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Buying and Selling Homes
palongee1

heloc?

12 years ago

Hi everyone, ive searched hi and low for some answers pertaining to my situation and so far have found little help, hopefully someone here can give me some direction, here goes :)
I own a property outright, several acres zoned agricultural. The property was appraised for 500k in 2009. The property has a old home and outbuildings (barns, shops, etc) The old home was built in the 1880's which was apparent once I started taking a hard look at the structure underneath the home. From the exterior and interior it looks fine. My original plan was a complete rennovation but the costs are so excessive that im leaning toward building new on the same parcel then removing the old house once the new home is finished. I have looked into a construction loan which requires a contractor and a pretty short timline. I have access to all the sub contractors I would need to contract the build myself as well as doing some of the work myself. My concerrns are if I were approved for a heloc and built the new house then removed the old house could I potentially be in a trouble with the bank? The new home would obviously be bigger and worth much more then the existing structure, im just concerned that I could be in some kind of violation of the loan? My reasons for wanting to build this way are 1, I dont want to pay a contractor to do what I can do. Also, my definition of "good enough" is much different then what some of these contractors ideas are. 2, I dont want to be on a stringent timeline to complete the build, I have certain guys I would like to use for certain subs as well as I would like to do some of the work on my own. My biggest issue is financing. Im looking to use some cash but id need to borrow appx 165k to get the project done. Its a unique situation i know, any help anyone could give me would be much appreciated! Thanks for your time! Mike

Comments (13)

  • 12 years ago

    Rules vary so much from one area to another that I think your best bet is to have a really thorough discussion with a lender.

    It sounds like an exciting project, & I hope you have fun with it!

  • 12 years ago

    Thanks for the reply, I have and there basicly saying they wont loan if im gonna be tearing it down, however...I wont be tearing it down till I move into the new house, at which time there money would still be secured by the new home...I dont get it...the land is worth a mint. Ive had multiple offers from developers for 3 times what im trying to borrow but banks wont lend on land equity unless its a construction loan. The search continues :)

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  • 12 years ago

    " I have and there basicly saying they wont loan if im gonna be tearing it down, "

    Well, there ya go!

  • 12 years ago

    after the new home is built, obtain mortgage on new home, pay off heloc??????

  • 12 years ago

    Yes, you would get a mortgage on the new home and pay off the Heloc. You can't buy a house, move to a better house and expect your bank to just transfer thier interest to a poperty the haven't thoroughly vetted even if its better for them.

  • 12 years ago

    Get a standard construction loan. It's the only way to do what you want to do.

  • 12 years ago

    In terms of financing, what are the different interest rates for a construction loan vs a HELOC? Would you get a guaranteed HELOC credit line of 165K? Hard to guess, but depending on your timeline, what about future interest rates for the HELOC?

  • 12 years ago

    I agree with Hollysprings. Get a new home construction loan and one that converts to a mortgage and also allows you to be an owner-builder. Not every bank will do the last two.

  • 12 years ago

    We had a heck of a time but ended up with the one time close construction loan and it would fit the bill.

    The bottom line is that you cannot tear down the property that has the mortgage. No one allows that.

  • 12 years ago

    Thanks for the replies! The issue with a construction loan is I have to have a contractor. I dont see the logic in paying someone 25-30k to do a job that I can do myself. Im working with a lender that says it is fine to use heloc monies and my own to build new, once im done I can refi the new home and pay off the heloc then do as I please with the old house. One other issue i need to figure out is the county has said im fine to build the new home as long as I remove the old one once im done, its gonna be a timing thing I can see already...

  • 12 years ago

    Some lenders allow an owner build for the construction loan. You just have to shop around to find one.

    Looks like you have a solution though although a bit dicey.

  • 12 years ago

    Well, the easy solution to your dilemma is to do a cash build. Then you don't have to answer to anyone but the building inspector. If you don't have the cash, and need a loan, then you have to play by the rules of the people who DO have the cash and want their investment protected. So, save more money and wait to do the project until you can do a cash build.

  • 12 years ago

    Im working with a lender that says it is fine to use heloc monies and my own to build new, once im done I can refi the new home and pay off the heloc then do as I please with the old house.

    Yes, that is what most here recommended. However, if you can get an owner build construction loan that converts to a mortgage, then you would only need one loan and the associated loan fees.

    One other issue i need to figure out is the county has said im fine to build the new home as long as I remove the old one once im done, its gonna be a timing thing I can see already...

    Totally normal. It probably has to do with the zoning of the land.It doesn't sound like you wanted to keep the old house anyway. If you did, then you would have to look into splitting the land so it is not just one parcel.

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