Financing theory

Started by jakes32guitar, May 17, 2019, 10:02:27 AM

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jakes32guitar

This is my first post but I have been lurking for a while and done a lot of searching and reading and have learned a lot.  Originally I found the site just searching for inspiration, my wife and I purchased a lake lot in MN last year and have been just clearing it out a bit and put a camper on the lot for now with plans to use the camper for a few years then try to build a cabin.

After finding this site and all of my reading my curiosity had me thinking about just how soon we could start a project like this, we are liking the 20x30 1.5 story stretched to 40 long and only a partial loft so we can have open ceilings with big windows overlooking the lake on the opposite end.  I'm thinking either block or poured foundation(hired out) and either doing a crawl space or basement depending on where the water table is at the build site, plan for pretty simple 1 bed 1 bath main floor and open sleeping area in the loft for the kids, 10 ft side walls maybe 12 and a covered porch on one side.  Anyway I thought I would put some info out and see if anyone has information or similar experience for me.

We paid $59k for the lot but financed it so we currently owe roughly $43k on it,  what sparked this was we toyed with the idea of a small remodel on our primary residence this spring and found out we would be approved for a $50k home equity loan on our home.  I was thinking, we could take that $50k, use it to build the cabin to a point where the bank would mortgage it then take out a mortgage to pay off the land loan and the equity loan and have a little left over for finishing touches.  I was thinking $125k mortgage would be manageable in every way(affordable payment, give enough to pay both loans and finish the cabin and should be able to appraise easily).

Does anyone have thoughts on my idea?

akwoodchuck

Seems like it might be simpler (my favorite word! ;D) to just get a new construction loan...maybe inquire if local banks have an owner/builder option (you can be your own general)?
Good luck!
"The lyf so short, the craft so long to lerne."


ChugiakTinkerer

Welcome to the forum!

Your plan sounds reasonable, you just want to make sure you've got the details and their costs worked out before you commit to anything.  Check with the county and the bank to make sure you know what exactly it will take to build the cabin such that you can get a mortgage.

My brother built a house many years ago in a rural area with no code enforcement.  When he went to the bank for a mortgage, they had it inspected and the foundation was inadequate.  They wouldn't lend until the foundation was repaired/upgraded to code, an expense of about $15k if I remember right.

I would work up a spreadsheet estimating costs of construction and with different interest rates.  It's good to know how much cost over-run you can live with without busting your budget.  Also be aware what the tax implications are on the 2nd mortgage/HELOC if you're still itemizing. 
My cabin build thread: Alaskan remote 16x28 1.5 story

Dave Sparks

If you want a mortgage it often means that you will have utility power at the site. Is this correct?
It can be very hard to get a mortgage for offgrid cabins/homes.
The other way to get a mortgage is to build it to code and get the certificate of occupancy. Ask the neighbors what they did also.
"we go where the power lines don't"

jakes32guitar

Thanks for the input!  Yes there is power at the lot and we have spoke to some neighbors who have recommended a local bank who sounds very easy to work with on recreational property that I will be in contact with before we make any decisions.  The spreadsheet is a great idea I will absolutely start working on.