NRR question -
We live in a very inexpensive part of the south and currently have a home worth ~$250K and we owe about $130k on it. The all-in monthly payment is $1,000.
We have purchased an old farm for $190k that appraised for $260k (probably worth close to $275k) and we owe $140k on that property. We plan to build our home here in the next four years. This property was financed on a 5/1 ARM with a 15-yr amortization a month ago. The monthly payment is $1,000.
The interest rates on the two loans are nearly identical.
My wife and I have solid monthly cash flow and about $150,000 in cash sitting in the bank (not counting retirement accounts, etc.) I never feel secure with less than $50,000 - $75,000 of liquid funds on hand.
If my wife and I are currently able to save $4k each month, what is the best strategy to getting us to our goal of building in four years? I have thought of the following:
1) Pay-off the farm using extra principal only payments each month since the interest payments on land are not tax deductible (yet). This would mean that we apply for a construction loan in a few years with less debt, but still with the monthly house payment, which would ding us a little.
2) Same as above, but pay-off the house with extra payments instead. We would have less equity built up in where we are going to live in the future, but we wouldn't have the payment of our current house counting against us when applying for a construction loan. However we would have a lot more equity tied up in our current house and need to get that out.
3) There is no difference between 1 and 2.
I know numbers fairly well but I have never built a home, so there might be something I'm missing.
Does anyone have advice? Thank you very much!