Best Path Towards New Construction

[Anonymous]

I have reached out to a few mortgage brokers in my area, but no one can tell me for certain what options are available for my situation. I have been in my house for about 5.5 years and have payed my mortgage down from $220k to $138k. The house is 160+ years old and needs a complete reno along with an addition to make it what I would want. It is also 5 feet off of a state highway and in the low part of the property, which causes flooding in the basement ocassionally... but I have already had 6 feet in there. I have 3 acres with a few out buildings and I love the location, as well as a neighbor that will not let me move away. My plan has been to build a new house with my father and brother, and then tear down the old house once the new one is complete. This is proving to be a more difficult task than I anticipated, so I just wanted to see if anyone could give some advice on some scenerios.

1) I owe $138k on the house, and have $160k in the bank to invest into the project. I guess question 1 would be if I paid off the existing mortgage, would I be able to use the old house and land as collateral on a construction loan, especially since I plan to build it myself? They are both in construction, but not general contractors. A close family friend is a general contractor and will be helping with the framing and roof, but I would rather not attach his name to it unless it is needed to secure the loan. Between my day job and my side business, I made $155k last year and should be on track to make a little more this year. I also have a credit score that has consistantly been in the 840's for the last 3 years or more, so I look good on paper. I don't really want to take on a new mortgage, but I don't know if my dad will be around forever and I would like to get the house built asap to have the memories of building it with him, and at this point I can't get it done without borrowing. 

2) This is the one no one can seem to help me with. Would I be able to build the new house and tear down the old one straight cash while keeping and continuing with the existing mortgage? I should have a bigger chunk of cash available next spring when I would like to build, but I would be cutting myself close. I would love to go this route as my current mortgage is very managable and I usually end up paying double or triple payments, and would be able to resort back to this once construction is complete. I just don't know if this is allowed. 

My best bet would be to wait until 2021 when I have more cash available, but I would probably have to dump money into a roof and the foundation on the current house to hold me over. I'm just stuck and don't know where to turn. Any advice would be greatly appreciated! 

[JVille]

My best advice is to go and speak to your local Credit Union or Small Local Bank. Your situation is unusual and requires the assistance of a local community based institution who is more likely to Taylor something to your unique situation.
I seeing other issues however in zoning laws allowing building a second home, need to move septic and well to service new home and the fact that the Demo of the existing home will be costly due to possible asbestos contamination due materials in older home and just the demo and haul off. Your project has a variety of issues a typical lender won’t want anything to do with.

This is why I suggest a local bank to assist you.

[CreditInspired]

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@Anonymous wrote:

I have reached out to a few mortgage brokers in my area, but no one can tell me for certain what options are available for my situation. I have been in my house for about 5.5 years and have payed my mortgage down from $220k to $138k. The house is 160+ years old and needs a complete reno along with an addition to make it what I would want. It is also 5 feet off of a state highway and in the low part of the property, which causes flooding in the basement ocassionally... but I have already had 6 feet in there. I have 3 acres with a few out buildings and I love the location, as well as a neighbor that will not let me move away. My plan has been to build a new house with my father and brother, and then tear down the old house once the new one is complete. This is proving to be a more difficult task than I anticipated, so I just wanted to see if anyone could give some advice on some scenerios.

1) I owe $138k on the house, and have $160k in the bank to invest into the project. I guess question 1 would be if I paid off the existing mortgage, would I be able to use the old house and land as collateral on a construction loan, especially since I plan to build it myself? They are both in construction, but not general contractors. A close family friend is a general contractor and will be helping with the framing and roof, but I would rather not attach his name to it unless it is needed to secure the loan. Between my day job and my side business, I made $155k last year and should be on track to make a little more this year. I also have a credit score that has consistantly been in the 840's for the last 3 years or more, so I look good on paper. I don't really want to take on a new mortgage, but I don't know if my dad will be around forever and I would like to get the house built asap to have the memories of building it with him, and at this point I can't get it done without borrowing. 

2) This is the one no one can seem to help me with. Would I be able to build the new house and tear down the old one straight cash while keeping and continuing with the existing mortgage? I should have a bigger chunk of cash available next spring when I would like to build, but I would be cutting myself close. I would love to go this route as my current mortgage is very managable and I usually end up paying double or triple payments, and would be able to resort back to this once construction is complete. I just don't know if this is allowed. 

My best bet would be to wait until 2021 when I have more cash available, but I would probably have to dump money into a roof and the foundation on the current house to hold me over. I'm just stuck and don't know where to turn. Any advice would be greatly appreciated! 

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Hi and welcome

So, if I’m reading your scenario/plan correctly, I can answer unequivocally and without a doubt that NO lender will allow you to pay a mortgage on a non-existent property (one you want to tear down!). Think about it. The house is security for the mortgage. No house, no security.

In your scenario a million and one things can go wrong. It’s Murphy’s Law. Examples:

*You could get hurt and can’t assist with the building or godforbid die. 

*While building, unplanned things/expenses/emergencies come up as as they always do.

*You could be laid-off. 

*Nope, a traditional lender is not going to loan money for you and your dad to build. And yes, a GC is required and yes, his name, licenses, and references are a part of any mortgage application. Honestly, I’m confused as to why you wouldnt want his name attached to it.

Now, maybe a private lender will finance such a project. 

I did some googling and found this article related to Owner Building Construction Home Loans that may be of interest 

Https://www.loan.com/home-loans/build-your-own-house-using-an-owner-builder-construction-home.html

GL2U

[Anonymous]

"Honestly, I’m confused as to why you wouldnt want his name attached to it."

My father did all of the work for this contractor and the contractor's father for the last 40 years. My dad is licensed in electrial, plumbing, hvac and does the nicest work around, but he has no business sense and never did anything with his talents. This has always bothered me watching us struggle while people made money off of him. He is an older man now and I just wanted to give him the chance to have his name on in and not another project that he worked on under the contractors name.My best friend from elementary school owns a concrete company and is doing the concrete work at cost, and we are capable of doing everything else. The contractor would just have us do the work anyway, but I figured I would I would need to attach a licensed GC name to it. I didn't have much of a relationship with my dad when I was young, so I just wanted it to be family for as much of it so I could have the memories as I don't plan on going anywhere. 

The only reason I asked about building and knocking it down was because one lender said I might be able to find someone to lend to me if I kept the old house up while building as collateral. The property has two new pole buildings, a detached garage and a barn on it, so it has value other than the acerage. I just hear so many different things I don't know what to believe anymore, but the majority of advice says I would have to pay off an existing mortgage before I could apply for a construction loan. 

I have enough saved to pay off the mortgage, but that would deplete me for the down payment on the construction loan. My apprasial 5 years ago came in around $240k, and I am looking to spend around $300k for the new house construction. If I paid off the mortgage, would I be able to use the value of the land and other out buildings as collateral for the construction loan? And thanks for the link. I read some things that said I might be able to act as my own contractor, but it would come with higher down money due to the higher risk. 

[Anonymous]

"I seeing other issues however in zoning laws allowing building a second home, need to move septic and well to service new home and the fact that the Demo of the existing home will be costly due to possible asbestos contamination due materials in older home and just the demo and haul off."

Lots of variables! It would be easier to fix and sell, but anything in my area with new construction with land is insanely priced. The house is an 1860s log home and there isn't too much to it. I have someone lined up for the demo who is deducting for the log value, so at least that part should go smoother.