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Building a house loan question
Posted on 4/24/16 at 3:30 pm
Posted on 4/24/16 at 3:30 pm
We sold our home this week and will walk out with around $105k in equity. We found a piece of land that we would like to buy and build so heres where it gets confusing. I planned on taking out $10k from savings to cover the 20% needed for a land loan. Thats not using any money we will be getting for the house. So heres my question.... Do you
1. Keep financing the lot over the period of 5yrs and put the $105k on "building" the house with the intention of lowering the mortgage note
Or
2. Build and refinance the land when your done building the house which in my head would be a higher mortgage.
1. Keep financing the lot over the period of 5yrs and put the $105k on "building" the house with the intention of lowering the mortgage note
Or
2. Build and refinance the land when your done building the house which in my head would be a higher mortgage.
3
Posted on 4/24/16 at 3:38 pm to sonoma8
So the land is 50k?
The bank will want clear title.
The construction loan will want to pay off the land loan.
Eta: Meaning the land value and construction cost will ultimately become one loan. So the 105+10k needs to be at 20% value for your desired outcome
The bank will want clear title.
The construction loan will want to pay off the land loan.
Eta: Meaning the land value and construction cost will ultimately become one loan. So the 105+10k needs to be at 20% value for your desired outcome
This post was edited on 4/24/16 at 3:41 pm
Posted on 4/24/16 at 3:46 pm to Mr.Perfect
Yes lot is $50k
We want to build around a $300k home.
So would it be smarter to just payoff the lot now with the equity or just put it all on it after the build i guess is my question
20% of a $350k home is 70. We would be putting down around $115k id guess
We want to build around a $300k home.
So would it be smarter to just payoff the lot now with the equity or just put it all on it after the build i guess is my question
20% of a $350k home is 70. We would be putting down around $115k id guess
This post was edited on 4/24/16 at 3:48 pm
Posted on 4/24/16 at 3:50 pm to sonoma8
buy lot and use the 50K land equity towards your 20% needed for construction loan
Posted on 4/24/16 at 5:43 pm to sonoma8
Where will you be living for the next 5 years while you're paying for the lot?
We took out a home equity loan to pay off our lot. When the lot is paid off in a year and half we will sell our current house and use 100% of the equity (~$140k) toward building.
We took out a home equity loan to pay off our lot. When the lot is paid off in a year and half we will sell our current house and use 100% of the equity (~$140k) toward building.
Posted on 4/24/16 at 6:55 pm to Jason9782003
We were going to rent for the next year or so. Didnt realize the house would sell this fast but we did get asking price so that helped
Posted on 4/24/16 at 6:57 pm to sonoma8
We were intially going to buy something already built but out of all we have looked at, we cant find anything we like. So we elected to build after finding a 3 acre lot this weekend.
Posted on 4/25/16 at 5:16 am to sonoma8
Buying the lot/land outright sounds like a good idea if that's how you want to go about it, however I'm in the lending business and one thing I have learned is that liquidity i.e. cash on hand is key when building.
Sometimes the builder can be a little off, or folks start upgrading as the process rolls out. The upgrades arent built into the as will be appraisal which drives the LTV for the lender. That's the only reason I like to see a lot of cash when building. Then once it's complete and you have all the variables figured out pay down as much as you please.
Basically, put as little down as the bank(s) require until you are finished building then pay down to get your debt level to what is suitable to you.
Sometimes the builder can be a little off, or folks start upgrading as the process rolls out. The upgrades arent built into the as will be appraisal which drives the LTV for the lender. That's the only reason I like to see a lot of cash when building. Then once it's complete and you have all the variables figured out pay down as much as you please.
Basically, put as little down as the bank(s) require until you are finished building then pay down to get your debt level to what is suitable to you.
This post was edited on 4/25/16 at 7:20 am
Posted on 4/25/16 at 8:54 am to G8RnGA
If he's 100% sure he wants to build then shouldn't he just pay for the lot outright? $50,000 of his $105,000. Won't he avoid not only interest but closing costs on a new lot loan? To me paying for the land outright is just as good as investing it. I'm not really a financial guru but that's how it sounds to me.
I'm also curious if the OP understand the LTV calculation. Because basically a $50,000 lot is as good as $50,000 cash when building the new house correct? If his construction cost is $300,000 and it appraises for $350,000 with the lot then he should only need an additional $20,000 to cover his 80% mark. That leaves about $35,000 to cover the random cabinet changes, upgrades, etc that come up during the process.
I'm also curious if the OP understand the LTV calculation. Because basically a $50,000 lot is as good as $50,000 cash when building the new house correct? If his construction cost is $300,000 and it appraises for $350,000 with the lot then he should only need an additional $20,000 to cover his 80% mark. That leaves about $35,000 to cover the random cabinet changes, upgrades, etc that come up during the process.
This post was edited on 4/25/16 at 9:40 am
Posted on 4/25/16 at 10:52 am to G8RnGA
quote:
That's the only reason I like to see a lot of cash when building.
What's your general guideline for cash held by borrowers when starting to build?
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