still have mortgage on old house to be torn down- want to build new house
You're effectively looking for a mortgage for a new self-build house.  At the beginning, you should be able to get a mortgage based on the value of the land only.  They may be willing to lend more as the build progresses. Try to find a company that specializes in this sort of mortgage. I could be wrong, but I doubt you're going to be able to roll the current mortgage into a new one. The problem is that the bank is going to require that the new loan is fully collateralized by the new house.  So the only way that you can ensure that is if you can construct the house cheaply enough that the difference between the construction cost and the end market value is enough to cover the current loan AND keep the loan-to-value (LTV) low enough that the bank is secured. So say you currently owe $40k on your mortgage, and you want to build a house that will be worth $200k. In order to avoid PMI, you're going to have to have an LTV of 80% or less, which means that you can spend no more than $160k to build the house.  If you want to roll the existing loan in, now you have to build for less than $120k, and there's no way that you can build a $200k house for $120k unless you live in an area with very high land value and hire the builders directly (and even then it may not be possible). Otherwise you're going to have to make up the difference in cash. When you tear down a house, you are essentially throwing away the value of the house - when you have a mortgage on the house, you throw away that value plus you still owe the money, which is a difficult hole to climb out of. A better solution might be to try and sell the house as-is, perhaps to someone else who can tear down the house and rebuild with cash. If that is not a viable option (or you don't want to move) then you might consider a home equity loan to renovate parts of the house, provided that they increase the market value enough to justify the cost (e.g. modernize the kitchen, add on a room, remodel bathrooms, etc. So it all depends on what the house is worth today as-is, how much it will cost you to rebuild, and what the value of the new house will be.
"Any sensible lender will require a lean lien against your formerly-free-and-clear property, and will likely require an appraisal of the property. The lender is free to reject the deal if the house is in any way not fitting their underwriting requirements; examples of such situations would be if the house is in a flood/emergency zone, in a declining area, an unusual property (and therefore hard to compare to other properties), not in salable condition (so even if they foreclose on it they'd have a questionable ability to get their money back), and so forth. Some lenders won't accept mobile homes (manufactured housing) as collateral, for instance, and also if the lender agrees they may also require insurance on the property to be maintained so they can ensure that a terrible fate doesn't befall both properties at one time (as happens occasionally). On the downside, in my experience (in the US) lenders will often require a lower loan percentage than a comparable cash down deal. An example I encountered was that the lender would happily provide 90% loan-to-value if a cash down payment was provided, but would not go above 75% LTV if real estate was provided instead. These sort of deals are especially common in cases of new construction, where people often own the land outright and want to use it as collateral for the building of a home on that same land, but it's not uncommon in any case (just less common than cash down deals). Depending on where you live and where you want to buy vs where the property you already own is located, I'd suggest just directly talking to where you want to first consider getting a quote for financing. This is not an especially exotic transaction, so the loan officer should be able to direct you if they accept such deals and what their conditions are for such arrangements. On the upside, many lenders still treat the LTV% to calculate their rate quote the same no matter where the ""down payment"" is coming from, with the lower the LTV the lower the interest rate they'll be willing to quote. Some lenders might not, and some might require extra closing fees - you may need to shop around. You might also want to get a comparative quote on getting a direct mortgage on the old property and putting the cash as down payment on the new property, thus keeping the two properties legally separate and giving you some ""walk away"" options that aren't possible otherwise.  I'd advise you to talk with your lenders directly and shop around a few places and see how the two alternatives compare. They might be similar, or one might be a hugely better deal! Underwriting requirements can change quickly and can vary even within individual regions, so it's not really possible to say once-and-for-all which is the better way to go." "Your assumption is wrong. Land is definitely mortgageable. On the other hand, it may be simpler and attract a lower interest rate if you just mortgage your existing house. (I believe most companies call this ""remortgaging"" even if you have no existing mortgage). Any loan will be subject to proof that you'll be able to pay it off, like any other mortgage. If the land itself is mortgaged you would need a deposit (i.e. the value of the mortgage would need to be less than the value of the land)." Insurance you purchase is paid to you. However, even if the home is destroyed, you still owe all the money to the bank, and you no longer have the house as part of the land's value to guarantee the loan. So depending on how much the land is still worth versus how much you owe -- and exactly what the terms of the loan are -- you may need to use some or all of that money to repay enough of the loan to bring it back within the bank's policies. Read the terms of the loan -- consider asking a lawyer to clarify