Building a house with a Mortgage

JP19833 · May 28, 2018 7:45 pm

Hi All. Situation is, we've got a mortgage at the moment and have some decent equity in the home (House value is about 900k and Mortgage is at 600k). We want to buy land and build a house. Problem we have is, we want to be able to sell our current home and move straight into a the new home so we can avoid needing to move into a rental property in-between. The thought of selling the house, renting, then moving into the new house again is a nightmare as we've already had to do move so many times in our life as it is due to work.

Is there a way to do this? Obviously we would be paying 2 mortgages at once (At least partially while progress payments are made) so not sure how the bank would like that idea either!

Just wanted to see what others have done or what options I would have?

aussieta · May 28, 2018 10:07 pm

we did very similar
reborrow on your existing house to 80 percent
then use this money as deposit on your new home
when you sell your old home pay the balance onto your new home or place in an offset account

plc · May 29, 2018 1:05 am

JP19833

Hi All. Situation is, we've got a mortgage at the moment and have some decent equity in the home (House value is about 900k and Mortgage is at 600k). We want to buy land and build a house. Problem we have is, we want to be able to sell our current home and move straight into a the new home so we can avoid needing to move into a rental property in-between. The thought of selling the house, renting, then moving into the new house again is a nightmare as we've already had to do move so many times in our life as it is due to work.

Is there a way to do this? Obviously we would be paying 2 mortgages at once (At least partially while progress payments are made) so not sure how the bank would like that idea either!

Just wanted to see what others have done or what options I would have?

Two options. One as mentioned above, you can take equity out of your existing property as cashout to use as the deposit for the land/build, and then take out the remaining loan on the land/build itself. Issue with this is that you would need to be able to service all loans at their peak which in your case I would assume to be $1 million + when all is said and done.

Option 2 is to get what they call a bridging or relocation loan with an end debt (not all lenders do this). This basically allows you to build your new home similar to above and keep both loans ongoing at the same time, and then when you sell the existing property, it pays the peak debt down to what is termed the end debt. The important factor here is that servicing is based on the end debt which is much lower and more attainable. Banks that do this usually give you 12 months to build the new home and sell the existing one, and LVR limits apply.

Example: Existing Loan - $600K, New house and build loan $800K - Total peak Debt - $1.4 million
Sell Existing house for $900K and repay loan back down to $500K. Servicing to be based on this $500K.

Cheers,

Tom

Melbournevic · Sep 24, 2018 9:01 pm

Hi there, not sure if there is someone in a similar situation as I'm interested to know how did you manage or maybe you have an opinion I'd like to hear as well. We have paid a deposit to the land that is hopefully titled between May to June 2019. We are planning to build a 2 storey home and already signed a home estimate initial contract with one of the builders. We plan to sell our current residential property so that we can use towards the new land + construction loan + to pay the balance on existing mortgage.

We can afford our current mortgage + land loan comes settlement but I would prefer to sell the property now and rent for the moment to have sufficient savings. Hubby was saying that we should wait until the land is settled before we can start selling our current property as we may be putting ourselves into a risk where we may not be able to own the land due to unexpected issues (e.g developer issue etc) and ended up having no property. Not sure if this happens though.

Anyone who sold their property while waiting for the land settlement? Is there really a risk here? I thought once you paid the deposit, it is definitely yours (of course subject to settlement and final pay).

Thanks and appreciate your response.

becjarrettdalton · Sep 24, 2018 11:38 pm

Hello - I think there was a case on the TV recently where the development exceeded the 'sunset clause' date and the developer rescinded the contract (effectively cancelled it, handing the deposit back) and the buyers were indeed left without the property, perhaps your husband has been spooked by this. Its worth asking your solicitor for advice on this, as it can happen. Unfortunate as it is, it can happen whether you own a property or not, it isn't common and lawmakers are working towards building in protection for buyers - I see you are in VIC, this is one of the few states where this protection doesn't already exist.

The risk of not being in the market is quite separate to this and is more about a rapidly rising market.

The flip side of this is if you don't sell in time will you still qualify for the loan you need to buy the property? If you will (even allowing for potential lender changes) then all the choices are yours.

