Is it possible to move house to house?
March 23, 2011 9:14 AM   Subscribe

I am building a house...when do I sell mine? Who do I even ask?

We have just hired a contractor to design a new house for us. Of course, we will have a mortgage, but we need the equity out of our current house as the downpayment on our new home.

In an ideal world we would just move from our current house to the new house and only move our stuff once. But with the housing market being what it is we're not sure when we should first list our house or how long it would take to sell.

We have enough money to buy the lot free and clear, which will be about 1/8 of the total cost of the home... We don't want to pay interest even for a short term for more than we need to...

We are going to meet with the banker for the construction loan fairly soon, but we wanted to know what to expect. We've never built a house before...any advice on the money parts so we know what to expect going in would be appreciated.
posted by arniec to Work & Money (5 answers total) 1 user marked this as a favorite
Bridge loans might be the word you're looking for. That being said, bridge loans are hard on the interest.

I'm assuming you have a prospective move-in date for the new house completion ? What's the contract with the builder look like ? There are always delays in construction, which make pinning down a date difficult. Are there incentives or penalties for the builder to finish on time ?

I ask because if structured well, you can put your house on the market now, sell it now, and rent it back from the buyers until your move-in date. That's a common way most folks do it. If the contract with the builder is done well, the builder should pay penalties that cover your expenses for moving/storage/etc if you can't move in to the new house by the time you must leave the old house.

But, by renting back, you aren't paying interest on your current house loan (though the rent is probably what the new owner's mortgage payment is, as that's how it's usually structured..)
posted by k5.user at 9:22 AM on March 23, 2011

Do you have a family member that could provide a "gift" to cover the down payment on the new place? I went through this back in when the market was hot. We had to close on the new house about 5 days before we closed on the sale of our existing house. A relative provided a "gift" of cash to close with, which I promptly paid back a week later when I closed on the sale of the old house. Gift in quotations because silly underwriting policies required all of us to pretend it was a gift that didn't need to be paid back.
posted by COD at 9:54 AM on March 23, 2011

Moving house to house, when they're both built, generally isn't hard, and a 5 day bridge loan would be the solution. But you're buying a lot, and building a house which is an entirely different situation.

Is your builder going to front you the labor and materials, and wait to be paid until the house is in move-in condition? I really doubt that, which means that you're going to be paying the interest on most, if not all, of the cost of your home for X period of time while you're either still paying your current mortgage, or renting somewhere else.

Perhaps look into if you can legally live in a trailer/mobile home on your own property. Then compare this and a storage space for everything you own that won't fit in the rented space to the cost of renting a house/apartment. However, with both of these methods, it involves two moves. The only way to move once is to wait until the 2nd house is in move-in condition, and again, I bet your builder doesn't cover this cost.

Lastly, I'll note that in many areas the real estate markets are moving slowly, and deals are falling through. To be safe, you might want to commit to buying, and selling your current house, moving somewhere temporary, and then buying/building. 2 movies is likely going to be cheaper than carrying two mortgages for 6+ months. We did a bridge loan when we sold/bought our last houses, and despite everything going smoothly, I was really scared for the few days that we "owned" two houses.
posted by nobeagle at 10:46 AM on March 23, 2011

k5.user is right. Find out when your new houe will be finished taking into consideration delays. In my experience, with a good contractor most homes finish within a month of the expected completion date unless you're working with hard-to-obtain finishes. Interview three realtors who specialize in your area and find out how long houses similar to yours are on the market. That'll give you an idea of the timelines you need to work within. Try to close on the sell of your house about week before the other is ready for you to move in. You can ask for a rent-back (pay rent to buyer of your home) period. The rent-back rate is usually based on the buyer's mortgage plus a small convenience fee. You would negotiate this when accepting their offer.

Your problem will be if you live in an area with slow home sales, where things stay on the market 6 months to a year or more. In that case, you need to focus on selling first. Put your house on the market as soon as possible. Get a good full-time realtor who tells you exactly what their marketing plan (how many open houses, broker tours, ads, mailings, etc. and ask for samples) is for your house and who knows your area well. Follow their advice and keep your house spotless, purge, purge, purge and then purge some more.

Put most of your stuff in storage and get a tiny apartment to live in until the new house is ready. Get the storage unit while your house is on the market so that you can put your decluttered stuff
posted by shoesietart at 12:39 PM on March 23, 2011

I did exactly this. Here's how I did it.

1. I had enough cash to buy the lot.

2. I too out a line of credit mortgage on my existing house to free up the equity. I also arranged as much unsecured credit as I could.

3. I arranged a construction mortgage on the place I was about to build.

4. I financed the first third of the construction from the equity in (2)

5. I then drew on the construction mortgage in (3) plus some of (2) to finance the second third.

6. I then drew on the construction mortgage in (3) plus some of (2) to finance most of the final third, less holdbacks.

7. We sold the existing house and paid off the line of credit mortgage, which left us with some cash.

8. We spent five weeks living with relatives until the new house was issued an occupancy permit.

9. We paid off all the outstanding credit and converted the construction mortgage to a regular mortgage.

Please feel free to memail me with questions.

Key takeaways:

* Find ways to get AS MUCH CASH AS YOU POSSIBLY CAN. You will use it all and more.

* Budget your construction to the last penny and stick to the budget. We came in 10% over which I think is something of a record. I know people who came in 50% over. It all depends on the accuracy of your original quotes and estimates, and your ability to stick to the plan.

* Nobody except the very rich enters into the construction of a house entirely sure how this thing will end.

* Scrupulously follow your costs and watch your cashflow.

* Pay everyone promplty. As soon as you start to get behind on payments word will get out you are in trouble and you will not be able to get trades to work for you. The prompt completion of your house ABSOLUTELY DEPENDS on paying every bill on time.
posted by unSane at 6:02 PM on March 23, 2011

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