Should You Tear Down and Replace Your Home

Why Tear Down Your Home     

Are you considering replacing your existing home with a new modular home?  You have lots of company.  Many of us are happy with our neighborhood, local schools, and commute to work.  We’re also attached to our property, often because we like its size and views.  If only our homes were big enough for our families.  If only they had layouts that worked for how we live.  If only they had modern features and better energy efficiency.  If only we could fix our problems with some reasonable and affordable remodeling.

But what if remodeling is not viable?  What if you’d prefer a new home?  If so, you’ll likely consider purchasing a building lot – if not in your neighborhood, at least in your town.  But what if your town is well established with a home already built on virtually every lot?  You might then consider “tearing down” your home and replacing it with a brand new modular home.

Can You Tear Down Your Home

Before you contact a modular builder, you should learn what your town’s zoning, planning, and building departments allow.  Their regulations are partly in place to protect the existing character of your town and neighborhood.  They dictate whether and how you can tear down your existing home.  They also determine what you can build as a replacement.  This usually includes the size, footprint, square footage, height, and style of your home.

If your home is in a historic preservation district, you may be prohibited from tearing down your home, or at least required to adhere to the architectural standards of your neighborhood.  In fact, your abutting neighbors will likely have some input into what you can build.  It’s often best to speak directly to them in advance of pushing ahead.  If your property is part of a subdivision that is governed by a homeowners association, make sure it’s bylaws do not prevent your home from being torn down.

You should also check with your gas, electric, and water utilities to learn how you can disconnect these from your home.  You should consult with your fire department to see what they need. You should expect your town to require an inspection for toxic materials, such as asbestos or an old diesel tank.  And you should speak with your board of health, if you have a septic system, to see what’s needed to comply with its regulations.

If you skip these steps, and assume you can tear down your home, you may waste a lot of time designing a home you cannot build.

The Cost to Tear Down Your Home

Be prepared to pay between $5,000 and $25,000 to demolish your existing home, haul the materials away, and cover the disposal fees.  You’ll pay even more if your home has asbestos or other toxic materials.  You’ll also likely need to pay for a demolition permit.

How to Finance the Tear Down and Replacement of Your Home

If you are financing your project, you must qualify for a construction loan and mortgage in terms of income, debt, and credit.  (Check out my blogs that explain what you need to know about financing a modular home.)  In addition, there are a couple of financial considerations that are unique to demolishing and replacing your existing home.  Take these seriously, since they’ve tripped up many customers in the past.

Unless you own your home outright, you cannot tear it down without first paying off the existing mortgage or obtaining written permission from your current lender.  However, your lender will not grant permission if the loan balance is more than the value of the land, since the land will be the only equity left after the demolition.  Should you tear down your home without paying off your loan or obtaining permission, your lender will invoke the default clause in your mortgage, which will create some serious legal headaches for you.
If you have an existing mortgage, you will need a loan that covers the balance owed on your existing home, the demolition, and the construction of your new home.  A consideration for your lender is whether you will have sufficient equity in your property after the demolition and repayment of your current loan balance.  The equity is needed to serve as a down payment on your new loan.  If the outstanding balance is substantial, however, you may not have enough equity, unless you have another source of funds
A second consideration for your lender is whether the value of your finished home will be sufficient to support the total of your new mortgage. The lender needs to be confident that if you default on your loan, they can recover the balance by selling your property. They will determine the value of your new home by obtaining a professional real estate appraisal.

For more information about why and how to tear down your home so you can replace it with a new modular home, see Why Build Modular and Financing a Modular Home in my book The Modular Home.