(x-posted from buying & selling)

This may be a very ignorant question, but then, isn't that what questions are for, to answer ignorance? :)

Anyway, we currently have no mortgage on the house we are trying to sell. We plan to build and had originally planned to go ahead and build using savings while this house was on market. As 2008 went by, that did not seem like such a good or practicable plan (especially as "savings" in the stock market continued to disappear).

Well, ok, so we thought we'd wait for the house to sell. In a market where avg. DOM is over 300, that will be awhile.

In the meantime, DH is eyeing these ultra-low mortgage rates. He's wondering if it would make sense to take out a mortgage here and use the $ to build the new house now. That would leave us with prop tax on this place till it sells and we understand that it would need to sell within two years of our leaving to avoid capital gains. But we're thinking, with move out date still 6 months out even if we started building today, surely the house would sell in the next 30 months.

Anyway, if we kept the borrowed amount well below the assessed value of the home today, what are the downsides to this plan? Would we need to also keep it well below the bank's appraised value to ensure we didn't run into a snag with the bank having to approve an offer? It has been over 20 years since we first took out a mortgage, I really don't remember the process.

The big question, too: Would that mortgage money count as income in any way for either tax or college tuition assistance purposes? Any other penalties or consequences that could bite us?

Of course, we would talk with lenders and do some other 1st hand research, but we are very curious if anyone has experience with this, particularly the college question.

TIA!