[greg_moreira]

So....here is where Im at. Currently a homeowner but need more space and want more land.

Im considering buying 5 to 10 acres and within the next 3 years or so, having a home built on it.

The land will be paid cash so no mortgage or anything on it, but the home will need financed.

Now, I intend to sell my current home(which is mortgaged) but im not sure how this process works or what makes the most sense.

looking around it looks like i get hit with contruction loans, and all other types of loans that eventually(hopefully) roll up into one mortgage.

Ive read if you own the land and have equity in it, it makes this process easier. they are less likely to lend, or at least give more grief if they have nothing at all to consider as collateral in the process.

does it make more sense to sell the current home first before loan shopping to have the new place built? Remember, I dont own the current home outright. Im paying a mortgage. I would think it would be easier to get a loan to have the new place built if I didnt have the mortgage on my back.

But then again....maybe having an asset(even though I dont outright own the home) helps in the process? not sure how that goes.

just wondering what the hassle was like for anybody that has done it.

 

[Pancho]

Dunno what your debt to income is or what your credit rating is but if you bought the land and owned it outright (asset) and you have equity in your current dwelling (asset) then I would think it'd be easy to get a construction loan which would then roll over to a mortgage.

Keep in mind, a default on the construction loan would put the land and your current mortgage at risk.

 

[thetastelingers]

We had a mortgage on our land AND a mortgage on our old house when we got our construction loan.
It did help a lot to have equity in the land.

Go talk to your bank or credit union, they will tell you what is the best thing to do.

 

[greg_moreira]

Dunno what your debt to income is or what your credit rating is but if you bought the land and owned it outright (asset) and you have equity in your current dwelling (asset) then I would think it'd be easy to get a construction loan which would then roll over to a mortgage.

Keep in mind, a default on the construction loan would put the land and your current mortgage at risk.

See thats one of the things Im wondering about. "Bank A" owns my home right now given that they own the mortgage that isnt paid off.

If I finance the new home through "bank B"......can the equity even be considered?

Not that I intend to default on the loan, but from the banks perspective...if I did...could bank b sieze the home given that technically bank a owns it

and if bank b cant touch the home owned by bank a....does the equity matter?

in other words thats why i was wondering if it makes more sense to sell the current home. I could at least pocket the equity and have more money in the bank, as well as improve the debt to income ratio.

not sure if I look better and get a better rate and easier time with the home by holding the current home, or selling.

guess some talks with the banks would be in order but you know how that goes. if I ask today just to make a plan, they will call me every day of the week for the next three years lol

 

[81857]

See thats one of the things Im wondering about. "Bank A" owns my home right now given that they own the mortgage that isnt paid off.

If I finance the new home through "bank B"......can the equity even be considered?

Not that I intend to default on the loan, but from the banks perspective...if I did...could bank b sieze the home given that technically bank a owns it

and if bank b cant touch the home owned by bank a....does the equity matter?

in other words thats why i was wondering if it makes more sense to sell the current home. I could at least pocket the equity and have more money in the bank, as well as improve the debt to income ratio.

not sure if I look better and get a better rate and easier time with the home by holding the current home, or selling.

guess some talks with the banks would be in order but you know how that goes. if I ask today just to make a plan, they will call me every day of the week for the next three years lol

How much equity are we talking?

 

[greg_moreira]

How much equity are we talking?

Not a ton. Maybe 30k. I've only lived in this house for 3 years.

The land I will buy will have more equity than the house.

 

[Dave_In_Florida]

We did what you want to do. Here's how it works. No bank will finance a house if they don't have rights to the land it sits on. If they did, you could stop paying, and when they come to foreclose, you can say "you're trespassing on my land. get off" and they couldn't get their house back. So you will need to use the vacant land as collateral for the home. But this works very well in your favor. Say for round numbers the house you want to build is $100k, the vacant land is worth $50k. The bank looks at it as a total package of $150k, with a $50k down payment. So you are well above 20% down, avoiding mortgage insurance.

When we built our house, it was a bit tougher to find a lender that will do construction loans. We found a major lender to do it, but they did a construction loan that rolled into a 5-1 ARM at the end (they don't want to commit to a fixed interest rate on a loan originating a year from now). During construction, we just paid the interest on the money the builder drew from the bank. At the end, it rolled into the ARM, which we then re-financed into a 30 year fixed.

It really wasn't a bad process, and I learned ALOT about finance and home construction (my wife and I were in our 20's when this happened).

As far as your current house and whatever you want with that, It sounds like you are overly-complicating the situation. But if I'm understanding you correctly, you want to roll the equity from your current house into the new house? That won't be a problem as long as you sell your current house before construction finishes.

 

[greg_moreira]

We did what you want to do. Here's how it works. No bank will finance a house if they don't have rights to the land it sits on. If they did, you could stop paying, and when they come to foreclose, you can say "you're trespassing on my land. get off" and they couldn't get their house back. So you will need to use the vacant land as collateral for the home. But this works very well in your favor. Say for round numbers the house you want to build is $100k, the vacant land is worth $50k. The bank looks at it as a total package of $150k, with a $50k down payment. So you are well above 20% down, avoiding mortgage insurance.

When we built our house, it was a bit tougher to find a lender that will do construction loans. We found a major lender to do it, but they did a construction loan that rolled into a 5-1 ARM at the end (they don't want to commit to a fixed interest rate on a loan originating a year from now). During construction, we just paid the interest on the money the builder drew from the bank. At the end, it rolled into the ARM, which we then re-financed into a 30 year fixed.

