Many different options exist for financing your room addition, from many different lenders. How much do you borrow? How much can you get? A mortgage broker, your most common lending resources for a room addition, can offer you more than 200 loan programs. Let’s try and break down the process a little bit.

The first thing to do is find out how much your addition is going to cost from your contractor, then add about 10% for any additional costs that may occur along the way. Take this amount to a lender. The bank will lend you as much as they feel comfortable lending you based on three factors: your credit score, income, and loan-to-value ratio.

credit score

  • Your credit score is based not only on credit card payments, but also house payments, utility bills, cable and internet, and student loans all factor in.
  • For income, your current house payment and other debt should be less than your gross monthly income.
  • Finally, the loan-to-value ratio is the number that results from subtracting your remaining mortgage balance from the appraised value of your home. That is the largest amount they are willing to loan you. It will take perfect credit to get near 100%. Usually lenders only loan between 60-80% of that number, depending on your credit.

If your credit isn’t that great, don’t worry, there are still options available to you.  I will discuss loan options in another post, soon to come!