Posted on: 24th Aug, 2012 10:00 pm
I live in Texas and own my current house, paid off, no mortgages. I desire to build a new house in Oklahoma through a builder. I wish to finance the build somehow. I own the lot to be built on. The current house is worth less than the new house. Given the new house is rural, and, has some special features like an expensive media room, it will likely no appraise for the build cost. But that's the way it goes, it's a retirement house and I really don't care.
Here's the issue I want to solve. I can get a construction loan with a local bank where the house is being built. However, they want $7,500 in closing costs. And, once I move in, the new permanent loan would again incur the closing costs. My understanding is in Oklahoma, state law requires new title insurance unless the house is completed in < 6 months, which it will not be. So, that is double as well.
So, I want to avoid that much in closing costs. So, I thought of funding the build through a HELOC on my current house, plus my own funds. The problem with that is some measure of security. I worry about a builder who goes belly up, etc. Perhaps it's not an issue, perhaps I own whatever is already built not sure. The builder however worries about me walking away and not paying for a given phase. Not sure how to address that. The HELOC would allow me to cheaply fund though.
So, not sure what else someone might be able to come up with. I do not want to sell first, it's simply not possible or desirable for me for various reasons I do not wish to explain, so, please don't ask.
The perfect world scenario would be this:
1. I get loan and builder builds house
2. House is done, I move from old house to new house. Construction loan keeps going though...
3. Old house is fixed up, painted, etc.
4. I put old house on market, takes 0-2 months here.
5. Old house sells, I get the cash
6. Now, I get the permanent loan on the new house, and, the proceeds from the old house sale pays off the construction loan. I want however to end up with $75,000 loan on the new house, I do not want it smaller. So, I want a new loan of $75,000. This is why I don't want to perm loan until the old house sells up to some reasonable time limit of course, say 6 months. If I have a new loan the day I move in, then, it's for the full value of the house (well, 80%), amortized over 15 years. Well, soon thereafter, the old house sells and all but 75k is paid off, but, the payment remains the same. I don't want that.
Anyway, I know there are some other things called recasts and the like that are options as well. In any case, I want to get from where I am in the old house, to the new house, and, ideally, avoid $15,000 or so in double closing costs, yet, have a decent perm loan on the new house for 75k.
Any suggestions or ideas?
Here's the issue I want to solve. I can get a construction loan with a local bank where the house is being built. However, they want $7,500 in closing costs. And, once I move in, the new permanent loan would again incur the closing costs. My understanding is in Oklahoma, state law requires new title insurance unless the house is completed in < 6 months, which it will not be. So, that is double as well.
So, I want to avoid that much in closing costs. So, I thought of funding the build through a HELOC on my current house, plus my own funds. The problem with that is some measure of security. I worry about a builder who goes belly up, etc. Perhaps it's not an issue, perhaps I own whatever is already built not sure. The builder however worries about me walking away and not paying for a given phase. Not sure how to address that. The HELOC would allow me to cheaply fund though.
So, not sure what else someone might be able to come up with. I do not want to sell first, it's simply not possible or desirable for me for various reasons I do not wish to explain, so, please don't ask.
The perfect world scenario would be this:
1. I get loan and builder builds house
2. House is done, I move from old house to new house. Construction loan keeps going though...
3. Old house is fixed up, painted, etc.
4. I put old house on market, takes 0-2 months here.
5. Old house sells, I get the cash
6. Now, I get the permanent loan on the new house, and, the proceeds from the old house sale pays off the construction loan. I want however to end up with $75,000 loan on the new house, I do not want it smaller. So, I want a new loan of $75,000. This is why I don't want to perm loan until the old house sells up to some reasonable time limit of course, say 6 months. If I have a new loan the day I move in, then, it's for the full value of the house (well, 80%), amortized over 15 years. Well, soon thereafter, the old house sells and all but 75k is paid off, but, the payment remains the same. I don't want that.
Anyway, I know there are some other things called recasts and the like that are options as well. In any case, I want to get from where I am in the old house, to the new house, and, ideally, avoid $15,000 or so in double closing costs, yet, have a decent perm loan on the new house for 75k.
Any suggestions or ideas?
Hi steve,
As far as I can understand, it won't be possible for you to avoid the closing costs. None of the lenders will be ready to offer you a loan without the closing costs.
Moreover, selling of property in today's market takes lots of time. So, I am not sure whether or not your old property will get sold within two months. I will suggest you to contact a mortgage broker and take his opinion in this regard. He will assist you in knowing whether or not you will be able to qualify for such a loan.
Thanks
As far as I can understand, it won't be possible for you to avoid the closing costs. None of the lenders will be ready to offer you a loan without the closing costs.
Moreover, selling of property in today's market takes lots of time. So, I am not sure whether or not your old property will get sold within two months. I will suggest you to contact a mortgage broker and take his opinion in this regard. He will assist you in knowing whether or not you will be able to qualify for such a loan.
Thanks
Qualifying is not an issue, I qualify. Selling in my neighborhood is not slow at all, it's very fast, the house next door for example sold in < 1 week. It obviously depends where you live, where I live, in demand, tons of people moving in. Avoiding closing costs? I never said I wanted to avoid them, I want to minimize them. A simple way to do so is the Heloc. However, it has the downside I mentioned. So, looking for options.
Hi steve,
Avoiding or minimizing closing costs can be difficult. However, rather than losing heart, it will be better if you could negotiate with your lender and check out if he is ready to lower the closing costs. It should be noted here that, even though the lender lowers the closing costs upfront, he may add the deducted amount to the loan which may increase your mortgage payments.
Avoiding or minimizing closing costs can be difficult. However, rather than losing heart, it will be better if you could negotiate with your lender and check out if he is ready to lower the closing costs. It should be noted here that, even though the lender lowers the closing costs upfront, he may add the deducted amount to the loan which may increase your mortgage payments.
If the lender lowers the closing costs then the interest rate goes up. Construction loans are a tricky thing in the first place, since there are limited lenders that offer consruction to perm financing. (There is a set radius, from the lender's loocation to where they service/the client is building.) Your best bet would be doing the HELOC, if you already have a construction lender ready to move forward.