider was no fees and gave me same 30 years to pay, on only the portion that I used (used about 70K out of a 150K HELOC). I found the HELOC to be more cost efficient and pretty painless. Hope this helps, and Goodluck.

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  • hightower
    replied
    We keep going back and forth on this, but we decided to just do the painting project this year and pay cash for it from our emergency fund.  We actually have approximately 1 year's worth of funds that could be used for emergencies, so I felt like decreasing that by about 2 months to pay for the painting was OK.

    We will then continue to save exactly as we are now (maxing 401k's, Roth's, and contributing to a taxable, and setting aside money monthly for home improvements/repairs).  By this time next year we'll have enough cash to do the rest of the work as well.

    It feels better this way since we don't have to worry about screwing up our savings plan or draining all of our cash.

    On another note, we're now also considering adding solar to our house.  Basically we can add a system that will essentially eliminate our electricity bill for about 8 months of the year (essentially we'll only be paying for electric during the summer months when our AC is on).  The system will cost 13k after the federal tax credits.  We were thinking we'd get a loan for it (a local bank offers ultra low rates for solar loans, like 1.8%), but pay it off in 1 year using the money from the airbnb income.  Haven't decided on this yet though.

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  • hightower
    replied




    Are the storm windows eligible for an energy efficiency improvement tax credit? If so, you should do those improvements this year before that credit possibly goes away. Cash flow that improvement.

    Fix the limestone that poses a structural consideration first, then add the path and other aesthetic concerns.

    Speaking of aesthetics, is the brick exterior painted already? Do most ofthe other houses in your neighborhood have painted brick? Personally I’m a big fan of natural brick exteriors. If you paint your brick walls, you’ll have to keep painting them.

    Just point and tuck the mortar and call it a day.
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    I'll have to look into the storms for tax credit.  I don't think they qualify though.

    The exterior brick is already painted unfortunately and its long over due for a new coat (lot's of chipping paint).  We would love to have a natural brick exterior but it would either require a lot of labor to get it back to natural brick (big money) or many years of scraping away loose stuff, power washing, and letting it continue to weather.  My wife has really been cheering for that option, but I just don't see it as realistic to do.  My main concerns with it are that the chipping paint is probably lead based paint and it needs to be either fully removed or sealed in under new paint after the loose stuff is removed.  We are going to see what the building looks like after they do their prep work.  If the majority of the old paint comes off with power washing, we may consider letting it go with a weathered look for awhile longer.  But, again, the lead paint issue bothers me.  I guess we'll just have to see.

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  • hightower
    replied




    Yeah, zero interest is a p decent call, too, if you *must* spend…

    Wait, the house was built in 1885? As in EIGHTEEN eighty-five? Like 132 years ago? Very cool. Was that handed down through generations or something?
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    Yeah, its an OLD house.  Not handed down, though that would be cool.  We bought it in 2012 and it was a time capsule.  It had never been fully renovated.  All original wood floors and woodwork, windows, plaster walls were all intact.  Needed an insane amount of work to get it up to modern standards, but it is finally there.  Its located in a downtown neighborhood that has been undergoing a bit of a renaissance for the last 8-10 years, so that was a big part of our attraction to it.  But, we had always dreamed of living in a really old, historic home before that.  I can't say I'd do it again, but I do enjoy doing a lot of the work.  Right now I'm working on restoring the original windows.  I've finished 19 and I have 8 more to go.  Its very satisfying to see something go from looking horrible and rotting to looking shiny and functional again.  So, that part has been good.  I could probably write a small book on all the insanity that one must go through to finish a project like this though.  One of these days I'm going to get around to finally going through and taking a bunch of pictures for a before and after series.   I'll share them in the lounge if I do.

     

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  • Hank
    replied
    Are the storm windows eligible for an energy efficiency improvement tax credit? If so, you should do those improvements this year before that credit possibly goes away. Cash flow that improvement.

    Fix the limestone that poses a structural consideration first, then add the path and other aesthetic concerns.

    Speaking of aesthetics, is the brick exterior painted already? Do most ofthe other houses in your neighborhood have painted brick? Personally I'm a big fan of natural brick exteriors. If you paint your brick walls, you'll have to keep painting them.

    Just point and tuck the mortar and call it a day.