it for you if necessary; having a lawyer review that kind of major contract is always wise anyway. – If they own the old house outright, they can mortgage it to you. In many jurisdictions this relieves you of the obligation to chase for payment, and of any worry that you won't get paid, because a transfer of ownership to the new owner cannot be registered until any charge against a property (ie. a mortgage) has been discharged. The cost of to your friends of setting up the mortgage will be less than the opulent interest they are offering you, and you will both have peace of mind. Even if the sale of the old house falls through, you will still be its mortgagee and still assured of repayment on any future sale (or even inheritance). Complications arise if the first property is mortgaged. Although second mortgages are possible (and rank behind first mortgages in priority of repayment) the first mortgagee generally has a veto on the creation of second mortgages. The cleanest way to accomplish this is to make the purchase of your new house contingent on the sale of your old one.  Your offer should include that contingency and a date by which your house needs to sell to settle the contract.   There will also likely be a clause that lets the seller cancel the contract within a period of time (like 24-48 hours) if another offer is received.  This gives you (the buyer) at least an opportunity to either sell the house or come up with financing to complete the deal. For example, suppose you make an offer to buy a house for $300,000 contingent on the sale of your house, which the seller accepts.  In the meantime, the seller gets an offer of $275,000 in cash (no contingency).  The seller has to notify you of the offer and give you some time to make good on your offer, either by selling your house or obtaining $300,000 in financing.  If you cannot, the seller can accept the cash offer. This is just a hypothetical example; the offer can have whatever clauses you agree to, but since sale contingencies benefit the buyer, the seller will generally want some compensation for that benefit, e.g. a larger offer or some other clause that benefits them. Or do I find a house to buy first, set a closing date far out and then use that time to sell my current one? Most sellers will not want to set a closing date very far out.  Contingency clauses are far more common. In short, yes it's possible, and any competent realtor should be able to handle it.  It also may mean that you have to either make a higher offer to compensate for the contingency and to dissuade the seller from entertaining other offers, or sell your home for less than you'd like to get the cash sooner.  You can weigh those costs against the cost of financing the new house until yours sells. This may only apply to Canada, but I would ask if the mortgages they lend are non-transferable. Meaning if you decide in year 2 of your 5 year term that you want to sell and move you pay a penalty, rather than be able to transfer the mortgage to a new house. "Because this question seems like it will stick around, I will flesh out my comments into an actual answer. I apologize if this does not answer your question as-asked, but I believe these are the real issues at stake. For the actual questions you have asked, I have paraphrased and bolded below: Firstly, don't do a real estate transaction without talking to a lawyer at some stage [note: a real estate broker is not a lawyer]. Secondly, as with all transactions with family, get everything in writing. Feelings get hurt when someone mis-remembers a deal and wants the terms to change in the future. Being cold and calculated now, by detailing all money in and out, will save you from losing a brother in the future. ""Should my brother give me money as a down payment, and I finance the remainder with the bank?"" If the bank is not aware that this is what is happening, this is fraud. Calling something a 'gift' when really it's a payment for part ownership of 'your' house is fraud. There does not seem to be any debate here (though I am not a lawyer). If the bank is aware that this is what is happening, then you might be able to do this. However, it is unlikely that the bank will allow you to take out a mortgage on a house which you will not fully own. By given your brother a share in the future value in the house, the bank might not be able to foreclose on the whole house without fighting the brother on it. Therefore they would want him on the mortgage. The fact that he can't get another mortgage means (a) The banks may be unwilling to allow him to be involved at all, and (b) it becomes even more critical to not commit fraud! You are effectively tricking the bank into thinking that you have the money for a down payment, and also that your brother is not involved! Now, to the actual question at hand - which I answer only for use on other transactions that do not meet the pitfalls listed above: This is an incredibly difficult question - What happens to your relationship with your brother when the value of the house goes down, and he wants to sell, but you want to stay living there? What about when the market changes and one of you feels that you're getting a raw deal?  