401k Recovery Advice

How Can You Finance a Home Addition

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In Brief...

The most common way to get a loan for a home addition is to use a home equity loan. A home equity loan allows you to borrow using the equity in your home as collateral. A loan to value ratio is usually expressed as a percentage of the total value of your home. For example, a home with a $300,000 first mortgage and an appraised value of $400,000 has a loan to value ratio of 75 percent. A HELOC is similar to a home equity loan in that it is also secured by the equity in your home. With a home equity loan, you get a lump sum of money dispersed all at once when the loan closes. However, unlike with a home equity loan, if you need to "re-borrow" that amount in the future, you may do so, as long as you have room remaining on your equity line..

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