Can I take out a new construction loan while I still hold a mortgage on my current home (assuming that my income can't support payments for both)?
My plan would be to sell my current home as soon as possible after I move into my new home, but I can't build my new home without a new construction loan. Is this a Catch-22?
Answers ( 1 )
I'm not sure that this question has a clear yes/no answer. Larger lending institutions (think Bank of America sized) often have very strict rules that govern who they will lend to. If you do not meet their debt to income ratio or other metrics, they simply will not give you a loan. Smaller institutions such as credit unions often have a lot more flexibility, especially if you have a relationship with them. I would call up every small bank and credit union in your region and see what they have to offer.
Another possible route is so called "hard money." This would often come from a private lender or company. Usually these loans are shorter in duration, carry higher fees, and have higher interest rates. They often end with a balloon payment. For instance, they may lend you your purchase+construction cost, minus a 10% down payment, but charge you 3 points and 9% interest amoritized over 20 years. At the end of a 12 month period, a balloon payment of the balance of your loan would be due. This may sound very expensive, and it can be. However, it would give you the time to buy the new property, fix it up, and sell your own home. You could then use either the proceeds of that sale to pay off the balloon payment, or take a loan against the new property once the old home is sold. Now that you do not have the old mortgage, a traditional lender would be happy to give you a loan against the new, fixed up property.
A third option would be to sell the original house, rent a house for the intervening period, and then move in once your new home is ready.