Realistically there is no "need" to have a property, you may choose to buy something else if that property doesn't eventuate - its about the bigger reasons for your purchase rather than this one property or the one you are in now - but if you are only selling to buy this property then maybe it does make sense to stay put for now and throw all your extra money against the loan which then makes more equity out of your sale

Melbournevic · Sep 25, 2018 11:20 pm

Thanks Bec, appreciate your response. Yes I think my husband was referring to that case. The developer of our chosen land had other developments too in the last few years and they were all on time but unexpected things can happen so still unsure until settlement has been completed. In relation to loan, we have slightly exceeded with the build estimates due to upgrades so I think selling the property can definitely help us qualify for the loan and avoid having to pay for LMI. We can probably start selling the property when there is a clear indication of land settlement or when the land development is nearly on its completion stage.

becjarrettdalton · Sep 25, 2018 11:22 pm

Melbournevic

Thanks Bec, appreciate your response. Yes I think my husband was referring to that case. The developer of our chosen land had other developments too in the last few years and they were all on time but unexpected things can happen so still unsure until settlement has been completed. In relation to loan, we have slightly exceeded with the build estimates due to upgrades so I think selling the property can definitely help us qualify for the loan and avoid having to pay for LMI. We can probably start selling the property when there is a clear indication of land settlement or when the land development is nearly on its completion stage.

There you go, there’s a plan. Just be mindful of changes in the market & not coming unstuck. Well done & enjoy the process!

kks · Sep 26, 2018 1:29 am

The market, yes indeed, in all my time I've never seen the real estate market so uncertain and edgy.

basicbeans · Apr 17, 2019 2:53 pm

Hi everyone, we bought a land in 2018 and settlement will take place in the next few months. We are planning to sell our current home. We plan to rent an apartment for the meantime once the current home has been sold and while the new house is being built. Our agent has suggested to reduce the pricing due to the market being tough nowadays, but I'm feeling uneasy with the price reduction of almost $100k since our property has more added features and upgrades into it compared to other homes in the same category in the market (e.g. land size and house size, location). If we sell with the price that we wanted, it's just break even as we've spent a lot of money in this home. If we sell less than $100k, do you think it's such a big loss or it isn't since we no longer need to continue the mortgage here?

If we don't sell the house, we can either sell the land or continue to pay the land and sell the home later on when the market gets better, but I'm unsure for how long and with the costs of having to maintain two mortgages is a sacrifice too. We are not planning to rent out the current home as it's not worth it. Or worst scenario, don't sell the home and sell the land and stay with the current home (although I really love moving to a new home, but if I have to sacrifice as it's not worth selling the current home then I should accept this).

I wanted to get your inputs so we can weigh the best route. Thanks for your inputs.

Bean1969 · Oct 19, 2019 2:55 pm

Hi everyone, just wondering what experiences people have had with building while keeping their current home/mortgage. I am planning a build, and can keep my current property while the build is underway, with a view to selling and paying down the mortgage when its completed. It makes sense for us not to move twice.

The conveyancer I am using had a lot to say about it though, when we asked her to witness the mortgage docs, so now we are spooked. Is this a bad idea?

becjarrettdalton · Oct 19, 2019 3:53 pm

Bean1969

Hi everyone, just wondering what experiences people have had with building while keeping their current home/mortgage. I am planning a build, and can keep my current property while the build is underway, with a view to selling and paying down the mortgage when its completed. It makes sense for us not to move twice.

The conveyancer I am using had a lot to say about it though, when we asked her to witness the mortgage docs, so now we are spooked. Is this a bad idea?

Hi, I assume you have a bridging loan? What state are you in? The obvious issue is if the property does not sell, or does not sell for the right price - and affordability while you build - but if you’ve considered these and you take an informed approach it has worked well for a number of my clients.

plc · Oct 20, 2019 9:47 pm

If you are comfortable with the repayments holding both properties for that temporary period, then it can be a worthwhile exercise.

What are some of your concerns you have after discussions with your conveyancer?

Cheers,

Tom

ArnoldWilder · Jan 20, 2021 9:50 pm

If you need advice that has to do with a mortgage, you can always turn to a reliable company that I have had a partnership with for five years of mortgage payments. If you're confident that you can pay it all off, then feel free to take out an interest-only mortgage because it's a better option for buying your first home of your own. As I understand it, you have already done all the necessary paperwork, but you still have some questions. Mortgage Advice Cambridge will be happy to help you with any of your lending needs