This is a crucial question that needs to be answered. You will ultimately have to decide how you want to proceed based upon your situation and your tolerance for risk.
There are two options to consider when you purchase a new home and presently own a home:
1. SELLING YOUR PRESENT HOME BEFORE STARTING CONSTRUCTION ON THE NEW HOME
You can sell your existing home before you build a new one. This allows you to estimate how much you will need to pay. If the buyer does not allow you to stay in your current home, it will most likely require you to find temporary living quarters or move furniture twice.
The buyer should not settle on the current house until the new one is completed. However, buyers will often want to buy and move in before the normal building time for a new home.
A buyer might also be interested in purchasing your existing home, but you could still live there and continue to pay rent until you move into your new home. You can also sell your home and rent an apartment or home until you are able to move into the new house.
You would be able to find a short-term rental, but this will not mean you can’t start construction on a new house before the buyer has secured financing.
2. STARTING CONSTRUCTION ON THE NEW HOME BEFORE SELLING YOUR PRESENT HOME
It is usually easier to start construction on a new home before you sell your current home. It is possible to not know the exact amount of the sale proceeds. This can lead to financial hardship if the home you are selling does not sell within the timeframe expected.
A construction loan pays interest only on the amount you have borrowed to cover construction costs. You don’t have to pay the entire amount until completion.
A blanket mortgage can be offered by some lenders for both the existing home and the home that is being built. The amount of the mortgage will be reduced by the proceeds from the sale of your current home. You must qualify for both properties to be eligible for the loan amount.
HOME EQUITY LINE OF CREDIT WHEN BUILDING A NEW HOME
Another option is a home equity line credit. These loans are typically interest-free for a period of one to two years and can be up to 85% of the current value of your home.
Before selling our home, my wife and I purchased our lot using a line-of credit. After signing the Purchase Agreement, we began to get permits for building our house .
To begin construction of our new home, we waited for a sale agreement to be signed on our existing home. We were able, once we found a buyer, to begin construction immediately after we had completed the closing on the land.
It is a good idea to speak with a Housing Consultant to discuss your options and to contact a lender to get more information about how to proceed.
