Savings or Loan? Paying for a Remodeling Project

Homeowners who tap their equity to remodel will be limited to the lenders' maximum loan-to-value, or LTV, ratio. Most lenders won't allow a homeowner to borrow more than 80 percent of the value, says Stephen LaDue, senior loan officer at Prime Lending, a mortgage company in Brookfield, Wis.

"If you have a $250,000 house, 80 percent is $200,000. If you want to do a $50,000 remodel and you owe $175,000, you only have $25,000 to work with," LaDue says.

Shopping around might turn up a local lender or credit union that will step up to 90 percent, LaDue adds.

"Be a smart shopper and ask upfront: 'What are your loan-to-value limitations? Can I go up to 80? Can I go up to 90 with a second mortgage?'" he says.

A second mortgage might be especially difficult to get because second-mortgage lenders were among those who "took it on the chin the worst in the housing crisis," LaDue explains.

Still, some homeowners can pull out enough cash for a modest remodeling project that makes a house they'd planned to sell more comfortable for a longer stay, says Rob McAllister, a mortgage broker at West Seattle Mortgage in Seattle.

"People are refinancing, taking the low rate and pulling out $20,000 or $30,000 to get the house to where it needs to be for them to stay there longer than they'd anticipated," McAllister says.

An informal NARI website poll in April 2012 found quite a few homeowners planned to keep their home longer than they'd originally intended. Twenty-eight percent planned to stay an additional one to five years, 23 percent intended to remain another six to 10 years, 10 percent added 11 to 15 years, and 26 percent planned to stay 16 to 20 years longer.

Only 13 percent said they hadn't extended the time they expected to live in their home. The survey isn't scientific because those polled were self-selected and searching for information about remodeling, yet it offers a sliver-sized snapshot of homeowner behavior.

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Savings or Loan? Paying for a Remodeling Project