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Thread: am I missing something? mortgage free reality

  1. #1

    am I missing something? mortgage free reality

    So I totally get the idea of wanting to not have a mortgage. In fact, that is one of the current drivers behind be seeking to build our log home BnP style. The curse of the blessing of living in a county that is fast-growing and property values are rising oodles... my taxes keep going up and I'm just paying a whole lotta $$$$ each month that ain't really doing anything for me. That's just one part though.

    At any rate... yes the ideal is to get owner financing on the property and then build with cash (or pay cash for your property and cash for the build, not an option for me). Aside from owner financing then, you're going to get a loan at least for the land. So I'm weighing the option of getting a "land loan" that typically runs about 1% higher on interest compared to a typical mortgage, vs getting a mortgage. I should have enough cash from selling my current home to do the actual build, so the ending loan amount either way will be the same with the programs that I am looking at (I've been discussing this with a broker who can do the whole land + construction loan deal + convert to mortgage), and will let me owner-build. I plan on building in a county that provides no oversight in home construction, so while I plan on building to code, I don't really have to worry about all those hoops and red tape.

    So to me, it looks like getting a mortgage at say 4.2% is WAY better than a land loan at say 5.2%. The payment will not be a problem either way, and we plan on paying it off as quickly as we can (ideally 6 years or so). I see this as a MORTGAGE FREE OUTCOME as opposed to MORTGAGE FREE NOW (are you really mortgage free if you have a land loan???).

    So, am I not thinking about something here?

  2. #2
    LHBA Member mudflap's Avatar
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    They told me that to get a construction loan, I would have to complete the build in 9 months. I knew my build was too big, and I'm just one guy, so it axed that idea for me.

    We did "pay as you go", started with a small nest egg from the sale of our home, similar to what you are discussing.

    On the one hand, get started with what you can.

    On the other hand, don't get too far out ahead of yourself. as in, don't buy logs if you don't have a foundation. The whole goal is to get the thing under roof as quick as possible. Once the roof is on, you can pull a loghousenut and wait a few months to start working on the inside. I use "months" very liberally, here, of course.
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  3. #3
    LHBA Member Shark's Avatar
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    Plus typical construction loans may not approve you as an owner builder....
    Much easier to build with cash, no time frames etc. Pay off the property after the house is done, you'll have no mortgage payment to deal with so it'll go quickly.

    Or save and budget first, and borrow nothing.
    Completed #1 - Sold #1.....#2 about to start
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  4. #4
    LHBA Member rckclmbr428's Avatar
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    Building with a bank can be a headache, but it can also make a 10 year project turn into a 1 year project. I have never heard of a bank loaning on an owner builder loan. Ever. I have a project right now in South Carolina that the bank originally said owner builder was no problem, but when it came time to sign papers the bank bailed because there wasn't a licensed SC contractor signing off on it. Personally I built my first home with a bank loan, and my current home out of pocket. I financially couldn't have done the first one without a bank, no matter how long the time frame. Your situation will be different than mine. Personally I'd run all the numbers, staying where you are vs building with a bank loan vs building lhn style over 10 years and see what the numbers shake out at over a 10 year period, and then do what makes most financial sense.
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  5. #5
    LHBA Member loghousenut's Avatar
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    Personally I am no good with goals, or time limits, or monthly payments etc etc. I am glad to have been sent free and building slowly during that last recession. We lost no sleep at all.

    May not be the fastest way to build and it may cause you to live like a rat, but knowing that we are moving into a home that we totally own is a great feeling.

    If a banker or a money broker tells me I ought to take out a loan, it gets me to worrying that maybe he/she is thinking less about my well being than my Dad would have.

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    Last edited by loghousenut; 05-10-2019 at 09:00 PM.
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  6. #6
    LHBA Member rocklock's Avatar
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    What ever you do, don't have a time limit that will for close on your loan.
    I personally made a deal that allowed me to pay off the debt on my land in less than 6 months. The rest was pay as you go...
    Dave
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  7. #7
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    Myself, I thought I would have started building something by now. Instead I seem to keep buying more land, but what I have now will be paid in full this year (7 years, 40 acres so far). All kinds of ways to go about it. You just have to figure out what works best for you. Don't let anybody fool you into thinking anything can't be done. Lenders told me I didn't qualify for a land loan (or any loan for that matter) when I started my journey... Heck, the bank still doesn't want to give me ANY money and my ONLY debt is less than 40% on $500,000 worth of real estate holdings... and I have decent credit. The system doesn't like to work with you if you don't fit into their box. Some of us have to find a way outside of the box, it's possible.

    EDIT: I could cash out my stick frame house in the city and be living in a log home on my 40 acres in less than a year when I talk the wife into it... She's not ready to be that far from a shopping center. If the smallest county in Tennessee gets a Wal-Mart or something anytime soon I might be able to seal the deal.
    Last edited by allen84; 05-21-2019 at 07:31 PM.

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