10 year home equity loan questions

[Preston]

Insaneilupus - This what I been thinking too. I never have had a mortgage since about 39 and only previously had random car loans.But most of equity has been in real estate, and I don't have a lot of other investments, besides one annuity and some metals. My job requires me to travel away from home roughly 50% of the year and I just turned 50, and I really want the option of not traveling and working for ourselves. The money is not great working full time as a carpenter, builder and not consistent. Seems like one religious group controls a lot of the work in my area.
I was just hoping to be able to sell this house for 500-550k in 10-20 months when constructed, basically doubling my money, allow me to be at home my final years of my kids schooling. I have another lot next door that I build another home on and invest a large portion (20-30%) into a retirement account from the proceeds of this sale.
I agree in what your saying and I have never been one to want to carry debt. I don't know if that changes your thoughts? I appreciate the feedback.

 

[Speaks]

I want a fixed rate and plan to set aside around 15% incase I get injured or something bad happens to cover my payment for 18-20 months.

Good point on home equity line of credit. I haven't heard of that and will look into it.

I tried permitting a multi family on this lot and city would not allow it since it's sfh area only. I honestly think it will sell pretty quickly based on recent sales and there is nothing under 500-550k available. Most 1500-2000 sq/ft homes that are new are over 650k. This area seems to attract a lot of older couples or smaller families. Seems like there are more single people nowadays than married with kids.

A heloc would likely save you money in this case. Rather than a lump sum they approve you for a fixed amount, lets say its the $150k and you can basically just write checks against that. So you are taking out the $ as you need it and only taking out what you need, that way you are not paying interest on the whole thing the whole time.

So if your building cost was $10k per month for 15 months to build only the first month is charged interest for the whole time.

They are generally set where your required monthly payment is only the interest due, you can of course pay more but thats all you have to pay, so if there was an injury or something else the required payment would be lower, and unless the injury happened near the end would only be on the smaller amount.

You should be able to get rates comparable to a conventional mortgage. I recommend joining a credit union and then using them, they often times can do lower rates since they are not using the FED to fund their lending, and given what you have shared you are super low risk so likely can benefit from that.

Its really a much better solution than a mortgage if you are planning to sell the property, if you are going to keep it as a rental I would do a heloc to build it and then get a mortgage against it to pay off the HELOC.

 

[philos]

Hey Preston, I see that you mentioned the fact that you’d prefer a fixed rate and that’s one reason you’re not looking at a HELOC. I mentioned it in my post but you probably didn’t see it. You can have a fixed rate option on some HELOCs on a portion of the line. For example, if you have a $200,000 HELOC and you pull out $125,000.at one time some HELOCs will allow you to lock that portion of $125,000 into a fixed rate fixed term.

You just need to check with the particular lender and get it in writing that you can get a fixed term and rate on a portion of the line.

I see also others have mentioned getting a mortgage on the property you’re looking to build. One thing to keep in mind there -you will be borrowing on what lender’s consider to be a non-owner occupied property or investment property. The interest rates on a non-owner occupied property are higher – in some cases considerably higher rates than a loan secured by your primary residence. The possible exception to this is if you can classify it a vacation property or 2nd home for your personal use. Sometimes this can provide similar terms to the home that is your primary residence.

If you do consider a HELOC don’t overlook credit unions or small banks for good rates and terms. Credit unions and smaller banks will do things that a larger bank will not on equity lines of credit and similar types of loans. If you were looking at a jumbo first mortgage then some of the big lenders are the way to go because they will get very competitive, knowing that someone with a jumbo mortgage probably has a potential long-term and large relationship of investments to bring to the bank.

 

[Preston]

Guys I really appreciate the advice. I honestly think I'm going to just save some money in 2025/26 possible take another construction job on the road and save up more before I begin any construction. I just don't feel comfortable with leveraging my primary house.

 

[insanelupus]

@Preston , Wise move and a decision which can easily be changed if you choose to do so, at almost any time.

 

[chaser_2332]

Did i read that correctly that you will have $12,000-$13,000 in just permits to build a house? Thats insane what area is this ?

 

[Preston]

Did i read that correctly that you will have $12,000-$13,000 in just permits to build a house? Thats insane what area is this ?

Yes, but that includes utilities. Polson, Montana

 

[ben h]

While you're in a holding pattern, I'd get a HELOC in place on your primary residence anyway to give you some flexability. When I got mine it was $0 to originate the loan and the interest is only on what you use, not the entire amount; right now I'm paying about $100/month to keep $250k worth of equity liquid. I became aware of these loans from my old bank manager who told me "loans are easy to get....when you don't need them".

