A lot of it will come down to the market conditions in your area. What is the average days on market? Do you own the new lot? Can you afford to hang on to your old house as the new one is being built or potentially even finished? Are you getting a mortgage on the new house? What is the rental market in your area? I would pay off the second mortgage before doing anything.

Sell & rent.

You're at least 2 years from move in if you haven't started design.

Pay off the second mortgage. You can then use a HELOC plus cash to fund a good deal of the build. Especially if you are downsizing.

Yes, you are 2+ years out on starting anything concrete but the design phase.

This question is along the same lines as your other and they really should be the same thread for context.

https://www.houzz.com/discussions/6397387/doing-homework-on-building-a-house#n=8

Would selling allow you not to have to take out a construction loan? That could be your deciding factor, especially since interest rates are up. However, in our community rentals were almost double what we were paying on our mortgage. We started the process without selling and then sold before breaking ground, because of delays we have been renting for 2 year as of this week, we are about a month out from moving in. Renting has been way more expensive, but we also sold at almost the top of the market. Our construction loan came when interest rates were cheaper.

I don't think there is a one-size-fits-all answer. So may variables for each person, their own financial position, location/value of old and new house and current economic climate.

Financially we could carry the house in the old state and a rental and new construction in the new state ... but emotionally I couldn't do it. Of course, who knew that covid would hit and make things even more complicated and stressful.

Do what works for your family, analyze how you would handle an event similar to covid and how that would affect your finances and your health/stress.

Improve where you live. You can always build later.

You haven't really paid off your house- you have paid off one of the mortages on the house. You still have the second one to pay off.

Have you found the land you want to build on and bought it yet? If not, that's one of the earliest things you need to do. If it's designed for you, a premade plan, customized plan, or whatever... you are going to be building to suit the site to an extent. So land is pretty high on the list to start. If it needs to be cleared, has elevations, is out of utilities and needs them, ect is something to consider when placing the house.

Can you afford to build a house? As in, you still owe a second mortgage, and building new isn't cheap. If you haven't bought land that's a cost too. I'm not trying to say you have to be debt free or everything paid off. But if you don't have a goodly nest egg, and/or the ability to take loans, you might not be fiscally available to a new home build.

You don't seem to have a plan yet. No house drawings or someone to provide them yet, no contractors lined up or checked into yet. You should have a plan in place so you know the timeframe of your new build before putting the house up for sale. Real estate folks tend to prefer it if you can let them know when you are leaving the house so it's available to the new buyers/owners. I know some sellers have it where they have a reasonable amount of time after the sale, but whenever your new house is done is not a reasonable ask. Are you prepared to rent/store if you need to in order to bridge the gap between two houses?

I'm just getting as much information as I can get before I lay out my plans. The second mortgage is not much and the current houses around here on our price range is sold in 2-4 months. . This week I'm going to look for land where we want to build. Once I have decided which ones I'm interested in, either I talk to the bank what financing is available then next step, to design the house. We're reaching our retirement age and I would like to build a house that I've always wished for. We're empty nesters for quite some time now and the house that we have right now, which is beautiful (but not well designed IMO) is good for a family with children. Since yesterday posting to these discussions gave me a much clearer view of the process and I'm thankful for those who replied. Before yesterday, I didn't know where to start !😊

"current houses around here on our price range is sold in 2-4 months"

Famous last word! Never assume that the market will be the same in 2 years time when you need to sell your current house. That is how you get into trouble. What if we have a recession or major event and that same house is taking 1 year to sell and at 20% less. How will you handle that? Plan for the worst case scenario and hope for the best!

We bought a "temporary" home while the new build proceeds. Turns out it's a very profitable tax-free investment in itself. (No tax on principal residence capital gains in Canada--unless it's ruled as part of a pattern of quick flips.)