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Real Estate Home Mortgages/home loan or equity line - first time builder

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Question
Hi,
I am current owner of home with 7 acres.  Home is older home and too small as we want to expand our family.  Only has 2 bedrooms and about 900 square feet with 1 bath.
Would like to tear down, let someone move the old home off of the property and build.
Currently have an equity line with about 15,000. Auto loan with 10k to pay.  Wife has some student loans with about 45k left.
Appraisal of land is in the 200,000 range.
We have about 50,000 in 401k's and probably 15,000 in cash.
Would like to know if we could get mortgage to build a new home on our property and consolidate all these debts into one loan with home.  Would like to build a home about $225,000 value.
Her income is about 35,000 and mine about 45,000.
If we combined loan, we would owe about $300,000 loan and from what I've seen, interest rates are at all time low and building costs are still very low.....don't want this to pass us by....we we had wanted to pay off all debt before building but sort of feel like it may cost us much more to wait too much longer.....
Neither of us has ever purchased home but do have equity line so didn't know if this would not still qualify us for first time home buyers qualifications.  We inherited land and home we have now.  Please let me know your advice and what we may or may not should do with assests and debts in order to proceed with building new home.
Thanks so much.
Ronnie

Answer
Regarding your situation I would recommend the following:

First, take out a construction loan to build the new property.  Moving your home off would just be a part of that construction.  The construction loan would not pay off your other debts, but would provide the funds to build your new home.  You could potentially build in a new s pot and move the old home after construction for convenience as well if you like.

Second, once the construction is complete you would do a refinance to pay off the construction loan.  That would be the appropriate time to pay off the other debts.  The refinance would work like any other refinance and provided you have enough equity you should be ok to pay off the other debts.  You should plan on the total loan to not exceed 75% of the appraised value of the completed property in order to ensure you can pay off the other debt.

I do think you are right in your timing estimates.  It is of course preferable to pay off your debts ahead of time, placing them in the loan means you are paying on your other debts for the duration of the home loan, if that is 30 years then you lose in the long run.  However if you pay off your debts in the home loan and use the freed up payments to pay extra principle on your home each month or take out a 15 year loan then you are paying off the home faster and saving in all likelihood far more than you lose on the consolidation.

Waiting could cost you more than you would gain by paying off the debts first if rates and/or construction costs increase, so timing wise I do think you are probably better off doing this now over waiting, however there is no guarantee there since we don't know what the future holds.  Best estimates however are that rates will stay the same or increase, and  construction costs will likely increase as well.  

Feel free to follow up with any any additional questions.
About Real Estate Home Mortgages
This topic answers questions related to purchasing a home, owning a home, home ownership, mortgage education, mortgage applications, and mortgage needs whether buying a first home or refinancing a current loan. Issues related to home ownership, home equity, mortgage education, refinacing options, home improvment finacing, first time home loans, home equity loans, vactation home loans, and mortgages for investment homes are dealt with here also. Though not the primary focus of this topic, Home Equity Lines of Credits (HELOCS), reverse mortgages, and calculating home equity may also be asked. If you do not see your home mortgae, home finacing, or home equity question answered in this area then please ask a question here

Real Estate Home Mortgages

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Mark Schow

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Can: reverse mortgage, mortgages of all types, debt management and settlement, foreclosure problems, real estate investment strategies. Can't: real estate law, standard banking outside mortgage and debt.

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2002-2004 President of the Utah Association of Mortgage Brokers (UAMB) 2004-2008 Board member UAMB, Fraud task force chair, PR chair, Legislative chair. 2002-2005 Delegate to National Association of Mortgage Brokers, Legislative committee. 1996-2008 COO Debt Free Living- Now Debt Fast Track. Founder of company- consumer debt elimination company. 1994-2008 President Secured Financial Freedom. Mortgage broker, serviced nationwide, 120 employees and handled real estate investment loans for the Carlton Sheets group and some Rich Dad clients. 2005-2011 ARES, LLC. Owner, Manager. Private money investments, business consulting. 2011- present, Reverse My Mortgage, LLC. Managing Member. Reverse mortgage education, marketing and sales. 2011- present. Salt TV Network. Financial contributor, Sales Manager.

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