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If you keep some walls up, it can probably be considered a remodel, right?
Why would you inform a mortgage company of your plans?
Yes your first comment is one that I'd love to know more about, but I'll talk to some builders to get more info on that.
I definitely wouldn't plan to inform them if I didn't have to. That's why I'm trying to find out the different options available. In the event some random person from the bank drives by one day while the bulldozer is plowing through, that would start some real trouble. Also I've heard some towns/neighborhoods require written permission from bank before tearing a structure down.
What you want is basically a construction-perm loan. However, since you already own the home, it would be a renovation-perm loan. What this loan does is pays off your current mortgage and lend you the money to tear down and rebuild, using the value upon completion. If your equity is sufficient, it's possible for you to do this without a penny more out of pocket (using your equity in the land as your down payment in the project)
The best process is what we call a one time close. Before you can get the loan, you need to have plans and specs, and a contractor lined up. At closing, your current loan would be paid and money would be advanced in draws in phases (for different steps when building, such as foundatio/driveway, framing, systems, flooring/fixtures, etc). After each draw, you won't get the next draw until the county, lender and title company sign off. Most lenders work with 4 to 8 draws. You will be micromanaged, so a Class A contractor is highly recommended - actually, most lenders will insist. Once you get your new occupancy permit, you can close or settle up on the permanent phase of the loan. Your rate on the permanent loan could have been locked in, but must close by this date. So, if you think it will take 4 months to build, you need at least a 120 day lock. The longer the lock, the more expensive. When you close on the permanent loan, you also ante up the escrow for taxes and insurance.
This is incredibly valueable information. Thank you. Do you know what the rates are for these construction-perm loans? Are they much higher than the conventional home loans (i.e. ~4% interest rate).
This is incredibly valueable information. Thank you. Do you know what the rates are for these construction-perm loans? Are they much higher than the conventional home loans (i.e. ~4% interest rate).
Most people refi out of regular construction loans, so I wouldn't put too much emphasis on the rate. Just my 2 cents.
If you keep some walls up, it can probably be considered a remodel, right?
Why would you inform a mortgage company of your plans?
Quote:
Originally Posted by plasmahome
Yes your first comment is one that I'd love to know more about, but I'll talk to some builders to get more info on that.
I definitely wouldn't plan to inform them if I didn't have to. That's why I'm trying to find out the different options available. In the event some random person from the bank drives by one day while the bulldozer is plowing through, that would start some real trouble. Also I've heard some towns/neighborhoods require written permission from bank before tearing a structure down.
That is terrible advice and I suspect that a mortgage company would likely call your loan due if they found out. The point of a mortgage is that the house is collateral against the debt. They will not be pleased to find there is no longer a house they can foreclose upon if the loan is defaulted on. Even if you left the studs.
That is terrible advice and I suspect that a mortgage company would likely call your loan due if they found out. The point of a mortgage is that the house is collateral against the debt. They will not be pleased to find there is no longer a house they can foreclose upon if the loan is defaulted on. Even if you left the studs.
Agreed, I can almost guarantee it's in your Note somewhere about the destruction of collateral. Many jurisdictions require permits for tear downs. The neighbors won't like what's going on with Harry Homeowner, destroying the hood. They will be the first to report you. Tread very carefully here, I suspect the lender does have recourse if you start destroying property.
As for the c-perm loans, they aren't that much more. While building, most c-perms are interest only. Sure, you can refi out of the perm loan, but it would have to be a decent rate to pay in some states duplicate Recordation Taxes on the loan. (That's the whole purpose of the c-perm, avoiding duplicste fees). Jurisdiction drives that answer. Also, lenders don't make money off the construction portion of the loan, so many have gone to charging a point at the closing on the c-perm, and only crediting it back when the perm loan takes over. It's been a few years since I've done these, but they haven't changed much.
Agreed, I can almost guarantee it's in your Note somewhere about the destruction of collateral. Many jurisdictions require permits for tear downs. The neighbors won't like what's going on with Harry Homeowner, destroying the hood. They will be the first to report you. Tread very carefully here, I suspect the lender does have recourse if you start destroying property.
As for the c-perm loans, they aren't that much more. While building, most c-perms are interest only. Sure, you can refi out of the perm loan, but it would have to be a decent rate to pay in some states duplicate Recordation Taxes on the loan. (That's the whole purpose of the c-perm, avoiding duplicste fees). Jurisdiction drives that answer. Also, lenders don't make money off the construction portion of the loan, so many have gone to charging a point at the closing on the c-perm, and only crediting it back when the perm loan takes over. It's been a few years since I've done these, but they haven't changed much.
last question... let's say I am able to get some lump sum of cash (ie the money I would have used to do construction), and pay off my mortgage instead. let me make sure I have this straight..
I'll put it in simplistic #'s (obv fake and exaggerated)
say my house costs 1 million, and I can pay it off somehow..
Now I wanna spend 1 million to tear it down and rebuild a house that looks so beautiful that it would be valued 3 million
But I don't have that cash on hand anymore because I just used all my money to pay off my house.
So this will lead me back to this construction/renovation-perm loan you speak of right? So if my current house is valued at 1 million and its paid off, and my home post-construction would be valued at lets say 3 million, I can get a 1 million c-perm loan, pay for the construction, and then after construction is done after a year (during which time I've been paying interest only), I've got another standard 30 yr "permanent" mortgage on my hands?
What I'm a little confused about is you're saying the new c-perm loan amount is basing off the value of the home POST remodel.. but my income is not high enough to afford a "3 million dollar loan," nor do I need that amount of cash. The value of the house post-remodel is just the upper limit of what the loan can be, right? Like I can tell them I just need 1 million bucks to remodel, give me that amount, and you'll now have a 3 million dollar home as collateral incase I can't pay up. Just thinking out loud I hope that makes sense.
You must be qualified for the loan amount and no one is saying you must take out the maximum loan possible. But yes, it sounds like you understand the basics, during the building phase, most are at IO, then when home is finished, you transition to the perm loan.
Agreed, I can almost guarantee it's in your Note somewhere about the destruction of collateral. Many jurisdictions require permits for tear downs. The neighbors won't like what's going on with Harry Homeowner, destroying the hood. They will be the first to report you. Tread very carefully here, I suspect the lender does have recourse if you start destroying property.
I agree. I suggest that the OP read his mortgage and he will find something along those lines.
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