o/t house advice needed
 

Currently looking into building another house. Right now we've picked out a lot and are planning to buy here shortly. Basically here's the deal in a nutshell. We have the cash on hand for the downpayment on the lot and we'll finance the lot and start paying. Now here's where I get confused, do I need a lot of cash on hand to build the house, or will I just use the loan that the bank gives me. We have a lot of equity in our current house and we have saved up some money, but I'd rather not touch it. I have another friend thats building but he's about as confused as I am so I really don't know what all to expect. My wife is worried that we won't be able to afford it but I think we can. My thinking is we can use the equity in our current house (once we sell it) for the downpayment on our future house, and all the other $$ comes from the bank loan. Am I correct or way off?

You will probably need a bridge loan or a construction loan....
Depending on your financial situation,which the bank will be happy to tell you

Bridge Loans and/or Construction Loans can be a pain sometimes, because they have some significant fees and reporting requirements and you have to set up a calendar with them regarding draw schedules and progress reporting. If you know the banker and use a contractor that he likes to work with, then it makes it a lot easier.

I would personally take as big of a slice of an Equity line out against your current home as they will allow you to do. Typically, those are running at prime rate with no fees. You are then in full control of when and why you draw money out of that credit line.

You just need to make sure that you have enough combined equity and available cash available to get your new home at least far enough along to get an occupancy letter on it (which can be done without paving, landscaping, etc). If it is a two level home, you may wish to leave one level "prepped" but otherwise unfinished in order to get the house "liveable" within your available cash/equity budget. This way you can do so without a bridge loan and you can get into the house and relieve the other home so you can sell it. At that point, you will have #1: a new home complete enough to get your formal mortgage on it, and #2: additional cash from the sale of your other home.

just my thoughts..

Hammer, You building (contracting) the house yourself? If so, I did the same thing last year and got a construction loan. I only paid 500.00 out of pocket to secure the land, closed on the loan and paid the land off. Then started making draws on the construction loan. When I finished the house I closed on the permanent loan and rolled the money I made off my other house into the loan. I got alot more house than I could afford that way. Don't be scared if you have general knowledge of home building you can do it. Here is what I came up with, even has a garage for my boat.

Just a few additional thoughts...

What the bank is really going to want to see is enough equity injected to get them within their loan guidelines. You can do that through what has been suggested. Get an equity line and inject your capital that way or do a blanket construction loan that encompasses the equity in your home, then pays down when you sell it.

As far as the hoops you jump through on a construction loan, we do have certain rules that we make people follow but there are reasons. Mostly to make sure bills are paid and waivers given by the contractors and subs but also to make sure our loan is going for the construction of a home. Believe me you would be amazed at what some people think they can do with their construciton funds. Pay off credit cards, buy furniture, pay some wedding expenses.. I could go on but..and then wonder why I am upset with them when they run $10-$50K short at then end and want to borrow more money without having any equity left?

Get with an experienced construction lender that you are comfortable with and I am sure they can come up with a great plan for how to structure your loan that will be acceptable for both parties.

Ok thats kinda what I was thinking. I'm not contracting the house myself, I have a builder that we are meeting with tonight to go over some stuff with. My plan is to buy the lot now, then build about a yr later. Like I said we have some in savings, but I'd like that to stay there and just open up a construction loan to build the house. All the equity in our house now we plan to roll over to the new loan. A lot of people I know have done the same thing but I didn't know if it was just that easy, I didn't know if you had to have a bunch of "out of pocket" expenses that you paid, or if the loan pays all that. If the loan pays it then i'm set, if I pay a lot of pocket expenses then I'm getting in a little more then I can handle.

Von Bongo - I have a friend that did that exact same thing. He basically contracted his house himself and built it for like 218,000 and the loan he has is for like 320,000, so he's going to buy a boat and all this other junk with the rest of it. Acting like it's free $$ but he does have to pay that back.


I'd say overall we have about 35-40K equity in our house now, is this enough to get me started?

contact jeff jassby ( jassman) he is a home builder out of diamondhead, maybe a oso discount:D builds a nice home also.

Have the builder take care of the money. Have him give you a set price, when he is done you close on the loan everyone is happy. Builders around here are cost plus 15 to 20%. If you do it yourself you save the 15 to 20%.

I got a loan for $195,000, built the house including land and closing costs for $178,000. Came in under my loan amount and only financed the amount I used. The house appraises for $235,000 on an acre of land.

VonBongo, the bank did an inspection every time I took a draw to make sure I was on track. Whatever money I had left over I saved and used it towards the house.

Bikinilover, nice home. In our area that home would probably bring 500k to 600k. I don't know the size, but from the picture it looks nicely done. Sam

bikinilover - thanks for the advice. I'd like to contract it myself, but there's no way, I don't have the time or know the people to do it. I'd rather the builder handle all that and get it done right. My builder is a pretty much a custom home builder and he's building a house for my friend also, he cut a lot of costs and he builds some nice houses. email me a pic of your house if you don't mind [email protected] I'd like to see it. I plan to do just as you said and not just use every penny and just finance what I use.