Q: We own a brick home with 4 bedrooms, 3 bathrooms, and 3 fireplaces on a single level with finished basement. The house is 44 years old and is in very good shape. The location is very good and we couldn’t afford to buy this house if we were shopping around today. The bedrooms and bathrooms are a bit small but the family rooms are very big.

We are deciding on whether to build “out” and increase the size of the bedrooms and add space all around the house or build “up” by add another level to the house.

We plan to live here for a long time so we’d like to make improvements to satisfy our family. I’d like to have a home office and extra bathroom on the first floor that would double as a guest room.

Do you think we should build up or out?

A: I haven’t seen your house or your neighborhood, so I can’t give you specific advice. But, I can help you think this issue through.

Your first step should be to consult with an architect and contractor, because in many cases, ripping off the roof and building up will be more expensive than building out. If money is an issue, figuring out the budget and what can be done for that price will be a primary consideration.

The next issue to think about is how your land is shaped and how big a garden you want. Generally speaking, bumping out the house may be easier and less costly than going up. But, if it means you’ll eat up too much of the green space surrounding your home, that could diminish any appreciation you would see from your renovation.

Next, look to your community. Are the homes mostly ranches or two stories tall? Does there seem to be a trend toward tearing down one story homes and replacing them with much larger homes? Part of your decision should be based on what your neighbors have done and are now doing to their own homes.

I also think you have to talk to a few local real estate agents about other properties in the area. Ask their opinion of whether you’d eventually get more money out of your home by going up or out. It’s easy to get carried away by big home improvement dreams, only to find out you built a white elephant that you can’t sell if you need to.

You should also pay a visit to your local town’s building department. There may be zoning laws or rules that will limit your ability to either bump out your home (because you’ll violate existing side yard requirements) or build up (because of square foot limitations due to the lot on which your home sits).

You will want to make a smart move that meets the needs of your family, but is also smart financially.

Q: Where can I find an exclusive buyer’s broker to help me find vacant land? And where can I get an acquisition-to-construction-to-permanent financing?

I’m also wondering if it is better to buy a lot to hold for a year to serve as the equity in order to finance the building of a house? I have a lot of assets, but very little income, so I’m finding it hard to qualify for the financing I need.

A: You’re in a tough position. Most conventional lenders want to see that you have enough income to pay for the expenses of owning and maintaining your home. In your case, you’ll want a lender to finance the purchase of land, and the building of a home.

That’s asking a lot if you don’t have the income to qualify. Lenders will wonder how you’re going to pay the monthly expenses for the property, including the mortgage, insurance and real estate taxes. And, they will wonder if you are going to default.

Here are some possible options. If you have a lot of assets that are being held by a financial investment firm, like Merrill Lynch, you may be able to get a loan through them that is secured by your investments.

Another option would be to simply liquidate your stocks to come up with a larger down payment, perhaps all of the cost of purchasing the land, and some of the cost of building the home. This would lower your debt-to-income ratio, which is a critical numbers lenders use to assess whether or not you can afford your mortgage.

Finally, there may be a local bank that will agree to give you a loan despite the unusual circumstances, and keep it in the bank’s own portfolio of investments rather than reselling it to Fannie Mae or Freddie Mac on the secondary mortgage market. When banks keep loans in-house, they have more control over the lending restrictions and may be able to secure the loan with your assets rather than against your income.

I’d find a real estate attorney who can help you work through these issues and assist you in thinking outside the box when it comes to financing this purchase.

As for finding an exclusive buyer’s agent, you can go online to www.NAEBA.com, which is the website for the National Association of Exclusive Buyer Agents. The site can give you contact information for exclusive buyer’s agents in your area.

Jan. 19, 2009.