Using equity from suburban home to purchase land?

Discussion in 'Homesteading Questions' started by njmama, Jun 21, 2006.

  1. njmama

    njmama Well-Known Member

    Messages:
    560
    Joined:
    Jan 4, 2006
    Hello!

    I am wondering if anyone has used the equity from their suburban home to purchase property?

    Pros/cons? Advice?

    Thanks!!
     
  2. fordy

    fordy Well-Known Member

    Messages:
    9,305
    Joined:
    Sep 13, 2003
    Location:
    Whiskey Flats(Ft. Worth) , Tx
    ...........I see a potential problem here based upon the following HYpothetical info.....House , fair market value =200,000 , loan payoff =100,000 . So you borrow 100,000 and buy land paying cash , now If you decide to Sell your home and the realestate market becomes soft by say 30% in your area so now the market value of your home is (200,000 x 70%=140,000) , and now your Payoff is 200,000 . You're going to have to put money back into the sale just to payoff your mortgage . Not a very nice situation to BE in . fordy... :Bawling:
     

  3. claytonpiano

    claytonpiano Well-Known Member Supporter

    Messages:
    1,014
    Joined:
    Feb 2, 2005
    Location:
    NC
    We did this. First we got a home equity line of credit, fixed up the old house and then used the remainder as a downpayment on the new land/house. We spent a few months concerned over whether or not the old property would sell, but it did. It also gave us several months to start re-building the house at the new property. DH was able to move all of his tools over and work quite efficiently with most things unpacked and on shelves. In the market we are in, Raleigh, NC, this worked great! I guess like Fordy said, you really need to know your market. We have a great house, land and lots of chickens as a result. As of last month, we paid off all of our debt, even the equity line of credit and are now totally debt free. If your market seems okay and this is your dream, I'd say "Go for it!"
     
  4. Spinner

    Spinner Well-Known Member

    Messages:
    6,727
    Joined:
    Jul 19, 2003
    I didn't use money from my own home, but I did use money borrowed against a rental house. The rent makes the payments so I don't have to worry about it. If something goes south, then I haven't lost my home, just a bit of rental income. It's been several years and the rental has paid off the loan. I considered it a smart investment.
     
  5. rwinsouthla

    rwinsouthla Well-Known Member Supporter

    Messages:
    1,054
    Joined:
    Oct 23, 2005
    Location:
    South Louisiana
    Most folks that go the homesteading route are in it to live debt-free and to grow and raise as much of their own food as necessary. However, not all of us are here yet....I know I am not but I am working on it. In 8 years, I'll have paid off my mortgage, and I will then work toward leaving the chemical processing industry to live more frugally.

    It appears to me that you CAN do this. If you use the equity in the old house, and move onto the new place after some repairs or building of a small residence, you could sell the old place. It is a nice way to use the equity in your old place to help purchase the new place. However, if you have higher bills AFTER you buy the new place, becoming debt free just got further away in your rearview mirror. There are factors you can not control like housing downturns, not selling your old house quickly enough, not getting what you think you need out of the old house, etc. But, it's like borrowing from the equity in your old house to buy the new place. I certainly have considered it and is one of the top ideas that I have. Proceed with caution.
     
  6. Freeholder

    Freeholder Well-Known Member

    Messages:
    5,665
    Joined:
    Jun 19, 2004
    If you are talking about borrowing money against the equity in your present home, I would say NO! Don't do it! We are on the cusp of a major downturn in housing prices, IMO -- it's already started in some areas. If you are talking about first selling your present home, and then using the equity to purchase land, then yes, go for it! That's the way most people manage to get out of town and into the country, I think. But definitely don't go any further into debt than you are right now. This is a bad time to be in debt, and the next few years will, IMO, be worse.

    Kathleen
     
  7. SteveD(TX)

    SteveD(TX) Well-Known Member

    Messages:
    5,373
    Joined:
    May 14, 2002
    I don't see how you can possibly give this advice since you don't know their real estate market, their financial condition, plans, motivation, etc. Actually, no information was given so it's pretty hard to comment with specific recommendations.


    But IF your finances allow it, and you don't do an ARM and you don't think your market is in a R.E. bubble that's about to burst.... Why not?
     
  8. njmama

    njmama Well-Known Member

    Messages:
    560
    Joined:
    Jan 4, 2006
    Sorry I wasn't more specific. We would be buying 23 acres with a small cabin. No electric. Does have woodstove, well, piers, stream. We would be borrowing on our current home and staying here as main residence for 5 years which would allow us to make improvements we want to make. My husband would also be eligible for early retirement then which would include his pension.

    Thanks for the input!

    eta: we aren't rolling in dough but could buckle down & cut back and make the higher payments on the increased mortgage.
     
  9. Obser

    Obser "Mobile Homesteaders"

    Messages:
    577
    Joined:
    Feb 13, 2006
    Location:
    Highly Variable
    There is an element of risk in doing as you propose. A downturn in real estate in your area could put a lot of pressure on you, and right now the market seems a bit unsettled in many areas (to put it kindly).

    However, if you were able to buy the acreage without having a mortgage on that property and without having it tied in any way to other property, you might take title in the name of a personal corporation or LLC. There are ways to do that without ownership of the company being a matter of public record. Then even if everything does "go south", your homestead may be at least somewhat protected against any potential legal claim.

    I do not offer this as legal advice. Consult with your attorney for specifics.
     
