8.17.20

Financing a teardown

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Interior construction work on a new home.
Consumers home loans

We’d love to help you with a mortgage or home equity line of credit.

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Sometimes the way to get the home of your dreams is to demolish an old house and build a new one.

What happens when you find a house in the perfect location but its condition leaves a lot to be desired? There are generally two options. Walk away or buy it, tear it down and rebuild. For many people, a rebuild is the best way to get both the location and home they desire. If you’re considering this option, here’s what you need to know about financing.

Finance basics for teardowns

Financing a teardown house is more complex than a standard mortgage or construction loan because the process involves destroying part of the loan collateral—the house. In addition to verifying your ability to repay the loans, a lender will want to see plans for the new house and know who your builder will be. In order to get a loan, the value of the property and the new home must meet the lender’s standards.

A teardown and rebuild won’t be eligible for government mortgage programs like FHA and VA loans.

At Consumers, we offer loans that cover demolition, construction and a standard mortgage once the new home is complete.

One-and-done loan for construction and mortgage

To cover the costs of demolition and rebuilding, teardown buyers use a construction loan. A Consumers construction loan will roll over into a standard mortgage upon completion of construction. These are sometimes called “one-time close” loans because you don’t have separate closings for the construction and mortgage loans. Not only is a construction-to-standard mortgage loan simpler, it can save thousands in closing costs.

Another advantage of a Consumers construction-to-mortgage loan is that it locks in the interest rate for up to 12 months at the time of application. There’s no need to worry about rising interest rates wreaking havoc on your budget because the rate won’t change.

Check local zoning

Before you buy a teardown, hire an architect and commit to a builder, check with local authorities to see what the zoning rules allow. Some places allow you to raze the whole house. Leaving one wall intact may make the permit process simpler in some municipalities. If the home is in a historic district, there may be be tight restrictions that don’t allow major changes. Rules vary from place to place so you must do your homework.

Rebuild to get what you want

One of the best things about rebuilding is that your home’s electrical, plumbing and HVAC systems are all up to date. Plus, you get to live in a home that meets your specific needs for relaxation, work, entertaining and schooling.

If a teardown and rebuild is in your future, contact one of our mortgage loan officers to learn about all your financing options.

Consumers helps more than 1,000 members finance land, first and second homes, and home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit; contact us online or call us at 800-991-2221.

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Consumers home loans

We’d love to help you with a mortgage or home equity line of credit.

Learn more

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  1. Lucia Ferreira says:

    Hello, I am looking for a teardown / rebuild loan for my home in Denver, NC. Please contact me at 980-308-4737. Thanks

    • ConsumersCU says:

      Hey Lucia, unfortunately we’re only licensed to do mortgages in the state of Michigan currently. Best of luck!

  2. Joel Sweitzer says:

    Can you do a tear down and rebuild loan on a financed property?

    • ConsumersCU says:

      Yes we can if it’s a complete tear down. LTV would still need to be supported, which can be an issue if you owe on it now and then plan to tear down and build something new. If you have more questions, feel free to call us at 800.991.2221.

  3. Mister Loans says:

    I had simply wanted to write down a quick word to say thanks to you for those wonderful tips and hints you are showing on this site.

  4. Mary V. Muñoz says:

    I have a rental/investment property in a highly desirable vacation area in Virginia (Sandbridge Beach). I am looking to tear down the existing house and build a larger house, plus pool, in the location of the current house. I would like to speak to someone about getting a teardown/construction loan. Today (Friday) and tomorrow are not good for conversation. Sunday and Monday afternoon are much better. Thank you.

    • ConsumersCU says:

      Hi Mary, we only finance properties in Michigan. If you have any questions please give us a call at 800.991.2221.

  5. Auburn Pierce says:

    My fiancé and I are interested in getting a property for $45,000. The home is not livable but has a new septic system. What is the best type of loan for this? We would like to either build or put in a manufactured house.

  6. JULIET says:

    I am interested the talking about a teardown loan and I have questions.

  7. Ridhima says:

    Hi,

    We bought a property 101 Broadway Los Gatos in CA. It’s a tear down and rebuild. Can you help with a construction loan?

  8. Connie Fordham says:

    I have a current mortgage and I need to rebuild the home as it has structure damage and with covid I am not working am I able to get help here to rebuild a safe home for my family. I have 160 acres with the home. In northern Ontario

  9. Gregory Sharp says:

    Me and my mother was recently burn out our home and we trying to rebuild it we had a contractor to come by and he said for 175000 he could rebuild it and bring it up to code the house in over a hundred years old been in the family for a while

    • ConsumersCU says:

      Good luck, Gregory. If you have questions for a loan officer, please call us at 800.991.2221.

  10. holly ogletree says:

    i have a current mortgage on our home we reside in. We want to tear it down and rebuild. What we would build would be worth more than our current home. We have about $120k in equity in our home. Would we have to pay off our current mortgage before we could tear down and build?

    • ConsumersCU says:

      Hey Holly, the current mortgage would either need to be paid off or rolled into the construction loan, assuming there is enough equity in the “as completed value” of the new build–meaning what the house will be worth when the new build is done.

  11. Alaina Adams says:

    Is the outstanding amount of the loan added to the new home loan?

    • ConsumersCU says:

      Yes, the two loans would be combined together. So the new value will need to be able to cover both or you would need to bring cash to the table.

  12. Lawanda mckay says:

    I’m interested in getting my tore down and rebuild

  13. Troy says:

    Hi. I have a tear down property in the UP of Michigan that is financed. Do you provide loans for us folks up here? How is the after construction value figured out so I can estimate how much I can borrow which includes the amount I owe on it.

    • ConsumersCU says:

      Hey Troy,

      We can finance in the UP. Each construction or renovation loan is reviewed case-by-case, including the builder. Value is determined by what the completed project will be worth. That value would need to cover the lien that we payoff, as well as any construction cost. Give us a call at 800.991.2221 and ask to speak with a mortgage loan officer if you have further questions.

  14. Rico Gholson says:

    I will love to get started with this project so can someone give me a call for more information.Thank you so very much looking forward hearing back from you,soon.

  15. Al says:

    Do you all have partners or referrals in Atlanta, Georgia for a tear down reconstruction loan?

  16. Kimberly Walsh says:

    Interested in finding out more on the tear down rebuild. My current home has a mortgage however I owe less then the land is worth. Do you have people in tampa fl?

    • ConsumersCU says:

      Hey Kimberly, you’re welcome to call us at 800.991.2221 and speak with a loan officers who may be able to answer some of your questions; however, we don’t have any partners in Tampa.

  17. Tanya French says:

    Hello. We live on Lake Wateree in Ridgeway SC. We would like to tear down our existing home and rebuild. Could you tell me if you do these types of loans in SC? Thank you

    • ConsumersCU says:

      Hey Tanya, we currently don’t do loans outside of Michigan. Unfortunately, we don’t have any partners in SC, but encourage you to inquire to see if a local credit union offers something similar.

  18. Tyler Abrams says:

    I have some questions about a home in michigan. Could I tear down and rebuild in a new location on the property. Or does it have to be on the same foundation

    • ConsumersCU says:

      Hey Tyler, the construction loan would allow a tear down and rebuild assuming there is enough equity position. The rest would be up to the local building regulations and determined when applying for a building permit. If you’d like to talk this through with a loan officer, please give us a call at 800.991.2221.

  19. Dillon Pugh says:

    I want to learn more about my options of tearing down my current home & rebuilding.

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