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Construction loan or HELOC to fund new construction?

Tammy F
2 years ago

We own our current home, no mortgage. We recently purchased a piece of land for cash and plan on building a small (under 1600sq ft) home. We have savings we plan to use to fund part of the new build and the rest would come from either a HELOC or construction loan that would be paid off when we sell the current home. HELOC rate at our local bank is 1.49% for 12 months, no closing, no fees. Construction loan will require a closing and have higher interest rates.

Current home value is approx 340K, new home price approx 350-375K, we would use 150K of our own cash and borrow the remaining 210-230K (less than 70% value of home). We live in a neighborhood where houses sell within 2 weeks of being listed, so we are not concerned about selling the current home and are pretty confident the building process can be completed within the 12 months of the introductory rate.

Is it safe/advisable to use a HELOC to help fund a new build, or is construction loan the way to go ?

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