Expert: Diann Tonnesen - 10/29/2007

Question
Our home is about 60 years old. It's in an older section of a small town that is being revitalized and very desirable. We have lived in it for 4 years. We love the location and our lot is .47 acre and awesome. Recently, a lot, smaller than ours, 2 blocks over, sold for 135K and 3 house were built on it. Our house has several issues and could have structural damage due to shifting and settling. We would love to demolish our home and build a new one on our lot. My question is, what does that do to our mortgage? If we tear our house down and build a new one, are we stuck with our original mortgage plus a construction loan? Can we even do this? I have no idea!
thanks,
Cynthia

Answer
Hi Cynthia,

You will still owe the amount due on the original mortgage. But you may be able to get a construction loan that pays off that mortgage and can then be rolled into a new permanent mortgage for a newly built home IF you have enough of an equity position based on the estimated value of the new home. You will need to check and see how much it will cost you to demolish and build a new home to figure this out.

If you don't have enough of an equity position to do this, another idea would be to see if you can subdivide your existing lot (since they built three homes on a smaller lot down the way) and sell off part of it to finance the new home. You may also be able to find a builder who will trade construction costs for a portion of your land. Who built the homes on the lot two blocks over? Perhaps that would be a good place to start.

You definitely have some possibilities here! But you will need to check with a builder for cost and with a local mortgage lender who does construction financing to get it all in place.

Good luck!