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#452220 - 04/30/16 03:32 PM Equity vs. Down Payment?
pcooper114 Offline
Junior Member

Registered: 04/30/16
Posts: 3
Loc: GA, USA
First time poster here!

My wife and I have purchased a piece of land to build on, and once we sell our current home, we plan to begin building.

The profit from the sale will be enough to pay off almost the entire loan for the land, and I had questions about how to go about this.

The chief loan officer at our lender (who is a family friend) has advised that paying down the land loan to nearly paid off is the easiest way to handle it instead of saving up for a down payment. He said to leave $100 or so on the land loan so that they can roll it into the construction loan (thus not having to re-apply for the new loan, pay new loan fees, etc) and that the equity in the original loan will be like having a down payment. So say the land is $40k, the construction plans appraise for $300k, and together they roll into a total $340k construction loan, $40k-ish of which is paid off.

Does that make sense to everyone? This is our first build, so I'm making sure we wouldn't benefit more from having more cash up front instead of paying down the land loan.

Thanks for any thoughts!

Edited by pcooper114 (04/30/16 03:33 PM)

#452223 - 04/30/16 11:50 PM Re: Equity vs. Down Payment? [Re: pcooper114]
Vermont Offline
Major Contributor

Registered: 04/12/08
Posts: 7811
Loc: Vermont's North-East Kingdom
Your Loan Officer Friend is providing you with "straight scoop" on this score.

In the end, all debt is going to be rolled into one big new Mortgage on the New Property anyway (and your Loan Officer already approved you for that loan amount, I assume).

Let's just hope you can prepare the current Home For Sale and get it sold to dovetail with the completion of construction on the new one . . . . like clockwork. You don't want to forget that it needs to be a "New Home" for your Buyer, so don't abandon it !

Unfortunately, many home-building Sellers forget this and begin treating the current home with benign neglect, like an unwanted step-child, while they focus their attention on the construction project . . . . all while achieving "top dollar" for the current home is the key to success for this whole process. It must not be forgotten about; especially when your scenario appears to require conforming to a "tight" budget.

Good Luck !
Dale C. Hittle of GOLDEN RULE PROPERTIES in Glover, Vermont
Where We're Always Striving To Put Together "THE FAIR DEAL"

#452226 - 05/01/16 05:37 AM Re: Equity vs. Down Payment? [Re: Vermont]
pcooper114 Offline
Junior Member

Registered: 04/30/16
Posts: 3
Loc: GA, USA
Thanks for the insight! We have worked pretty hard to get the current home ready for show and have received decent interest so far, though it has only been about a month or so.

The build is a big part of our short-term plans, but we're not letting it get to our heads or anything ;) We're not in any hurry, but I'm not willing to begin building until this one is sold, so we're just sitting tight for now.

Just in case, if any middle Georgia people are here, come take a look!


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