Return to the Building a Home Forum | Post a Follow-Up

Use Market Value To Finance Const Loan

Posted by scomar (My Page) on
Wed, Jul 4, 12 at 19:11

Has anyone torn down their existing home to rebuild a new one on the same lot using the difference In the market value and amount owed on existing loan? Based on a recent market analysis when we were thinking of selling we would make the 20% needed to fund most construction loans. We want to stay and us this to build on the existing lot....wondering if the bank would even consider this approach...scomar

Follow-Up Postings:

RE: Use Market Value To Finance Const Loan

I don't understand. Are you saying you want to use a Home Equity Loan or a cash out mortgage to finance your new build?
If so, I am pretty sure that is a resounding no.

RE: Use Market Value To Finance Const Loan

Absolutely not - your house goes away in the process so the collateral goes away. If the build stopped after the house was torn down and all the permits were paid for and lot cleared, the bank would be left holding the note. They don't like that possibility.

RE: Use Market Value To Finance Const Loan

"They don't like that possibility."

It is usually prohibited on the note.

It would fall under 'wasting' (at least).

RE: Use Market Value To Finance Const Loan

We are doing sort of what you describe - we basically took the house down to the studs for the part that we want to preserve (about 950 sq ft), demolish other sections, then put down a new foundation for the remaining 2400 sq ft. It is essentially a new build.

We were able to secure a construction loan. Basically, the bank will buy out your existing loan, and then look at the cost of construction, and what your finished home will be worth... they will loan an amount that is a percentage of that - 75% LTV. In our case, we were able to meet the requirements and got the loan, although they made us jump through a lot of hoops.

RE: Use Market Value To Finance Const Loan

You would need to have substantial equity in the property and the proposed new structure would need to be able to meet a high enough appraisal figure for any bank to even talk to you about this. In other words, if this is a tiny old home on an estate sized lot surrounded by estate sized homes, and it's almost paid off, then you probably could be financed for that million dollar build if your income met the guidelines for the new loan amount. Even then, you'd better have substantial cash reserves in case it doesn't make the appraisal.

 o Post a Follow-Up

Please Note: Only registered members are able to post messages to this forum.

    If you are a member, please log in.

    If you aren't yet a member, join now!

Return to the Building a Home Forum

Information about Posting

  • You must be logged in to post a message. Once you are logged in, a posting window will appear at the bottom of the messages. If you are not a member, please register for an account.
  • Please review our Rules of Play before posting.
  • Posting is a two-step process. Once you have composed your message, you will be taken to the preview page. You will then have a chance to review your post, make changes and upload photos.
  • After posting your message, you may need to refresh the forum page in order to see it.
  • Before posting copyrighted material, please read about Copyright and Fair Use.
  • We have a strict no-advertising policy!
  • If you would like to practice posting or uploading photos, please visit our Test forum.
  • If you need assistance, please Contact Us and we will be happy to help.

Learn more about in-text links on this page here