Thank you for the opportunity to answer this question. Being from Texas I only know of 2 loans that you can do. The first would be a home equity loan. In Texas with a home equity loan you can borrow up to 80% of your appraised value. This loan typlically has closing costs and is usally a fixed rate of 10,15,20 or 30 years.
The second loan is a home equity line of credit ( HELOC). The heloc does not usually have closing costs and is usually an adjustable rate that moves with the prime rate. When considering a home equity loan you would be able to find the best deal by dealig with a local mortgage broker as the fees are limited. Hope this helps.
It appears that you may have several different options depending on your credit, income and value of your home.
Home Equity Line of Credit (fixed or variable)
I suggest that you consult at least 2 mortgage lenders in your area to review your options, costs and requirements for each. Be sure that you use a licensed builder/contractor and consult and architect.
Also, obtain bids from 2-3 builders/contractors once you have obtained plans. You will also want to visit your local planning/zoning office to ensure that the plans are within code. The more work on the front end of a major project like this, the less headaches when it comes to the financing side. Keep in mind that during construction, your hard costs could flucuate as much as 20% in excess of your original plan.
A Rehabilitation Loan is best if you are going to use a general contractor (GC). If you are seeking to be your own general contractor then secure a Home Equity Line of Credit.
I know that a lot of Loan Officers out there will tell you to get a line of credit even if you use a GC but I would suggest that you do get a rehabilitation loan for security… see, the rehab loans demand a lot out of the GC and although the loan is more expensive (about 3k more) the issue is that GC’s will mess with you, your turn times and many are shady with work.
With a lender watching out for you and their interests (home) they will demand that the work is done in phases and an appraiser will check and double check the GC’s work to pay out… but they will only pay out through draw installments to the GC. So, if work is incomplete, the lender will not pay. If the work is shoddy- it must be fixed in order for the GC to get paid.
If you are independently paying a GC out of pocket, they can take their time and may not be concerned with the interior of the work’s quality since you don’t know any better. Plus, they work on their own time and demand payment when they want it. You are MUCH better off forking up a few thousand more for a Rehab Loan with a lender to insure that the work is done right and on time.
ALSO- there are contigency reserves built into rehab loans just in case you change your mind and want to make changes or if the project is delayed due to suppliers, weather, etc.