Give me your "finance a house build" ideas...

[dragon's breath]

*deleted financial details*
Appreciate input.

[sugarbear1]

Where on earth in this state can you build a house for $200k?
Last I checked, that's a kitchen and bath remodel.

[sadlebred]

Fund new construction-I'd do just what you said and then pay back the TSP. I would never take out a home equity loan on an existing house to pay for a new one. If you can take out a construction loan and then refi into a 15 year loan, that would be ideal. You can always pay it off early with the sale of your other house.

If it were me, I'd sell the house on the market and take that money to pay off the new house. If you "have" to sell to your son, make him take out his own 30 year loan. Too many times I've seen relatives stop paying on the loan, and the person financing the loan had to get a lawyer, go to court, etc.

[dragon's breath]

Apr 26, 2024 15:25:04 GMT -5 sugarbear1 said:

Where on earth in this state can you build a house for $200k?
Last I checked, that's a kitchen and bath remodel.

It's going to be more than $200k, that's just what I'd be willing to take as a home equity loan if I go that route + TSP loan + cash.

Also-- poor and dry areas of the state are still reasonable.

[dragon's breath]

Apr 26, 2024 15:32:05 GMT -5 sadlebred said:

Fund new construction-I'd do just what you said and then pay back the TSP. I would never take out a home equity loan on an existing house to pay for a new one. If you can take out a construction loan and then refi into a 15 year loan, that would be ideal. You can always pay it off early with the sale of your other house.

If it were me, I'd sell the house on the market and take that money to pay off the new house. If you "have" to sell to your son, make him take out his own 30 year loan. Too many times I've seen relatives stop paying on the loan, and the person financing the loan had to get a lawyer, go to court, etc.

Selling the house on the market would definitely be easiest and get me the most cash, completely covering the new build, but with even studio rentals being as much as I was paying for my mortgage, I'm ok with selling it to him at the steep discount instead.

I'd prefer the "son has an actual mortgage with mortgage company" route, but keeping ideas open for now.  He has great credit, and it looks like he would qualify for the loan right now. 

I have required him to continue to pay the agreed bills even when he was unemployed, so he knows I'm a hardass, but I still would want the backup of a contract if he were to rent or buy from me, with me carrying the contract (and would have it drawn up by the lawyer I had handle the lawsuit I went through.)  

For the "mom discount"-- he's an only child, went through some hell with me, will get it all in the end anyway, and I don't feel a need to profit off him.  However, I won't pay for him to live for free either.  

I've already talked to him a few times, but with a possible build on the horizon, talked to him again yesterday.  I know he wants out of the area, so we'll see what he decides.  It's an older, large house, and he really might not want it, but he hasn't said one way or the other.  Moving into my new house is not an option (he doesn't want to, and I don't want him to.)

[bee20]

I would do a construction loan primarily, then consider if the 50k TSP loan makes sense vs. the rate and terms you're getting there.

I would hold back $50k of the cash as a slush fund for things that are outside of what was approved in the construction loan, or upgrades that are easier while you're in the construction phase but don't impact the appraisal.

The family discount on the house seems really reasonable, especially given that you'd benefit from having a place to stay.

I also, if I were trying to make my home fireproof, would plan on an in-ground irrigation system that includes the house. A family member in the mountain west put one of these in when they built, used stucco and metal for the exterior, and made it through a fire everyone else in their area didn't. They basically made a perimeter around the home with a mix of watered areas and xeriscaped landscaping. They have about 4 acres and around half the land was landscaped for fire prevention. (They also have ticks to worry about with their dogs and children and there were some foliage considerations there. Basically their landscaping looks partially natural but obviously curated). Said family member works in construction so I don't know how much they hired out versus did themselves.

[simpsongal]

We opened a 20k and 10k 0% credit card for our kitchen reno. That could buy you 15 months interest free money - esp if you open them later and space them out with the build. Try to nail down expenses. I kept track of everything for our kitchen/first floor Reno. Down to the hvac covers it was $215k. I did a tsp loan too - worked out well.

[babsbunny]

No building advice but it sounds awesome how much you are able to save for it. Only person I know who built moved into a rental for about a year during the build.

