It’s the custom home building industry’s version of the chicken-or-egg dilemma. What should you do first: sell your existing home before you start building your custom home, or build first, sell later? It’s a good question, and one we often get asked. There’s no right or wrong decision. Instead, it mostly comes down to your own comfort level with risk. Consider these options before moving forward with your dream to build a new custom home.
Sell Your Northern VA Home Before Construction Starts
Selling your Northern VA home before you start construction is a good option if you want to know exactly how much money you’ll have on hand for your new custom home. The downside? Unless you can delay closing and moving out until the new house is ready, you will have the expense of renting a temporary location, as well as moving and/or storage costs. You could also ask if the buyer is willing to let you rent back the house until construction is complete. While it’s possible to find such a buyer, in the “real” world, few are willing to wait months before moving into their new home.
Today, finding short-term rentals isn’t difficult. It may be worth the time and effort because:
- It can save you the stress and uncertainty of starting construction before the buyer of your current home has wrapped up financing.
- There are no self-imposed deadlines and you can wait for the right buyer at the right price.
Build First, Sell Second
The immediate benefit of building your custom home first and then selling your current home is that you remove the need for temporary housing. You pack and unpack your household goods once, and you avoid storage charges and double moving charges. The risks lie in not knowing the price you will get for your current house ahead of time, or how long it will take to the sell it.
Whether you’re able to quickly sell your home as moving day approaches has a lot to do with the vibrancy of your area’s housing market. If homes in your neighborhood have been selling quickly, you should be okay waiting. You can talk to a local realtor about your own situation, but today’s market is in better shape than in recent years, which means you stand a good chance of making it work.
The Mortgage Lending Perspective
From a strictly financial point of view, the question comes down to whether you have the funds to carry multiple mortgages. Keep in mind, though, that with a construction loan, you only pay the interest on the mortgage amount as it is advanced. Since you’re only drawing money to cover the various stages of construction, you’re not making full monthly mortgage payments until construction is complete. This means less of a financial burden than carrying two full principal plus interest mortgages.
Some lenders do offer a blanket mortgage that covers your present home and the new custom home you’re building. Then, once you well your existing home, the amount of your new mortgage is reduced via the sales proceeds.
Another option is obtaining a home equity line of credit while building your new custom home. So-called HELOCs can often be interest-only for up to two years, with a maximum loan amount of 85% of your existing home’s value.
The custom home building process should be an enjoyable one for your family. The choice to sell and build or build then sell is a highly personal one and should be based on your own comfort level. Need more information about what is the best decision for proceeding with the design and construction of your Northern VA dream home? Contact us today to schedule a conversation. We’ll be glad to help you sort out your options. We also invite you to download our free guide that provides more information on the process of building a new custom home in Northern Virginia.