My husband's way of asking the question (below), it might make more sense then my previous question. Thanks for all the replys,I appreciate it. Currently own home, mortgage free. Have been advised I can use the equity of current home toward purchase of dream house (listed at amazing price), with the intention of selling current property (with commercial value) at later date when more valuable. Is this a practical undertaking? What percentage of current property value would be offered as equity? Would I essentially be paying interest on a HELOC on currently owned property while paying off a mortgage on new home?

Would the below be a correct/ accurate estimate? (Example is being slightly conservative?) 2 acre bought for $100K cash, no financing at all. From here on out, would it be correct to say we now have to ignore that we just spent 100k on property as far as any future construction loan is concerned? Based on several comments in this old thread, that seems to be the case, as it appears appraisal for total finished property (house plus land) does not really seem to consider market value paid for land at that time and final appraisal appears to be much lower than combined build cost and property cost. Construction Cost from Builder: $500k Based on several comments above, it sounds like most appraisals are extremely short when considering land value. (seems odd because where we live, zip code 54115, our county web site shows “fair market value” for both property and the “improvements” (house and such). Example: Nice newly built house in area just bought, county site shows land value at $86k (purchase price/ appraisal value), then improvement/ building/ house at $589k. The public tax bill shows the tax is paid as a single payment, but the site does separate out the two. Bank will loan 80% of total appraised value basically ignoring actual construction cost builder will charge. Using our 2 acre lot example and 500k construction cost: o Potential low appraisal value might be $525k. (even though land was 100K fair market, and cost to build is 500K) o So bank will lend 80% of $525k, meaning $420k At construction loan closing, we need to bring ~$80k in cash ($500k build cost minus $420k possible loan/ financed amount). In this example, our $100k already paid for land at market value did not really contribute much if any at all. So total upfront cash/ down-payment we spent on completed property (original land purchase if 100k plus 80k construction down-payment) is $180k or about 34% of final appraised value? Continuing to use the example above, with a total loan of $420k plus our $180K spent in cash for total initial cost is $600k on newly appraised property of $525k at construction loan closing, we would already be ~$75k in negative equity? I understand construction is generally more expensive than buying prebuilt, but with the mantra that is taught “house is an investment”, why would anyone ever want to build new as it will take a very long time to reduce that negative equity. Any ROI appears to be horrendous compared to other investment areas. Please understand I have no real idea other than my wife and I bought some property and I am trying to get a a somewhat accurate gage of how much additional cash we may need for a construction loan hopefully not more than $500k. Based on the comments above, I am now thinking better to just sell and maybe get our $100k back as best able, put into other investment instead and wait until a pre-built hopefully come on market that has what we are looking for. Then use that $100k (or more) on a house where we could already seem some form of equity return. How often does it seem final “market value” is so much less than build cost plus land? Is there a general rule of thumb that can be applied for rough estimates? (maybe take build cost plus land value, then minus a certain percentage?)

New bank does construction loans all the time and approved us even if the loan to value goes above the 80% as our finances are all sound. They understood contingencies, overruns, etc, and will actually be doing $600k so there’s a little bit of buffer. Spoke with the initial bank rep and bank manager today to close out the loan and they both apologized, with rep even saying they were a little worried about other things that may pop up down the road if this had already started with first disbursement - so I think we may have actually avoided a train wreck down the road.

Schedule an appointment to talk with the lender at the bank other owner-builders have worked with. Don't get caught up in the current market value of your land...it is irrelevant. The bank will (most likely) not lend more than 80% of the appraised value of the final product. How much will an appraiser say the house on the 5 acres will sell for when completed? My bank will let owner sweat equity count towards the 20% down...it doesn't have to be actual cash. My lender will also allow us to start the house and come see them when we are out of funds, but this is not typical. Very few banks will do owner-build construction loans. Each have their own rules. Go talk to your lender. But the bottom line is your land value doesn't matter. What matters is what your property will sell for once completed. For all we know, your bank may only lend 60% of the appraised value on owner-builds. Make an appointment and get their rules.