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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127236  
Subject: financing the next house Date: 12/12/2013 8:14 AM
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We're planning on downsizing, and would like to build again, so are looking for land. We will consider a house with enough land that DH can build a barn in the backyard as well, but even if we find one, I know we will be doing major renovations. Assuming we will buy land and build, it will take at least a year for us to get from land acquisition to finished house, and most likely longer.

We still have a mortgage on this house, but we have about 80% equity in it. The plan is that we will move into the new house first, and then market this one.

I'm trying to figure out the best/easiest way to do the financing given that we will most likely be carrying both properties for a short time, and will then pay off the new house once we sell the current house, ending up with no mortgage as we move into retirement.

Does it make more sense for us to take out a HELOC on this house now, and draw down that money as we go to build the new house? That would put all the debt on this property, and would leave the other property unencumbered. There would be payments due on the loan along the way that I assume would be interest and some principal. It would make the land purchase a cash sale, and I wouldn't have to wait for the financing to come through.

Or does it make more sense to pay cash for the land, and then take out a construction loan on the new property instead? I don't think we could get a construction loan to acquire the property since we won't have house plans until we have land so that the house will be designed to sit properly on the lot, and from experience, designing the house will take us a good 6 months or longer (took a year for this house, but we weren't in any hurry as the landowner didn't want to finalize the sale for a year).

I'm thinking that getting a construction loan to acquire and then build the house will not be possible because we won't have house plans until after we get the land. Is that a good assumption?

I'm just trying to get my hands around a financing plan for this while we look for land, knowing full well that it takes us a very long time to find the right thing for us, so we might not even find the land for another year. I just like to have a plan in mind so I know what I'm doing.

Anyone have any suggestions?
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