We started looking at some spec houses in a subdivision, and then
found a plan that the builders had used previously, and decided to put
a hold on a lot in the subdivision and build this house. Originally,
we were looking at only a mortgage, as we were buying a house
currently under construction. Now, we're looking at a construction
loan. We own a house now, and only have 2 1/2 years left on the
mortgage. The house has also increased significantly in value, for
instance the tax assesment has more than doubled. We don't want to
sell our house and have to live somewhere else in order to build a
house, but I'm not sure I understand how the equity in our current
home will impact a construction loan. Will we have to apply for a
home equity line in order to pay some of the up front cost in order to
get a construction loan?

If someone could give me a basic breakdown of how a construction loan
works from the very beginning for someone who owns a house. Use the
example of our current house having a value of $150,000 and the
construction loan being for $300,000. I'd just like to be more
familiar with the process before I talk to the mortgage company.

Thanks.

On 1 Nov 2004 09:35:30 -0800, someone wrote:


If someone could give me a basic breakdown of how a construction loan
works from the very beginning for someone who owns a house.

You may be making this more complicated than it is.

But 1st, what is your frame of comparison, if you bought an already
completed house, how were you going to handle the move? Carry 2 house
for a little while, depend on selling yours but then renting it back
for a while, trying to close both and move all in one day, etc.?
Where were you going to get your "down payment" on the new house, if
you bought an already completed one?

A construction loan is just temporary financing that gets replaced by
the permanent mortgage when the new house is completed. The
construction loan is advanced in stages as the house is completed.
Usually you don't finance 100% - so where do you get the rest?

From wherever you can. Use your savings, sell some stock, or, yeah,
get a home eq loan on your old place. But why not go to your banker
or mortgage broker, explain what you want to do (build a new house)
and have THEM explain what they can do for you.

(Sorry, I do not agree to be assigned to give you an example using a
$150k house and a $300k house or whatever it is you wanted.)

But I'm not sure you even need this loan - on the spec houses, did the
builder really "pay cash" to get the house built - or do THEY have a
construction loan to get it built, and then pay it off when they sell
it to someone? Do you really have to pay up front to get a builder to
build a house? The only times I have taken out construction loans,
have been when I was the developer and GC.

-v.

"Terri" wrote in message
om...
We started looking at some spec houses in a subdivision, and then
found a plan that the builders had used previously, and decided to put
a hold on a lot in the subdivision and build this house. Originally,
we were looking at only a mortgage, as we were buying a house
currently under construction. Now, we're looking at a construction
loan. We own a house now, and only have 2 1/2 years left on the
mortgage. The house has also increased significantly in value, for
instance the tax assesment has more than doubled. We don't want to
sell our house and have to live somewhere else in order to build a
house, but I'm not sure I understand how the equity in our current
home will impact a construction loan. Will we have to apply for a
home equity line in order to pay some of the up front cost in order to
get a construction loan?

If someone could give me a basic breakdown of how a construction loan
works from the very beginning for someone who owns a house. Use the
example of our current house having a value of $150,000 and the
construction loan being for $300,000. I'd just like to be more
familiar with the process before I talk to the mortgage company.

Thanks.

the bank or mortgage company can explain it pretty well.

basically, what you have in your house is useless for the new house unless
you can borrow money against it (home equity) loan.

you need to have money to start building the new house. the builder will
want some money as a deposit. they don't care where you get it, whether it
be from your savings account, home equity, etc. the bank will want to know
what type of loan you're going to wind up with (80%, 80-10-10, etc). you
still have to come up with your deposit, and the mtg company doesn't really
care where you get it either unless it impacts how you're going to pay off
the 2nd house mortgage.

once they approve your construction loan, they only give you money to pay
for what is actually accomplished by the builder on a schedule that was
approved by the bank. you only start paying on the 2nd house mortgage what
you've drawn against the commitment. in the beginning, the 2nd mtg won't be
very much and you may be able to pay both notes at the same time. at some
point, you'll be paying for 2 house mtgs, so unless you can support that
with your current income, you have to sell your house in order to make both
payments. that point will also come into the calculation as to whether they
will give you the 2nd house mortgage in the first place.