You don't know where the housing market will go. As an investment that's maybe acceptable (because risk forms some of the basis of returns). But with you getting to live there and with him taking only the risk, that risk is maybe unfairly on him. He may not think so today while he's optimistic, but what about tomorrow if the market crashes? Whatever the terms of the agreement are, get them in writing, and preferably get them looked at by a lawyer. Consider all scenarios, like what if one of you wants to sell, does the other have the right to delay, or buy you out. Or what if one if you wants to buy the other out? etc etc etc. There are too many clauses to enumerate here, which is why you need to get a lawyer." "Presumably the existing house has some value. If you demolish the existing house, you are destroying that value. If the value of the new house is significantly more than the value of the old house, like if you're talking about replacing a small, run-down old house worth $50,000 with a big new mansion worth $10,000,000, then the value of the old house that is destroyed might just get lost in the rounding errors for all practical purposes. But otherwise, I don't see how you would do this without bringing cash to the table basically equal to what you still owe on the old house. Presumably the new house is worth more than the old, so the value of the property when you're done will be more than it was before. But will the value of the property be more than the old mortgage plus the new mortgage? Unless the old mortgage was almost paid off, or you bring a bunch of cash, the answer is almost certainly ""no"". Note that from the lienholder's point of view, you are not ""temporarily"" reducing the value of the property. You are permanently reducing it. The bank that makes the new loan will have a lien on the new house. I don't know what the law says about this, but you would have to either, (a) deliberately destroy property that someone else has a lien on while giving them no compensation, or (b) give two banks a lien on the same property. I wouldn't think either option would be legal.  Normally when people tear down a building to put up a new building, it's because the value of the old building is so low as to be negligible compared to the value of the new building. Either the old building is run-down and getting it into decent shape would cost more than tearing it down and putting up a new building, or at least there is some benefit -- real or perceived -- to the new building that makes this worth it." You are thinking about this very well.  With option one, you need to think about the 5 D's in the contract.  What happens when one partner becomes disinterested, divorced (break up), does drugs (something illegal), dies or does not agree with decisions. One complication if you buy jointly, and decide to break up/move, on will the other partner be able to refinance?  If not the leaving person will probably not be able to finance a new home as the banks are rarely willing to assume multiple mortgage risks for one person.  (High income/large down payment not with standing.) I prefer the one person rents option to option one.  The trouble with that is that it sounds like you are in better position to be the owner, and she has a higher emotional need to own.    If she is really interested in building equity I would recommend a 15 year or shorter mortgage.  Building equity in a 30 year is not realistic. He doesn't have to follow through on this, but he could tell this sister that he will stop making mortgage payments, which will result in foreclosure and sale at lower price than might be realized by a voluntary sale. Translation: the house will sold, sis. Do you want to maximize your share of the proceeds?  And, as I said in a comment above: I hope that he is keeping careful records of mortgage an utility payments, as he might (should) be entitled to a refund from the proceeds of an eventual sale (possibly adjusted by the fair rent value of the time which he spent living there) "In your particular condition could buy the condo with cash, then get your mortgage on your next house with ""less than 20%"" down (i.e. with mortgage insurance) but it would still be an owner occupied loan.  If you hate the mortgage insurance, you could save up and refi it when you have 20% available, including the initial down payment you made (i.e. 80% LTV ratio total).  Or perhaps during the time you live in the condo, you can save up to reach the 20% down for the new house (?).  Or perhaps you can just rent somewhere, then get into the house for 20% down, and while there save up and eventually buy a condo ""in cash"" later.  Or perhaps buy the condo for 50% down non owner occupied mortgage... IANAL, but some things that may come in handy: you don't have to occupy your second residence (owner occupied mortgage) for 60 days after closing on it.  So could purchase it at month 10 I suppose.  In terms of locking down mortgage rates, you could do that up to 3 months before that even, so I've heard.   It's not immediately clear if ""rent backs"" could extend the 60 day intent to occupy, or if so by how long (1 month might be ok, but 2? dunno) Also you could just buy one (or the other, or both) of your mortgages as a 20% down conventional ""non owner occupied"" mortgage and generate leeway there (ex: buy the home as non owner occupied, and rent it out until your year is up, though non owner occupied mortgage have worse interest rates so that's not as appealing).  Or buy one as a ""secondary residency"" mortgage?  Consult your loan officer there, they like to see like ""geographic distance"" between primary and secondary residences I've heard. If it's HUD (FHA) mortgage, the owner occupancy agreement you will sign is that you ""will continue to occupy the property as my primary residence for at least one year after the date of occupancy, unless extenuating circumstances arise which are beyond my control"" (ref), i.e. you plan on living in it for a year, so you're kind of stuck in your case.  Maybe you'd want to occupy it as quickly as possible initially to make the year up more quickly :) Apparently you can also request the lender to agree to arbitrarily rescind the owner occupancy aspect of the mortgage, half way through, though I'd imagine you need some sort of excuse to convince them.  Might not hurt to ask." Can I give the bank the $300,000 to clear the mortgage, or must I pay off the total interest that was agreed upon for the 30 year term? This depends on the loan agreement.  I had one loan where I was on the hook regardless.  Early payment was just that, early payment.  It would have allowed me to skip months without making payments (because I had already made them).   