 

[mxgsfmdpx]

Guys I really appreciate the advice. I honestly think I'm going to just save some money in 2025/26 possible take another construction job on the road and save up more before I begin any construction. I just don't feel comfortable with leveraging my primary house.

Wise.

 

[cottonant]

I like the fixed rate home equity loan better than a variable HELOC since it eliminates the risk of rising interest rates.

 

[cottonant]

Or, get the home equity loan and build the new home with those funds. Then after you complete construction of the new home get a fixed rate mortgage on it for enough to pay off the loan on your primary home.

 

[Preston]

Or, get the home equity loan and build the new home with those funds. Then after you complete construction of the new home get a fixed rate mortgage on it for enough to pay off the loan on your primary home.

This will probably be the direction I end up going, but hopefully only need to borrow 75-100k to finish it. It would be comparable to a new vehicle loan and more money in my pocket. Just need a few more years of money

 

[Binz17]

Check with farm bureau type lenders, not sure you have any local in MT? I am in IL and my neighbor just got a construction loan on a house he is GC-ing himself. He checked with a bunch of lenders and this was the only one that would allow a self GC.

 

[pacoalcracker]

I could never understand why people leverage, sometimes over-leverage their primary home in an effort to make some sort of profit from it. Not everything goes according to plan and lots of things that could throw a wrench into the plan are out of your control. Plenty lose the roof over their heads or end up in financial turmoil when stuff goes awry. The home is the safety net, don't be foolish with it.

 

[Preston]

I agree. Built other homes/duplex on a cash basis and purchased land, my wife even started a failed business with savings. A lot can change in one or two years

I could never understand why people leverage, sometimes over-leverage their primary home in an effort to make some sort of profit from it. Not everything goes according to plan and lots of things that could throw a wrench into the plan are out of your control. Plenty lose the roof over their heads or end up in financial turmoil when stuff goes awry. The home is the safety net, don't be foolish with it.,

 

[Rich M]

1800+\month is steep to me.

Only way to make money is take risks.

 

[cottonant]

When common sense is applied there may be nothing more liquid and less risky in real estate than a single family home. People that get caught up in markets like the idiotic pre-2008 subprime - made bad decisions, likely due to ignorance and greed.



If one knows what he/she is doing and builds the home himself, there should be no less than 15% equity upon completion. With 15% equity and a major black swan blow to the housing market of say 30%, one should be able to weather this storm.



A temporary fixed rate home equity loan with 100% of the proceeds going towards the new investment single family home and a firm with goal of refinancing at a fixed rate ASAP upon completion - is about as safe as it gets in real estate.

 

[Preston]

When common sense is applied there may be nothing more liquid and less risky in real estate than a single family home. People that get caught up in markets like the idiotic pre-2008 subprime - made bad decisions, likely due to ignorance and greed.



If one knows what he/she is doing and builds the home himself, there should be no less than 15% equity upon completion. With 15% equity and a major black swan blow to the housing market of say 30%, one should be able to weather this storm.



A temporary fixed rate home equity loan with 100% of the proceeds going towards the new investment single family home and a firm with goal of refinancing at a fixed rate ASAP upon completion - is about as safe as it gets in real estate.

I agree. Thanks for the advice. I plan to utilize around 80-90k in savings and finance around 100k. I will pay for permit, excavator rental, electrical hookup out of cash. That will get my payments around $1000 +/-. Just need to work on the road for another 10-20 months.

 

[Jon Boy]

This seems like a no brainer for the geographic region you’re working with and being a carpenter it sounds like? You can build a house like that for $150/ft if you do majority yourself l. If you go to a 1500-1700sq ft place that is a 3 bed 2 bath your cost per sq far goes down and your profit goes up substantially. Keep the build simple and give it some nice interior and exterior accents. Do a heloc and pay as much cash you can as you go. Only draw as much as you need, don’t feel desperate if you’re out of cash, you can always draw when you need it and that’s what they’re for. Build slab on grade. Lumber is cheap right now and getting cheaper. You’ll make a ton of money when you flip it. Not a lot to lose if your house and this land is paid for and all you have is 175k in debt for two houses that are worth over a mil combined?

 

[Kpm]

Heloc / line seems like it would give you flexibility. If you wanted a fixed rate and be able to draw you could look into putting it into an lllc and getting a small business loan - construction to permanent loan. Probably a smaller / med size bank would entertain this. You could use the collateral and the as complete value to secure the loan and would need to personally guaranty. That way you leave your current residence out of
The equation ( although you are guarantying the loan)

There are fees associated so this might not be a best fit.


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