I know you said son would pay the home loan... but how would you feel if you sold him the house at a big discount and then he sold it 6-12 months later at market value and pocketed an easy $200k, which you could have put against your build? I'm not judging and you do not need to answer. I would charge rent (plus a little for maintenance) or sell at market price.

[dragon's breath]

Apr 28, 2024 0:52:52 GMT -5 babsbunny said:

No building advice but it sounds awesome how much you are able to save for it. Only person I know who built moved into a rental for about a year during the build.

I know you said son would pay the home loan... but how would you feel if you sold him the house at a big discount and then he sold it 6-12 months later at market value and pocketed an easy $200k, which you could have put against your build? I'm not judging and you do not need to answer. I would charge rent (plus a little for maintenance) or sell at market price.

I've thought about this...

While I don't think he'd do that, I'd also want something to make sure he couldn't turn a quick profit like that.  This would have to be an owner-financed agreement, I'm assuming, because I doubt a bank mortgage would allow for a cause like that. 

I'd be fine if he sells it in 10 years and makes a big profit.  Selling it, making a big profit, while I'm stuck paying a mortgage on my own new house?  Much less acceptable.  

I would definitely have a real estate attorney to figure out options if I sold it to him.  (ETA: something like a balloon mortgage with forgiveness of balloon payment after x years of consistent payments.  I do not know all the tricks, but the lawyer would.)

[heygrey]

I would do whatever construction loan was necessary to build the house, sell my current house at market value, pay off the new loan, then decide how to help my son with any remaining money. $100k as a downpayment would still be a huge help to him.

[mccallister84]

Apr 28, 2024 11:40:02 GMT -5 dragon's breath said:

Apr 28, 2024 0:52:52 GMT -5 babsbunny said:

No building advice but it sounds awesome how much you are able to save for it. Only person I know who built moved into a rental for about a year during the build.

I know you said son would pay the home loan... but how would you feel if you sold him the house at a big discount and then he sold it 6-12 months later at market value and pocketed an easy $200k, which you could have put against your build? I'm not judging and you do not need to answer. I would charge rent (plus a little for maintenance) or sell at market price.

I've thought about this...

While I don't think he'd do that, I'd also want something to make sure he couldn't turn a quick profit like that.  This would have to be an owner-financed agreement, I'm assuming, because I doubt a bank mortgage would allow for a cause like that. 

I'd be fine if he sells it in 10 years and makes a big profit.  Selling it, making a big profit, while I'm stuck paying a mortgage on my own new house?  Much less acceptable.  

I would definitely have a real estate attorney to figure out options if I sold it to him.  (ETA: something like a balloon mortgage with forgiveness of balloon payment after x years of consistent payments.  I do not know all the tricks, but the lawyer would.)

If you’re putting all these conditions on it then don’t sell it to him for a discount.

[sadlebred]

Is there a real reason to sell it to him other than to "make sure he has a place to live." As a young adult, that's on him. If he's making $18/hour, are you sure he could afford the house, insurance, taxes, etc. on his own? Are you prepared to bail him out if he can't?

[dragon's breath]

Apr 28, 2024 16:09:15 GMT -5 mccallister84 said:

Apr 28, 2024 11:40:02 GMT -5 dragon's breath said:

I've thought about this...

While I don't think he'd do that, I'd also want something to make sure he couldn't turn a quick profit like that.  This would have to be an owner-financed agreement, I'm assuming, because I doubt a bank mortgage would allow for a cause like that. 

I'd be fine if he sells it in 10 years and makes a big profit.  Selling it, making a big profit, while I'm stuck paying a mortgage on my own new house?  Much less acceptable.  

I would definitely have a real estate attorney to figure out options if I sold it to him.  (ETA: something like a balloon mortgage with forgiveness of balloon payment after x years of consistent payments.  I do not know all the tricks, but the lawyer would.)

If you’re putting all these conditions on it then don’t sell it to him for a discount.

If he's not fine with the conditions, he doesn't have to buy it.  But I'm also not leaving myself open to lose $200k+ if he decides to sell it in a year.

