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      11-23-2020, 09:02 AM   #8
vreihen16's Avatar

Drives: 2015 BMW i3 BEV
Join Date: Jun 2019
Location: Orange County, NY

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Originally Posted by M_Six View Post
Everything you wrote is Greek to me, but I wish you the best of luck with it. I hope it works out as easy it seems.
My understanding of the options are:

Construction loan against the new house, where everything needs to be scheduled in the construction process and the bank pays contractors based on construction milestones defined at the start of the project. I believe that you have to pay the principal and interest (P+I) from day one, based on the amount paid out by the bank. I suspect that this would be the hardest option to get for building something unconventional like a barndominium, but works fine for someone stick-building a traditional cookie-cutter house in an HOA or subdivision.

A fixed equity loan against our old house, where we can borrow up to 90% of our equity at a rate higher than a mortgage as one lump sum. Payback starts immediately, and is also P+I from day one.

A home equity line of credit (HELOC) gives you a checkbook to write as many small loans as you want over the 5 or 10 year draw period, not to exceed 80% of the old house's value. You only have to pay the interest on the money that you take out over the course of the draw period. After the draw period, the final balance turns into a 15-year loan with variable APR. This seems to be perfect for building a barndominium over a few years at a leisurely pace, paying only interest.

With about 9 years left until retirement, the first two options would leave us paying for mortgages on two houses the whole time. (Well, at least for 4 years until the old house is paid off.) The HELOC appears to offer a path for financing the new house construction, and only paying interest on that money until we sell the old house and use the proceeds to pay off the HELOC (and possibly any remaining mortgage if we want to move sooner). Owning the second house would only cost us a land mortgage payment plus the HELOC interest payments until we are ready to make the jump.

chassis - I would be depending on my liquid assets for the land mortgage downpayment, and as a last resort funding option to cover construction cost overruns.....
2015 BMW i3 BEV, Giga World (Lodge interior), Tech/Driving Assist Packages, 20K miles