Home Equity Loan to build next house

[happygirl]

Hi everyone. I currently own my home with no mortgage. I have no debt. I plan to sell this house and build my next, but the building process will take 6-8 months. I would have to rent somewhere to live during this time.

It occurred to me that I could also consider taking out a home equity loan or line of credit in advance to build my new home so I could move straight from one house to the next, then pay off the loan/line of credit when my current home sells. Of course, I run the risk of not selling my home right away, but if it works out, I wouldn't have to move twice, nor would I have to pay for a short term rental.

I've looked online trying to find info on these types of loans and the costs of each, but didn't have much luck. I'll try calling a few banks or lenders when I find time later this week, but meanwhile, can anyone tell me if there are any obvious advantages to any of the above mentioned options and anything you might know about the options I'm considering?

I've been thinking about this for quite a while, since I like to move slowly on big decisions. I have a house plan and I've met with my builder (I've used him in the past and trust him). My new home will be smaller than my current home, and will cost less, and I've been negotiating with the current owner of the lot I want to purchase, but don't want to move forward with buying it until I have my costs locked down a bit more.

Thanks!

[LivingAlmostLarge]

What's the house worth? How much is the house you are building? What sort of cash savings do you have on hand? What sort of assets?

It sounds like a decent plan but I think more numbers would help determine. I mean building a home there usually is cost overrun delays, etc. What happens if market turns and you can't sell your current home? Just small things to look at. If you have a lot of cash and can weather anything I think financing it is fine.

[happygirl]

What's the house worth? How much is the house you are building? What sort of cash savings do you have on hand? What sort of assets?

It sounds like a decent plan but I think more numbers would help determine. I mean building a home there usually is cost overrun delays, etc. What happens if market turns and you can't sell your current home? Just small things to look at. If you have a lot of cash and can weather anything I think financing it is fine.

The house I'll be selling is worth quite a bit more than the one I'll be building, even if I don't get close to list price. I have adequate savings and income. Other than my house and my car and my retirement accounts, I'm not sure what you mean by assets.

I've built houses in the past and with the same builder so I know I can keep within his allowances for flooring, cabinets etc., but I'm planning a generous amount for unexpected issues simply because I think it's always best to prepare for the worst just in case.

Are you familiar with costs associated with equity loans and lines of credit? Thanks!

[LivingAlmostLarge]

If you had a lot of taxable assets you can borrow against with say UBS and have a line of credit extended against the investments.

You can also borrow a home equity line of credit and it's usually not too expensive. Hence why I asked assets.

[happygirl]

Oh, I understand. No, no taxable investments. Thanks again!

[greenskeeper]

have you looked into a contruction-to-permanent financing loan? You could keep your existing house free and clear of a mortgage, build the new one assuming a 30 year mortgage but have the option of paying it off when your first house sells.

[happygirl]

have you looked into a contruction-to-permanent financing loan? You could keep your existing house free and clear of a mortgage, build the new one assuming a 30 year mortgage but have the option of paying it off when your first house sells.

I have considered a construction to permanent loan which I would pay off when I sell my current home. I was discussing it with a friend who suggested it might be less expensive and easier to do a home equity loan or line of credit though, so I thought I would ask here about it.

[autoxer]

I have considered a construction to permanent loan which I would pay off when I sell my current home. I was discussing it with a friend who suggested it might be less expensive and easier to do a home equity loan or line of credit though, so I thought I would ask here about it.

It does seem like a HEL wouldn't have as many origination fees as a mortgage, but it might carry a higher interest rate. That wouldn't matter much if you pay it off really quick, so it seems like a good option for you.

[Singuy]

Here are my advices coming from getting 3 different home equity line of credit.

1. I recommend home equity line of credit if you are building a house from scratch. Reason being that you don't need all the cash upfront since the builder is paid in segments. If you get a credit for say 300k and withdraw only say 10k the first month, you only need to pay interest on the 10k vs the entire home equity loan of the 300k.

2. Pick a bank with 0 closing cost. Some banks (like suntrust) will have a no closing cost special IF you have the line of credit open for at least 3 years. They will also REFUND your closing cost to you IF you close the equity line with them under 3 years but opened up a new one within 6 months.
Say you open up a line with suntrust, and in 8 months you close the line(due to selling of the house)..then you open up a NEW one with them from your new house and just keep the balance 0 for 3 years(so no fees/interest) and you get your closing cost back from the old house.

I wouldn't get a normal home equity loan due to high closing cost(can be 2-3k) and you end up paying for interest on money you may not need to borrow.

[happygirl]

Here are my advices coming from getting 3 different home equity line of credit.

1. I recommend home equity line of credit if you are building a house from scratch. Reason being that you don't need all the cash upfront since the builder is paid in segments. If you get a credit for say 300k and withdraw only say 10k the first month, you only need to pay interest on the 10k vs the entire home equity loan of the 300k.

2. Pick a bank with 0 closing cost. Some banks (like suntrust) will have a no closing cost special IF you have the line of credit open for at least 3 years. They will also REFUND your closing cost to you IF you close the equity line with them under 3 years but opened up a new one within 6 months.
Say you open up a line with suntrust, and in 8 months you close the line(due to selling of the house)..then you open up a NEW one with them from your new house and just keep the balance 0 for 3 years(so no fees/interest) and you get your closing cost back from the old house.

I wouldn't get a normal home equity loan due to high closing cost(can be 2-3k) and you end up paying for interest on money you may not need to borrow.

This is an interesting idea. Hopefully I'll have time to make a few calls next week and see what's available. Thanks!

[GrowingTheGreen]

Seems like you've got a solid financial foundation and a good plan for the build. I see no reason why a HELOC is a bad move.