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Many people dream of building their own custom homes. Fortunately, this dream is within reach. Still, it can be tricky to manage the timing between selling your current home and moving into a newly constructed home. There are two primary factors to consider before you get started - the type of financing you need and the type of interim housing that works best for you.

Financing

It’s a common belief that you should sell your home before beginning a new construction process, but this isn’t always the case. The type of financing you receive will somewhat determine when you should put your current home on the market.

• Two Mortgages: People may assume they can carry one mortgage while applying for another on the new home before it’s built. However, this is only available when the house has earned a Certificate of Occupancy, typically after final inspection. At that point, you can consider applying for a new mortgage while continuing to carry the previous mortgage. This allows you to stay in your home until you’re ready to move, but it can increase your total budget.
• Construction Loan: A construction loan is a popular choice for home builders. These can be structured as a construction-only or construction-to-permanent loan. A construction-only loan requires you to pay the full amount of the loan upon completion of your new home. This may involve taking out a mortgage, though some people may be able to cover the costs with savings. A construction-to-permanent loan automatically converts to a mortgage when your new home is complete, which means you don’t need to apply for a mortgage separately.
• Bridge Loan: This type of loan covers new expenses prior to the sale of your first home. If your current home is move-in ready for the next owner, and you’re in a “hot” market where you expect your home to sell quickly, a bridge loan may be a great option. Keep in mind that market conditions may change unexpectedly.

Interim Housing

If you decide to sell your home before the construction process begins, you’ll need to line up temporary housing.

• Rental Property: Short-term rentals may be used for people between houses. You can consider moving your items into storage and renting a furnished home or moving your furniture and personal items twice. Before moving in, make sure you know what happens if you need to go beyond your expected rental date due to construction delays, like whether or not you are able to rent month-to-month.
• Family/Friends: Temporarily staying with family or friends is a budget-friendly option. Again, make sure you discuss the possibility of unexpected delays.
• Rent Back: A rent back is a creative solution that allows you to sell your home to a buyer and then rent it from them until your new home is ready. This can enable you to take advantage of a favorable seller’s market and reduce the number of moves you need to make.

The right answers will be different for everybody. While the details of selling, building, and moving may seem overwhelming at times, our team of local mortgage experts is here to help you navigate all of the considerations and come up with an approach that best fits your situation.

Visit our Home Loans page to get information on current rates, or learn more about loan types and closing costs and apply now on our Digital Mortgage Hub.