Most loans charge interest on the remaining balance. If you pay early, it reduces your balance, decreasing the interest.  If you pay it off early, there's no more balance and no more interest.   I'm curious why the bank would let you do this, since they will lose out on a lot of profit. But they have their money back and can loan it out again.  If they maintained the loan, they aren't guaranteed of getting their money.   Interest is rent that you pay for the loan of the money.  Once you return the money, why pay more rent?  While some apartment leases require paying through the entire term, most allow for early termination with proper notice.  You give back the apartment; the landlord rents it out again.  Why should they get paid two rents?   Another issue is that if someone with a mortgage switches jobs to a new location, that person will likely prefer to sell the current house and buy one in the new location.  This is actually the typical way for a mortgage to end.  If the bank did not allow that, they would essentially force the family to rent out the mortgaged house and rent a new house.  So the bank would go from an owner-occupied house that the inhabitants want to keep maintained to a rental, where the inhabitants only care to the extent of their legal liability.   Consider the possibility that the homeowners lose one of their jobs.  They can't afford the house.  So they sell it and close out the mortgage.  Should the bank refuse to allow the sale and attempt to recover the interest from the impoverished homeowners?  That situation would almost guarantee an expensive foreclosure.   Once there is any early termination clause for any reason, it makes sense for the bank to structure the loan to include the possibility.  That way they don't have to investigate whatever excuse is involved.  Loan regulators may require this as well, particularly on mortgages. "Assuming ""take advantage"" means continue to build wealth, as opposed to blow it all on a fancy holiday...  Downgrade As you already note, you could downgrade/downsize. This could happen via moving to a smaller house in the same area, or moving to an area where the cost of buying is less.  HELOC Take out a Home Equity Line of Credit. You could use the line of credit to do home improvements further boosting the asset value (forced appreciation, assuming the appreciation to date is simply market based). Caution is required if the house has already appreciated ""considerably"" - you want to keep the home value within tolerance levels for the area. (Best not to have the only $300K house on a street of $190K-ers...) Home Equity Loan Assuming you have built up equity in the house, you could leverage that equity to purchase another property. For most people this would form part of the jigsaw for getting the financing to purchase again." "Your mortgage agreement probably gives you three options: Pay off your mortgage in full. Use the insurance company's deck-repair payment to fix your deck to be similar in quality to what it was when you took out the mortgage, allowing for normal wear-and-tear since you took out the mortgage. In other words, you can ""restore or repair the property to avoid lessening the Lender's security"". According to most American mortgages, if you can make the repairs for less than the insurance settlement, and the lender is happy with the work, you can keep the savings. Hand over the insurance company payment for the deck to your lender, and have them apply that amount toward the principal of your mortgage. If the repairs are not ""economically feasible"", and you are current with your payments, most American mortgages specify this use of the money. Here are some typical mortgage provisions in this regard.  This is an excerpt from the Fannie Mae/Freddie Mac form 3048, which is the form used by most banks for mortgages in the state of Washington.  (I have added paragraph breaks and bolding for clarity.)  Many states have different wording, but the intent is the same: In the event of loss, Borrower shall give prompt notice to the insurance carrier and Lender.  Lender may make proof of loss if not made promptly by Borrower.  Unless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender, shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and Lender's security is not lessened. During such repair and restoration period, Lender shall have the right to hold such insurance proceeds until Lender has had an opportunity to inspect such Property to ensure the work has been completed to Lender's satisfaction, provided that such inspection shall be undertaken promptly. Lender may disburse proceeds for the repairs and restoration in a single payment or in a series of progress payments as the work is completed. Unless an agreement is made in writing or Applicable Law requires interest to be paid on such insurance proceeds, Lender shall not be required to pay Borrower any interest or earnings on such proceeds. Fees for public adjusters, or other third parties, retained by Borrower shall not be paid out of the insurance proceeds and shall be the sole obligation of Borrower. If the restoration or repair is not economically feasible or Lender's security would be lessened, the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower.  Such insurance proceeds shall be applied in the order provided for in Section 2." Obviously you're missing that there is no house on the land so the cost comparison between a house and land isn't terribly valid.   The land might not have connections to the municipal sewage/power/electrical and may need zoning changes and permits for those connections.   You're missing that you don't know how to design and build a house so you'll need to hire people for those tasks; then live through the process, headaches, and probable budget overruns. Edit: You're also missing that lending for speculative land development is significantly different from lending for a single family home.