We own 2 homes and are in the process of buying land so that we can build and then sell 1 of our homes. I have been looking into refi's, construction loans, and equity lines of credit. We have enough equity in both homes so I am trying to figure out the best way to finance this venture. We need 400k and after selling 1 house we will need about 100k mtg. I want to get the best rate but also want to know whether I would be better off not having all the money up front since we will not need it all while building. I am also unsure if paying closing costs are worth it?? I hope this isn't toooo confusing. Thank you for any advice !!
Which type of loan will best allow you to access the equity in your home at the lowest cost will greatly depend on your credit rating and your income, among other factors, which will determine the interest rates and loan terms lenders are willing to offer you. Ideally, you should apply and get some comparative data on different loan types and options from a trustworthy mortgage broker.
Whether you should choose a home equity loan, a home equity line of credit, or a refinance loan will depend on the interest rate you are currently paying on the mortgage for the home which you plan to keep. Before you decide how to proceed, you should consult with numerous lenders to obtain an idea of the interest rates and loan terms available to you. To learn more about the various types of loans available to homeowners, I encourage you to visit the Bills.com Mortgage Resources page at http://www.bills.com/mortgage/
In addition, if you submit your contact information to the Bills.com Savings Center at Mortgage Refinance Quote we can have several pre-screened lenders and brokers contact you to discuss the loan options available to you.
If you are able to obtain a lower interest rate on a standard refinance loan than you are paying on your current mortgage, you may want to refinance your entire mortgage, as the refinance would offer a lower interest rate on both the old mortgage balance as well as the new balance of $100,000 you are using for your project.
If you find that the rate offered on a new mortgage is higher than the rate you are currently paying, then a refinance loan is likely not the best choice. In that case, the best option may be a home equity line of credit (HELOC), in which a lender provides you with a line of credit based on your home equity. Unlike mortgage refinance loans and home equity loans, HELOCs do not provide you with a lump sum of cash at the time of closing; rather, they allow you to borrow money against your home as you need it. Many homeowners starting construction projects prefer HELOCs over refis or home equity loans, as HELOCs provide ready access to the cash they need for their project, while allowing them to borrow only what they need to complete the project. HELOCs also tend to offer slightly lower interest rates than standard home equity loans, though the rates tend to be higher than a first lien loan that results from most mortgage refinance loans. Therefore, it is important that you review the balance of your current mortgage, your current interest rate, and the interest rates being offered on the various types of loans mentioned above to determine which is right for you.
If you decide to proceed with a mortgage refinance loan or a home equity loan, in which you would be provided with a lump sum cash payment from your equity, it would probably be a good idea to place the funds in a high-yield savings account, such as an ING Orange Savings Account (http://www.ing-usa.com ), a mutual fund, or other investment account, until you need the money. Current rates are around 5% (pre-tax).
However, read the account terms carefully before depositing your money, as some accounts have restrictions on withdrawing your funds which may cause problems when you are working on your construction project. Make sure you talk with your investment advisor or banker to find the best use for your funds while you are completing your construction plans, as it would be a shame to have so much money sitting around not earning you interest. If you decide to use a HELOC, you can avoid this concern and simply draw on your equity line as you need the money, borrowing only what you need, when you need it.
In my opinion, a Home Equity Line of Credit is likely the best option available to you -- but be sure to shop around. As I mentioned previously, this type of loan allows you access to an open line of credit, meaning you will be able to borrow only what you need to complete your construction project. A refinance loan may be beneficial, but only if the interest rate offered on the refinance loan is less than the interest rate you are currently paying on your property. I strongly encourage you to discuss your plans with a certified financial planner who can better analyze your financial situation and recommend the best course of action to help you reach your goals.
I wish you the best of luck with your future plans, and hope that the information I have provided helps you Find. Learn. Save.