Contact a financial planner that can assist you in planning out your finances for the rest of your life. They do not have a crystal ball but at least your financial decisions can be based on a tangible plan.

For me - I'd never do a cash out refinance, because it converts one mortgage into a larger one. I'd opt for a HELOC that's a separate payment from my primary mortgage.

It seems like you like your location, so why not extend your home and make it your forever!

Just do a cash-out refinance. The bank will pay off your current mortgage and lend you an amount up to 80% of the appraised value of the home and you get the cash remaining after your outstanding mortgage is paid off. But this will affect your debt to income ratio when you are ready to build the new home. So, watch out for that.

If you get a HELOC it will be at a much higher rate.

Years ago, someone I knew did a cash out refinance a few times because the market was good. She ended up putting 100,000 more onto her mortgage.

Remember.....with a HELOC you can take the money as you need it.

My worry with HELOC was a higher rate, but wasnt sure.

And I will wait until Covid scare is over regardless of what I do.

I have no reason to talk to a planner.

We have solid finances, safe income, retirement, college savings, good credit, and emergency fund. All finances are planned out including retirement. Since we save so much for other stuff, saving to build a home is unrealistic as our kids would be gone and grown by the time we would build which would defeat the purpose. No reason to pay a planner for him just to tell me “save”.

All my equity is just sitting there and I feel like most people have to wait years and years to grow equity as much as we have. I wanna use it. But I don't want to be stupid. I also wouldn't need to use all of it, maybe 60%. Definitely not 80.

As far as the idea to expand our home, we would totally do that, but we have zero yard. Theres no room to grow. Part of the reason we want to move is to have a yard.

Thanks for tips everyone, I love them all and keep them coming!

Are you planning on building with a builder who owns the lot and carries the construction loan? Or are you doing a truly custom build on your own property and doing the construction loan yourself?

Myself

To late, your $100k is gone. Stay in your home, keep expenses down, save money. You have kids, save lots of money. Good luck.

Equity exists as the difference between what you owe on your house and what you can sell it for. If you believe that something has occurred that will reduce your equity, then your equity is already reduced. You note that your current home is valued at $225,000 and you owe $100,000. Your net equity position in your house is $101,500 assuming a 6% realtor fee. If you can only actually sell your house for $200,000 then your net equity position was actually $88,000 and assuming you took $100,000 out, you now owe the bank $12,000.

There are very few reasons to tap equity before you need it. The only reason that comes to mind is if you expect there to be a significant change in your ability to get an equity loan. However, in your case this really doesn't apply, as the market just doesn't work that way. There is realistically no situation where equity loans dry up when construction and primary mortgage loans are available, so either you will be able to tap the equity in the future or you will not be able to build the home anyway.

Interest rates are annual amounts paid on the loan. So even low rates are bad if the money is sitting around unused for years. Let's look at a hypothetical interest comparison. Suppose you can get a 3% cash out 30 year refi (which you can't) or a 5% HELOC (which you can beat). Suppose also 2.5 years to start construction (the median of your range) and 1 year to finish. Your interest paid from cash out refi will be $9,654.50 versus the HELOC at $5,000.

I would advise getting a HELOC soon and not using it until you start. I suspect that interest rates are going to stay low for the foreseeable future so don't worry too much about missing that bus.

Assuming the $350,000 includes the lot that you will be buying on your own? So you will need to borrow money to buy the lot, then borrow money for your 20% downpayment. If the lot costs $40,000 and the house costs $310,000 and appraises for $350,000, you will need to borrow $70,000 from your current house. A heloc is only going to cost you at most 2% more than a mortgage. So for a year of borrowing funds, the most it will cost you extra is $1,400. And maybe $1,000 in application and appraisal fees. So, for $2,500 in fees/extra interest, you can borrow the 20% from your current house. Pretty small fees in the grand scheme of things. Then, sell your home as your new build is finishing, and pay off both your current mortgage as well as the HELOC.

Some banks only require a 10% downpayment. Also I’ll be interested to see if home lending requirements will be a tad more relaxed after covid has passed.

Find an experienced construction lender. Some banks do combos or construction to perm loans.

They will walk you through equity requirements, loan to value, income ratios, etc.

Don’t live a life of borrowing and buying and being beholden to a financial institution Or anyone else. Look what has happened around you. Most people are broke and in debt with overpriced assets they will work years to pay off. Keep your expenses low. Many “dream homes” turn into nightmares. Don’t be fooled by people telling you how to spend your money, they only want some of it.

Don’t do anything right now. With the economy tanking from Covid, you may not be able to sell your house when you’re ready to for the amount of money you require. Wait and see how this effects home sales and appraisals.

Make a few calls to lending institutions. You'll get an idea of terms. Credit is getting tighter due to the economy. Though you have great scores, the equity in your home may not be acknowledged at this time because of uncertainty in the market. Talk to a realtor, too. Sadness all around.