Building for our Short Term Rental

[Shannon Vistisen]

We will be building our STR this spring. The property is 4 hours north of where we currently live. We're planning on relocating up there this summer. In the interim, we're selling our house downstate before we pull our construction loan for the build.

My question is; will we have to pay 10% down or 20% on the construction loan if we don't have a primary home anymore? I don't know how the process works or if there is any information I need to know to help us out with this process (loopholes, information that would benefit the transition or the smart way to do it to maximize our money to fullest extent, etc.)

Has anyone dealt with this before?

Thank you for any information you may share!

[Dwayne Ghant]

@Shannon Vistisen:

If I'm misunderstanding your question please let me know. The question that you asked sounds like you are conflating FHA loan with a construction loan. As you, likely, already know, these two types of loans are different types of financial instruments with entirely different requirements.

People typically wait until they have sold their current property before paying for the new home. This is likely because there’s no system, to-date, that enables mortgages to recognize the intent to sell. That said, the only evidence of a sale is an “actual sale.” So, this makes it extreme inconvenient to ONLY be given a new loan AFTER the sale of the current property, and thus concluding the old debt.

Typically home builders have programs to deal with this type of transition.  Construction loans typically have strict requirements of 10% - 30% down. But this is varies depending on the builders requirements.

If your currently builder doesn’t offer any internal services to transition you, you could:

- Borrow agains you IRA (401k), depending on the cost of the deposit, and pay it back when your old home sales and it's off the market.

- Use a HELOC (80% - 85% of appraised values of current home) to use as deposit for the construction loan requirements (10% - 30%) and the debt would be concluded during the sale of the home.

- Gift from family member as a deposit, and payback when the home sales

The question is really broad, so if I have misunderstood you question please let me know.