  10. njmama

    njmama Well-Known Member

    Messages:
    560
    Joined:
    Jan 4, 2006
    Would having one property in solely one spouses name and the other property solely in the others name accomplish that I wonder?
     
  11. desdawg

    desdawg Well-Known Member

    Messages:
    205
    Joined:
    Jul 18, 2004
    Location:
    Arizona
    If you would be comfortable with the payment this is workable. You don't have to borrow 100% of your equity unless you really need it or just want to. Also you should finance the second property in such a way to give you the best income tax advantage which will soften the blow of the additional payment.
     
  12. MorrisonCorner

    MorrisonCorner Mansfield, VT for 200 yrs

    Messages:
    3,736
    Joined:
    Jul 27, 2004
    Location:
    VT
    I see an advantage to this especially if you can rent your first home as an income producing property when you move to your second. This would give you not only an appreciating asset in your hip pocket, but one which may pay for itself and part of the second mortgage as well.
     
  13. Dutchie

    Dutchie Well-Known Member Supporter

    Messages:
    2,517
    Joined:
    Mar 14, 2003
    Location:
    Pawnee Nation, OK
    Messed up this one and re-posted
     
  14. Dutchie

    Dutchie Well-Known Member Supporter

    Messages:
    2,517
    Joined:
    Mar 14, 2003
    Location:
    Pawnee Nation, OK
    What Steve said .......

    It all depends on the local market and how much equity you have in your property. Personally, I am doing it (using equity in a property in MA and buying property in OK) but the circumstances and markets are right for me. So you need to look at all those angles.

    FWIW .... there is NO "global" housing bubble. Real estate is not a commodity and values are depending on the local market conditions.
     
  15. turtlehead

    turtlehead Well-Known Member

    Messages:
    5,390
    Joined:
    Jul 22, 2005
    Location:
    Central WV
    If your equity in your current home can only make the down payment on the land and cabin, I wouldn't do it. If the equity would allow you to purchase the land and cabin free and clear, then I'd consider it, taking into account the real estate market of your current house and how likely it is that you'll get all the money out of it (plus enough to pay a realtor, fix it up, get it inspected, pay closing costs, etc.).

    If your equity only makes a down payment on the new place, you would lose both of them if things went south. If your equity pays for the new place outright, you'd have a place to go to should things go south.
     
  16. njmama

    njmama Well-Known Member

    Messages:
    560
    Joined:
    Jan 4, 2006
    We would be able to own land & cabin with the equity in this house. It would also leave us with some wriggle room to sell this place.
     
  17. Bluecreekrog

    Bluecreekrog Well-Known Member

    Messages:
    403
    Joined:
    Jun 21, 2002
    Location:
    S Oh.
    That is what I did. Borrowed equity to purchase my new property and pay off the cards. City house is now rented, and paying for itself again.
     
  18. mommyumd

    mommyumd Well-Known Member

    Messages:
    99
    Joined:
    Jun 3, 2005
    Location:
    New Hampshire
    Hi there,
    We did this.
    We owed outright our city home. Value 265,000. Found 7 acres and a shell of a cabin in the area we loved and took out 100,000 equity to buy it. 55,000 then closing costs for the property-- remainder to put it on a foundation, get sewer, well dug. This is where we are at now. Still need some electrical power and we are doing all the interior work ourselves.
    Even if the market goes soft, we figure that we are in a fixed rate mortgage so no surprises to happen, we still have our jobs and are very employable (nurse) and even if we sell the house in the city for 100,000 (unkikely) we are free and clear of a mortgage when we move in in about 2 years.
    In the meantime - we are paying off the mortgage little by little, and the property value at the cabin has raised 11,000.
    Dreams mean taking risks or they are to remain just dreams. Calculate the risk and ve willing to suffer the consequences, or the success!!!
     
  19. terrythetaod

    terrythetaod Well-Known Member

    Messages:
    92
    Joined:
    Oct 5, 2004
    Location:
    FL
    I agree with "mommyumd"... "Dreams mean taking risks or they are to remain just dreams. Calculate the risk and be willing to suffer the consequences, or the success!!!"

    If you are sensible with your finances (and that's a big "if"), there is nothing wrong with taking out a home equity loan. We did that three years ago to begin making our dream come true. It's the only way I could have afforded my 5 acres. We had plenty of equity in our old house. So, we took out a HE loan, bought the land, built a new house, and then sold the old house. Was it scary? Yes. Was it difficult paying a mortgage PLUS a HE loan PLUS a construction loan payment? YES! But, we are very careful with our money and knew what we were doing.

    Now, we own a beautiful new home on five acres that is worth 3 to 4 times what I owe on it. (Prices have appreciated drastically here in central Florida.)

    I am actually considering a move to GA, and I would again use the equity in our current home to make a purchase up there.

    But, I am of the opinion that the US economy is NOT on the verge of an imminent collapse, and that guides my decisions.
     
  20. agmantoo

    agmantoo agmantoo Supporter

    Messages:
    10,854
    Joined:
    May 22, 2003
    Location:
    Zone 7
    I buy anything that I feel that I need provided I have 2 methods of paying the debt. Methods for repaying are earned income, rental income, unearned income, selling timber, reselling a property, savings, home equity, etc. If I have 2 means of paying for the purchase I figure I can get out of the obligation intact. If you can come up with a couple of ways to repay the home quity loan go for it. The risks are minimal and life is now. I do not use retirement money for wants or needs.