We finished a new custom build a little over a year ago ("Hey, there's a global pandemic with massive supply chain issues and spiking lumber prices. Let's build a house!"). The plan was to build up cash reserves, get a construction loan for the new house (we too already owned the lot), pay the interest-only charges on the initial few draws, and then pay down the principal on the loan in chunks from the cash reserve once we knew we wouldn't need it for additional upgrades or overruns), and then pay off the remainder with the cash from selling our existing house (which was already paid off). The construction cost was supposed to be roughly similar to what we could sell our old house for, so we were basically just looking to convert the equity from the old house to the new house. Probably could have done it without the construction loan, but the real benefit of having the loan was that it enforced a little bit of rigor/discipline/oversight into our builder. Sold the old house 4 months before the new one was done, so we had all that cash sitting around for the end of the build project (when we suffered in a 2 BR apartment for 6 months). The construction loan never even got converted into a regular mortgage of any sort; we just paid off the balance when things were done.
Judging from your post, you seem to obviously also have a construction loan. The interest-only payments for those initial draws will really feel quite tiny. There's only so much cost that can be accrued until they get into heavy framing and systems. And even then, they're interest-only payments, without a principal component, so they shouldn't be huge either.
Given your high household income and existing pile of cash, personally, I'd be trying to aggressively pay down the loan principal from cash reserves once you're quite a ways into the build, then applying all the proceeds from the sale of the current house when that happens.
As for what's the "most efficient use of capital", well, I think that kinda depends upon what happens with interest rates around the time you're well into your build, and upon how deeply you're willing to consume that pile of sweet cash. Unless I'm mistaken, you don't have to make any kind of commitment regarding what kind of mortgage you'll have until you're basically done with construction, so you'll be able to just see what things look like at that point. But for quite a while, your outlays should be relatively minor, while you think about it some more.
Judging from your post, you seem to obviously also have a construction loan. The interest-only payments for those initial draws will really feel quite tiny. There's only so much cost that can be accrued until they get into heavy framing and systems. And even then, they're interest-only payments, without a principal component, so they shouldn't be huge either.
Given your high household income and existing pile of cash, personally, I'd be trying to aggressively pay down the loan principal from cash reserves once you're quite a ways into the build, then applying all the proceeds from the sale of the current house when that happens.
As for what's the "most efficient use of capital", well, I think that kinda depends upon what happens with interest rates around the time you're well into your build, and upon how deeply you're willing to consume that pile of sweet cash. Unless I'm mistaken, you don't have to make any kind of commitment regarding what kind of mortgage you'll have until you're basically done with construction, so you'll be able to just see what things look like at that point. But for quite a while, your outlays should be relatively minor, while you think about it some more.
Statistics: Posted by Oreamnos — Thu Dec 14, 2023 11:53 pm — Replies 2 — Views 302
