Need advice on financing a future home build.

Burro237February 18, 2013

We currently have a home mortgage in TX. We would like to build a home in Arkansas in a few years. If possible, we would like to start the new home construction before trying to sell our current home. We have recently purchased a piece of land in Arkansas where we would like to build. In 3 years we will owe @ 50K on the land. We will have @ 50K in equity in our current home, and we hope to have at least 50K in cash to put down on the new construction. My question is : is this the kind of thing that a bank would lend money on for a new construction, or would I need to sell my current home first? My other question is: is it better to bring 50K in cash to the bank, or is it better to pay off some of our current mortgages and use the equity as collateral?

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The best thing I can tell you is to talk to your bank. Some banks will want 20% cash, some will take property equity, some will worry about your monthly expenditures while some will overlook a bit with enough equity.

My situation is kind of the same as yours. I have (after just sending a $20k check towards our property) that out vehicle payments will actually hurt us more than owing more on the land. We will have 40% equity going towards the build by paying off the land, or 35% by taking that money left on the land and paying off vehicles.

    Bookmark   February 19, 2013 at 7:12AM
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No one here can answer these questions. We're missing too much information -- and the necessary questions are probably things you don't want to share on a public message board:

How much income do you have? If you're financially able to carry your current mortgage PLUS the new build, you don't need to sell your current house at this point.

Do you have stellar credit so that the bank will be willing to lend to you under these circumstances? And a related question, what other debts do you have?

I'm not seriously asking you to answer these questions online -- in fact, I think you shouldn't. But these are the things that'll matter when the bank is determining whether to lend to you.

    Bookmark   February 19, 2013 at 9:26AM
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As others have said, you need to talk to a couple of local banks. They will have their own lending policies, but will also have policies for your debt-income ratio. You might try talking to a couple of banks near your home in TX, as well as near your property in AK. May be a difference in policies.

    Bookmark   February 19, 2013 at 10:11AM
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I will repeat what was said above, which is basically "it depends".

That said, we did something similar. We bought a lot last year, and now we are building on it while still living in our current home. We were required to put 20% on the new house, and the equity in the land counted towards that. We were also required to prove that we have the income to carry both mortgages.

    Bookmark   February 19, 2013 at 9:44PM
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