[dragon's breath]

Apr 28, 2024 17:31:26 GMT -5 sadlebred said:

Is there a real reason to sell it to him other than to "make sure he has a place to live." As a young adult, that's on him. If he's making $18/hour, are you sure he could afford the house, insurance, taxes, etc. on his own? Are you prepared to bail him out if he can't?

Yes, there are a few reasons.

The "discount" is to keep it affordable to him, if he could not afford it with the discount, we would not go that route.   

As for bailing out-- that always depends, doesn't it?  I know what I'd be willing to deal with, and what I would not.  

[dragon's breath]

Apr 26, 2024 15:32:05 GMT -5 sadlebred said:

I would never take out a home equity loan on an existing house to pay for a new one. 

I meant to ask why this?  

If home equity loan (plus savings) was enough to cover the build, what is the con, if you still own both places at the end?

(Personally, I would always do a 30 year loan over a 15 year loan, making the obligatory payments smaller, with the option to pay off as fast as you want.  Unless there was a huge difference in interest rate, I would not lock myself into a higher payment.)

I have no doubt I could qualify for a construction loan, but the extra hassle, possible interest-only payments, etc, I'm not sure why that would trump a home equity loan (assuming HEL interest rates are not higher).  

[sadlebred]

Apr 28, 2024 18:32:30 GMT -5 dragon's breath said:

Apr 26, 2024 15:32:05 GMT -5 sadlebred said:

I would never take out a home equity loan on an existing house to pay for a new one. 

I meant to ask why this?

If home equity loan (plus savings) was enough to cover the build, what is the con, if you still own both places at the end?

(Personally, I would always do a 30 year loan over a 15 year loan, making the obligatory payments smaller, with the option to pay off as fast as you want.  Unless there was a huge difference in interest rate, I would not lock myself into a higher payment.)
I have no doubt I could qualify for a construction loan, but the extra hassle, possible interest-only payments, etc, I'm not sure why that would trump a home equity loan (assuming HEL interest rates are not higher).  

If you sell the house, the home equity loan COULD come due (with emphasis on could, not would). It would depend upon the circumstances and exact terms of the loan. You got the loan with your old house's equity and if you sold it before the loan was paid, the bank no longer has the collateral against the loan. It was against the old house, not the new house. Again, timing and exact terms of the loan. I would look into it if you are serious about it. Do you have a credit union and/or a relationship with a local banker or mortgage officer? They would be good ones to ask. If the HEL was paid off before the sale of the old house, this would not be a factor to consider. It sounds like you'd do the latter.

[mccallister84]

Apr 28, 2024 18:18:04 GMT -5 dragon's breath said:

Apr 28, 2024 16:09:15 GMT -5 mccallister84 said:

If you’re putting all these conditions on it then don’t sell it to him for a discount.

If he's not fine with the conditions, he doesn't have to buy it.  But I'm also not leaving myself open to lose $200k+ if he decides to sell it in a year.

I mean you guys can totally do whatever you want but this seems to be the very beginning of a cautionary story as to why mixing money and family does not end well.

If you don’t want to lose out on potential profit just rent it to him.

[ssmjlm]

Get a construction loan.

When the build is ready, sell the house. Convert the construction loan to a mortgage and use proceeds from sale to pay down or off depending on value.

Leave son out of it.

[tealblue]

Just wanted to throw an idea out for consideration. If you sell the house to your son at a discount and he doesn’t want to stay around/sells it in the near future, he may have a taxable gain on the sale.

There are rules on excluding some of the gain if you live there 2 out of the last 5 years (this may be old #’s… its been a while since I was in personal tax). But the best option may be for you to rent to him and sell if he wants to move and then gift him some $$. I assume you’ve lived there a while and any gain on the sale would more likely qualify as a tax free event for you.

If you have a CPA, I would run it by them before doing anything involving selling to your son just to not give away $$ to the government unnecessarily.

[Roc A Bee]

Apr 28, 2024 15:58:43 GMT -5 heygrey said:

I would do whatever construction loan was necessary to build the house, sell my current house at market value, pay off the new loan, then decide how to help my son with any remaining money. $100k as a downpayment would still be a huge help to him.

This feels like the cleanest way. Mixing money and family can definitely backfire.