Financing questions.

[KitSlater]

My land is paid off and worth around $125K. I also have around $30K equity in the house I live in now. I have been researching construction loans and other options. Can't find info for my specific situation. My ideal is to have little or no mortgage but I will need a line of credit for construction and to help with living expenses while I am building (I plan on doing most of the work myself). Any suggestions on the best way to borrow against my land and to be able to roll my equity into my home after I sell the house I live in now? I will eventually deal with a mortgage banker but I like to go into those situations with a pretty good idea of what I want. Thanks.

[Klapton]

I haven't applied for one yet, nor have a built yet, but I've done a lot of searching and reading on the topic.

What you will want / need is a Construction Loan. Owning the land is very good, because they can use the land's value as "down payment", or part of the Loan to Value ratio of the loan. But here's basically how they work:

You submit your plans along with your loan application. The lender will do something similar to what realtors do when they do "comps"; they will try to predict the value of the home you are going to build. This is how they determine how much they will be willing to lend you. (Some people I talked to warned me that this might be trickier for log homes, because "comps" are not as simple to determine, being a "niche market".)

The loan is usually very short-term (compared to a mortgage -- only a few years). But they will often NOT require payment while construction is ongoing. But they do two things: 1) put a time limit on getting the home done, putting big "balloon" payments after two years and 2) pile interest on top of the loan while you build, even though they are not collecting payments. This encourages you to get the home completed in a timely fashion, because it saves YOU money and ensures the bank that you will actually FINISH the thing, and have something of value they can take from you if you don't pay, hehe.

During the building process, they will pay out cash a little at a time for the expenses of building. I don't know all the details of how this works, and different lenders have different rules about it.

When you get your Certificate of Occupancy, the Construction Loan is rolled into a traditional mortgage (hopefully one that is smaller than if you had simply hired a general contractor to build your house).

Other complications... Some lenders will require a "site supervisor" with significant construction experience to advise you during your building process. Others are simply EXPECTING you to hire a GC (general contractor).

As I said, I haven't done mine yet. I'm actually hoping that I find property cheap enough that combined with the sale of my existing home, I won't have to borrow anything. We'll see though.

Anyway... here's a linkie that should at least give an explanation as good or better than mine: http://en.wikipedia.org/wiki/Construction_loan

Best of luck!

[zato_ichi]

and how he went about the financing of his dream.

http://www.make-my-own-house.com/

There is a free e book which tells about how they went about starting out mortgage free, I think it the first 48 pages of his pay ebook

I bought his ebook, which was very detailed about permitting and contruction...I am not connected in any way to this guy, i just happened to buy his ebook and found it very enlightening. Not suggesting that you would need his book to build or anything, but you should at least read the free book as it is just further proof that you don't have to be a lemming and go about a conventional mortgage like we all have been trained to do by the conventional real estate/banking industry.

[ajax]

That's a nice link......lots of information especially on the step by step process.

Hey you don't look like a blind swordsman!!!

[Klapton]

I would second what Zato Ichi said about going debt-free. (I wanted to actually answer your question as best I could before actually offering "advice"). You mention owning the property already, and having at least 30k of equity in your current home. You are actually well ahead of the game already in that you probably could do this debt free, or close to it. In the class they explain ways to acquire very inexpensive living arrangements while you build. Basically you could plop a single-wide mobile on your property while you build, and use whatever cash you have from the sale of your home to do your construction.

Now, you are probably thinking that 30k won't be enough, or at least not enough for the kind of home you want to have when you are all done. That's understandable. Will you continue working while you build? If so, I would say go for it, and pay as you go for your materials. If not, then the construction loan will probably be the way to go then. Perhaps a better thing to ask is if it will be POSSIBLE for you to continue working your job while living on your property? While I'm sure you are thinking that you would prefer to build your house as your "full time job", there are LOTS of people who manage it "part time" and stil finish in a timely fashion. It's harder work, of course. But which is harder, busting your butt for two years, or paying a mortgage for 30 years?

Here's an article about a family of three that managed to get the entire shell of their home built in nine weeks, only working on it in the evenings and weekends. http://www.loghomebuilders.org/9-week-log-home-0 . Now, that was an extraordinary accomplishment, and you shouldn't feel bad if it takes you longer. But I just mention it as encouragement that it can indeed be done, if someone has the determination to make it happen.

[kyle]

Sorry that I don't have time to answer to this thread at this time but I will try to post this weekend. Being that I own a small mortgage company and have worked for 15 years in banking/mortgage lending I'll try and give my recommendations on what might be your best option(s).

But I do have one question...any clue how much you want to spend (or not spend)???

[KitSlater]

I really aprreciate all the feedback. I'm planning on working part-time durring construction. My girlfriend and I are raising my two kids (10&13) so adequate housing durring construction is a must. I am thinking around $50K to build. $30K from my current house equity and a $20K 15yr mortgague. If I can pull it off totally debt free, GREAT! But I have to get this done in a reasonable amount of time so I am willing to take on a little debt to help it get done sooner. I have seen some combo construction/mortgague loans that you don't have to start paying on untill you finish building then the construction loan rolls into a home mortgague, only paying one set of closing costs sounds good. This seems like a good way to go but I still have a lot of research to do. -Kit