Mortgage process for building out-of-pocket

10 years ago

We are 75% done building a house. We sold our old house. Moved into an apartment, and have beening using the equity from the old place+saving to build the new one. We opt'd not to do a construction load - simply out of convenience and hassle factor.

When the house is done, we want to get a mortgage on it for 50% of the value.

I've done a bit of research on it, and I flat-out confused.

What is the right way to go about this with a mortgage broker to get this accomplished?

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Comments (8)

marie_ndcal
10 years ago
Have you talked to your bank or credit union? Be careful of mortgage brokers, we got hurt big time involving one, and will never deal with them again.We had a construction loan that turned into the home loan thru the credit union.
User
10 years ago
That's not a mortgage. That's a home equity loan. Higher interest rate and all.
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liriodendron
10 years ago
What you're proposing is a cash-out loan. Essentially you're borrowing and paying interest on the money just to have it in your bank account to repay yourselves for the money you've already spent on the house.

Can you swing it w/o a loan? Then you'd have a paid-for house and no debt. Very nice things to have. I would be highly tempted to short-circuit the project and just move in if you're at the end of your cash. Then save up some more and finish up as you go. Even with a the mortgage interest deduction, you pay a lot of money for a mortgage. It sounds like you are pretty effective at saving money.

You should make sure you understand if it has different requirements and tax treatments than a construction loan converted into the equivalent of a purchase-money mortgage.

L.
User
10 years ago
Construction loans aren't available after the fact. Neither are mortgages. If you wanted a mortgage for the build, you shouldn't have done a cash build. You'll have to have an bank inspection and appraisal after it's completion and reception of the CO and then you can possibly get a equity loan. But, it will have to meet building code and you will have to meet credit standards.
bambamatx
Original Author
10 years ago
> Can you swing it w/o a loan?
> Then you'd have a paid-for house and no debt.

Yes, we can and will - that's not an issue. However, we would still like to take out a mortgage on it - simply to get the current interest rates and use money for other things (possibly a spec house).

Like hollysprings mentioned, my attempt at short-circuiting the process has left out a step (should have bucked up and gotten a construction loan). I didn't realize there were expected steps to follow. I figured you just do a appraisal when it was done and get a mortgage loan - no fuss no problem.

>That's not a mortgage.
>That's a home equity loan.
> Higher interest rate and all.

That's my pickle.

I'm trying to figure out how to rewire this process to get a standard mortgage on the new home at awesome these awesome interest rates.
User
10 years ago
"I'm trying to figure out how to rewire this process to get a standard mortgage on the new home at awesome these awesome interest rates."

That's not going to be possible. Now, if you finance the spec house that you are thinking of building, perhaps you can get the good loan rate for that, but you will lose the freedom to build it 100% as you wish without bank involvement dictating the tenor of some of the choices. As it stands though, you cannot get either a construction loan or a mortgage on a partially finished home. It's a liability, and not yet an asset. That will come at it's completion, when you pass the final inspection.

If you finish the home, and you own it outright, you can get a personal loan or equity cash out that is secured by the residence after an bank appraisal is completed of that residence. They will still be at low rates when compared with many other loan types though, so perhaps that can help you with your future projects if the construction loan for the spec house can't materialize.
popeda
10 years ago
We found ourselves in this exact position. We found a credit union with phenomenally low home equity rates. We got $24,000 for 1.9% as long as we only took it for 5 years. Nothing around us locally could touch this (several tried), and it was a group we had used for years when we lived overseas working for the military. They no longer offer this low a rate, but they are still low. Shop around. You should be able to find an equity loan. We did not have to have an appraisal on the low amount for 5 years, but if we had, we would have just waited until we were complete and had the appraisal. If you want less than 80% of value of the home, appraisals aren't usually an issue. Don't despair, just get busy shopping for rates.
krycek1984
10 years ago
There is no reason a heloc or equity loan has to be a significantly higher interest rate. And keep in mind closing costs are lower with those options. Many credit unions offer excellent rates and terms.

A lien is a lien. It's the terms and costs associated with the loans that differ. Whether it's a lien due to a mortgage or a heloc, there is still a lien on the house and the bank can take similar actions to foreclose if necessary.

Also keep in mind you will be saving money if you only take out of the heloc what you are using as you go, which can significantly reduce interest costs if you aren't making a one time purchase. We had no lien on our current home and owned it free and clear. We were looking to get a mortgage but the heloc was better in almost every way.

Mortgage process for building out-of-pocket

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marie_ndcal

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Mortgage process for building out-of-pocket

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marie_ndcal

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