It really wasn't a bad process, and I learned ALOT about finance and home construction (my wife and I were in our 20's when this happened).

As far as your current house and whatever you want with that, It sounds like you are overly-complicating the situation. But if I'm understanding you correctly, you want to roll the equity from your current house into the new house? That won't be a problem as long as you sell your current house before construction finishes.

Yes that helps. Concerning your last statment " But if I'm understanding you correctly, you want to roll the equity from your current house into the new house? That won't be a problem as long as you sell your current house before construction finishes."

sort of. I may not be explaining it well. what I was wondering is, when I start loan shopping.....do I "look" better if I am currently paying on a house that has equity in it, or do I look better if I sell the house and put the equity in the bank, and then start loan shopping for the new place.

The scenarios would be:

I own a piece of land paid in full worth around 50k, and I am paying on a house elsewhere with 30k in equity(a house i intend to sell, and invest the equity into this whole project), and maybe 10k in savings(since most was spent on land)

or I own a piece of land paid in full worth around 50k, I have no current mortgage but I previously had a mortgage in good standing, and I have an extra 30k in the bank in cash to put into this(on top of the 10 I already had there).

Basically what i want to do is put myself in the very best spot where lenders see me as the lowest risk possible and give us the easiest time once were ready to build.

 

[Dave_In_Florida]

I'd say it's all about debt to income ratio. If you have the income to pay two mortgages, the bank won't care. If you don't, they may balk at it.

 

[GT 350]

The smart thing to do is keep living in current home and when you extra money have the other house built in stages...or have things done that you cant do.. might take 5 years but when all said and done you wont need a loan ...then rent out the old one and let It pay for it self...

 

[CCSguy]

I'd say it's all about debt to income ratio. If you have the income to pay two mortgages, the bank won't care. If you don't, they may balk at it.

^^^Yes^^^ That's how we did it. Paid cash for the land and then took out a construction loan for the new house. We had to qualify for both payments, old house and new, in case the old one didn't sell right away. If you don't qualify for both you will have to sell the old one, move into something temporary while the house is built. Happens every day.

 

[Life's a Drag]

I fail to see a problem here.

Just put air in the tires and move it.

 

[greg_moreira]

I fail to see a problem here.

Just put air in the tires and move it.

hahahaha if it were only me...... i would consider this as an option.

apparently my other half likes to have nice things though. lol

 

[Life's a Drag]

hahahaha if it were only me...... i would consider this as an option.

apparently my other half likes to have nice things though. lol

They're so damn costly. :-damnit

 

[greg_moreira]

They're so damn costly. :-damnit

lol that they are! I cant complain though. she pulls her weight both around the house and financially. we make virtually identical salaries so that simplifies things too.

I cant put it all on her though. I knew buying this house that were in now that it was only temporary and eventually we'd be upgrading with more land and space, which is definitely something I want.

 

[chadman]

I did just as the OP is wanting to do. I lived in one house which had a mortgage. I also owned outright land in which I wanted to build a house on. My income to debt ratio was favorable to support two mortgages so they had no problem issuing me a construction loan that rolled over into a fixed rate loan at completion of the house. They just count your paid off lot as down payment money. When we moved into the new house we just kept the old house as a rental property.

 

[chadman]

hahahaha if it were only me...... i would consider this as an option.

apparently my other half likes to have nice things though. lol

I know how that goes. If it were up to her we would have a 3500 sq. ft. house and a 500 sq. ft. garage. If it were up to me we would have a 1000 sq. ft. house and a 5000 sq. ft. garage. We compromised and ended up with about 2100 sq. ft. of house and 2500 sq. ft. of garage. Like you I can't bitch. She pulls her weight financially and then some.

 

[Life's a Drag]

lol that they are! I cant complain though. she pulls her weight both around the house and financially. we make virtually identical salaries so that simplifies things too.

I cant put it all on her though. I knew buying this house that were in now that it was only temporary and eventually we'd be upgrading with more land and space, which is definitely something I want.

LOL!

Happy wife, happy life!

I told mine that I don't care what she wants to do to the house just as long as I design it and she doesn't go near the garage. It's worked out very well this way for a long time now.

 

[greg_moreira]

Nice, thats what I like to hear. I was not aware that the paid off land could be considered towards the down payment, which only helps matters!

Random question and "sort of " off topic....but how do property taxes work with new construction?

the taxes on the land are obviously minimal. Does the state come in and assess the place as soon as its done being built? Or would you have an idea up front of what the taxes will be just based on cost to build? just wondering how that all works in terms of figuring out your true monthly liability up front.

 

[greg_moreira]

I know how that goes. If it were up to her we would have a 3500 sq. ft. house and a 500 sq. ft. garage. If it were up to me we would have a 1000 sq. ft. house and a 5000 sq. ft. garage. We compromised and ended up with about 2100 sq. ft. of house and 2500 sq. ft. of garage. Like you I can't bitch. She pulls her weight financially and then some.

Haha yep. What youre talking about is where Id like to ultimately end up. Round 2000-2500. We're at 1600 now but only a tight 20x20 attached two car. I could build a larger garage down behind the current house but ultimately it still wouldnt be what we want.

We both happen to really like the post and beam cedar/log style homes, so thats the direction we'd hopefully like to go in arund that size. I could make due with something like a 40X30 garage.