My wife and I are contracting the building of our house. We have the construction loan from the bank and we also have our own money saved up and are continuing to save as we build. Should we pay the sub-contractors our own money first before we use the construction loan money, or should we use the construction loan money to pay the sub-contractors and use our own money for a down payment on the mortgage loan when we are ready to convert it at the finishing of our house?

If you already have the loan you may as well use that one. In the end it really doesn't make that big of a difference since the total amount will be the same.

In other words, if you have a 100k loan and 50k in savings it doesn't matter which money you will use, you have 150k to spend.

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It is not smart to play it safe but it is safe to play it smart.

LMAO, I just realized that I spelled my user name wrong when I signed up.

Anyways, my wife is saying that we should use our money first instead of making a draw from the construction loan so that we don't have to pay interest. But, after we make our first payment, our money will be gone and we'll have to depend on the loan money until we get the money from selling our house. Then we can use our own money again until we use it up once more, then start drawing from the loan again.

What I want to do though is keep saving our money until we are ready to convert our construction loan into a mortgage loan, and make a large down payment at that point with the money we've saved.

This is another example of a bad financial move, at least in my opinion. For some reason, I think mostly due to very poor or no financial education at all, a majority of people insist on decreasing their assets and purchase liabilities to set them up for a huge potential of future financial problems.

Many individuals purchase liabilities and mistake them for assets.

If you have cash saved up and plan to continue to safe I would use that to purchase assets, invest, create positive cash-flow and use that to pay for whatever liability you plan to purchase (i.e, car, house, etc.). If you just put them into a savings account you really make a bad financial move.

Assets buy liabilites and not the other way around. If you stick to this you will avoid financial problems. This will take time and is harder then what the majority favors but the majority will never gain fiancial independence and favors to have potential problems in the future.

The majoriyt of people approaches home-ownership the completely wrong way and now are stuck in this housing mess. Once agian you can thank poor or no financial education and a lack of financial literacy and very poor advice for that.

In the end it is a choice each individual needs to make.

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It is not smart to play it safe but it is safe to play it smart.

thanks for this information.

I agree with Hermes. A liability is always offset by an asset, usually cash. Your total bill on this house will be the same, so how you distribute the money only matters to the point that the end goal of moving into your new house is realized.

If it were me, I would pay off the subcontractors first, with any available money. This keeps the building of the house going along smoothly.

Good luck with your new house.

Tango

Ah, the house of cards built upon an investment platform...

Frankly, relying on someone's paycheck in order to finance the purchase of an asset is more prudent than relying on an investment to generate an income stream to do the same. Assuming the investment is not something guaranteed, such as an immediate annuity, government bond, etc.

Markets of all countries involve people (fact). People are emotional (fact). Markets are volatile (fact). Why would you bet your dream home or your child's education, both very important goals, solely on investment performance?

Purchasing a home is not "purchasing a liability". If you truly understand the economic impact of a home purchase on your personal economy, you'd understand this to be entirely untrue.

In fact, these people are doing exactly what they should be doing. They are continuing to save all the meanwhile having the financing in place to secure their dream. Could this income stop? Yes. But disability insurance and other strategies can ensure things continue. Could someone pass away? Yes. But life insurance can ensure debt gets paid off and children go to college.

Which would you rather have, no guarantees in life, OR guarantees you can coordinate and integrate into an overall strategy to accomplish everything you desire. This "bet everything on investments to fund your dreams" approach is exactly what some stock brokers I know preach, and it is exactly the type of advice that ruins people financially. What happens when the investments don't work out? What happens when markets panic and you are withdrawing funds? What happens when you overestimate your ability to earn a certain return? What happens when you slip on icy concrete and cannot work for 6 months? What happens when an uninsured motorist with zero net worth runs a red light and kills the primary wage earner?

The only people that can invest their way out of some or all of these challenges are the uber-wealthy. Because if their investments tank 40% (don't say it cannot happen! because no one can predict the future), everything still works as planned (retirement, goals, business, etc). However, most students would not be happy if their college education fund tanked a year before college and they no longer could go to the school they had planned. Or what about the Winstons, who I met after both the tech bubble and their stockbroker's fees/commissions wiped out 80% of their retirement assets, 6 months away from retirement. Now he's working at Walmart (just kidding, he's actually consulting and doing just fine, but he's had some health problems recently).

"Hydroman" , pay the subcontractors with the loan, if you can. It makes no sense to pay with cash and then dip into the loan when you need to. In fact, this may be dangerous if, for some reason, you cannot get money out of the loan. Continue to save (invest a portion of this money if you feel the need to). Make sure you have liquid savings (emergency funds), disability protection, and life insurance to ensure things go as planned.

I never went through the process of building a home, but if i were you i would use my own money first. By doing that, you will end up saving money in the long run because of the interest payments. But than again, it all depends on the details of the situation. It may not matter how you end up using the money after its all said and done.

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i think you should first use your loan money for building a house, which is very easy for you to manage.