    Leave a comment:


  • ENT Doc
    replied




    Home ownership…such a pain in the ***, I mean joy
    There are 3 separate projects

    1. Exterior Painting.  Its a large, old brick building and there’s a lot of prep work involved. $9800

    2. Masonry. Rebuild a stone wall, re-set old limestone stairs, foundation tuck pointing, add limestone walkway, small patio addition in backyard. It’s a LOT of labor. $16,900

    3. Add storm windows to 3rd floor and buy screens for remaining storm windows. $2750

    Total : $29,450

    The house was built in 1885 and we’ve been renovating it for the last 5 years.  Interior is all done (except for a few more windows I’m restoring and we need to strip paint off the old walnut bannister on our staircase).  This is the last set of expensive projects planned for this house. The house will be more or less “done” after these are complete.  The house will then be in sellable condition (in case we want to sell while the market is hot).  That’s why we’re excited to finally get this over with.  It will feel like a big relief to finally see it all nice and pretty on the outside.

    What I’m thinking would be smart is to use our 20k to pay for items 2 and 3.  We can then put the painting project on a zero interest credit card that I already have that offers 0% for the next 12 months.  That will allow us to leave our taxable account and Roth savings alone.  We will then start redirecting money that would have gone to the taxable account into the emergency fund until its replenished.  By time these projects are complete and the money is actually due, we’ll have an additional 9k earned to contribute that would have went to the taxable account.  So, really we’ll only have depleted about half of our emergency fund and we’ll just have to make sure to pay off the credit card by next June.
    Click to expand...


    I like Dr. Mom's suggestion or waiting until you can pay cash.  You probably know this already given that you've done repairs and it's an old home, but whatever budgeted for repairs tends to be an underestimation when the repairs actually start.

    Leave a comment:


  • DMFA
    replied
    Yeah, zero interest is a p decent call, too, if you *must* spend...

    Wait, the house was built in 1885? As in EIGHTEEN eighty-five? Like 132 years ago? Very cool. Was that handed down through generations or something?

    Leave a comment:


  • hightower
    replied
    Home ownership...such a pain in the ***, I mean joy
    There are 3 separate projects

    1. Exterior Painting.  Its a large, old brick building and there's a lot of prep work involved. $9800

    2. Masonry. Rebuild a stone wall, re-set old limestone stairs, foundation tuck pointing, add limestone walkway, small patio addition in backyard. It's a LOT of labor. $16,900

    3. Add storm windows to 3rd floor and buy screens for remaining storm windows. $2750

    Total : $29,450

    The house was built in 1885 and we've been renovating it for the last 5 years.  Interior is all done (except for a few more windows I'm restoring and we need to strip paint off the old walnut bannister on our staircase).  This is the last set of expensive projects planned for this house. The house will be more or less "done" after these are complete.  The house will then be in sellable condition (in case we want to sell while the market is hot).  That's why we're excited to finally get this over with.  It will feel like a big relief to finally see it all nice and pretty on the outside.

    What I'm thinking would be smart is to use our 20k to pay for items 2 and 3.  We can then put the painting project on a zero interest credit card that I already have that offers 0% for the next 12 months.  That will allow us to leave our taxable account and Roth savings alone.  We will then start redirecting money that would have gone to the taxable account into the emergency fund until its replenished.  By time these projects are complete and the money is actually due, we'll have an additional 9k earned to contribute that would have went to the taxable account.  So, really we'll only have depleted about half of our emergency fund and we'll just have to make sure to pay off the credit card by next June.

    Leave a comment:


  • DMFA
    replied
    Cash, one job at a time, with HELOC (line of credit, not loan) as backup emergency fund until you can replete it.

    How much are the jobs individually?

    Ah, the joys of home ownership...imagine dealing with this as a resident, when that would be literally half your annual gross income!

    Leave a comment:


  • hightower
    replied
    So, I'm still struggling with this decision and how to pay for these projects.  In total we need 29k to get the work done on the house.  I have basically exactly that in cash right now.  However, 20k of it is the cash portion of our emergency fund, 4500 is what I have saved up so far for our backdoor roth contributions and another 4500 is ear marked to go towards the taxable brokerage account.

    The thought of adding more debt to my plate is kind of bothering me honestly.  I am tempted to just say let's pay cash for it and call it a day.  I'd have to redirect cash flow away from contributing to our taxable account until the emergency fund and roth funds were replenished, but that seems to feel better than adding more debt.

    Can't decide:/

    Leave a comment:


  • hightower
    replied
    You're right that by itself that statement is a slippery slope.
    What I meant was, if I had bought our house completely renovated for 600k and put down 280k, we'd have a mortgage for 320k and we'd be well under the 2x salary rule and everyone would say we were in great shape.

    Adding this home equity loan to our current house debt (mortgage balance is 295) is no different than that except we'll be paying off 25k of it quickly over 4 years.  That's how I'm viewing this.  Yes, ideally I'd love to have enough in home improvement savings right now to just pay cash for it, but that would take us another 4 years of saving to get to unless we took money from other places in our budget.

    Leave a comment:

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