Building one's own house can be a nightmare. Last week we went through possible problems encountered when tackling the "Construction Lien Act." There are alternatives that can be much easier to manoeuvre, without compromising your dreams. One of these alternatives is called the "off-site security" plan. Quite frankly, off-site security means using somebody else's house equity while you build your house. The normal target for this off-site security is a family member's house. The reason why we use somebody else's house is because their house is already built. The lender doesn't have to worry about the amount of work in place, nor the cost to complete, as we discussed last week. The easiest way to explain the system is to use an example . . . Let us suppose you need $100,000 to build your house. Your Uncle's house is worth $220,000 and he has a $50000 mortgage on it. If we use his equity, place a second mortgage on his house, and draw the $100000 necessary for you to build your house, the total mortgaging against his place is now $150000, divided by the value of the house at $220000, the loan-to-value ratio is 68%. As long as this L/V ratio is less than 75%, the feat is possible. The loan would be in your Uncle's name, with you co-signing, and would last until your residence has been built and is beyond the 45-day Construction Lien Period. At that point in time, you can now apply to put a "normal" mortgage on your new property and payoff the loan against your Uncle's place. The normal time frame is five months. During construction, you would grant your Uncle a first mortgage on the house you are building, for his security. There is a whole bunch of questions that need to be addressed. I'll try to cover all the bases so you can approach that family member with a certain degree of comfort. Before you approach the family member, you should already know which house you are going to build, and where. You should have already priced the construction costs, and obtained architectural plans. These plans should be appraised by a professional real estate appraiser, to ascertain whether the completed project will be worth enough money to justify the $100000 loan on your family member's house. Most of the bids you get from subcontractors should be finite bids, with no overruns contemplated or allowed. Once you have the appraisal, you should gather your employment letters and seek a completion mortgage from a lending institution or a mortgage Broker. In other words, you want a guarantee that if your new home gets finished with the materials you originally discussed, to the specifications you originally contemplated, that this lender will indeed give you a mortgage for the amount you require. Having all that in hand, now you can approach the family member and ask to use the equity in their house. In all likelihood, he or she (a family member) will ask you to bounce your idea off their lawyer or Banker. That is a fair request. If you require help with the timing etc., give me a call. Once the family member has agreed to allow a mortgage on their home, you must also convince them to offer the lender (called the interim lender) all the basic information that a prudent lender will require, such as verification of the family member's income etc. Sometimes that is worse than asking for the equity. An Uncle who has a small mortgage and has paid like clockwork all these years may have a really difficult time with this aspect of the deal. You must remember, and remind him or her, that the lender must fill in the blanks and since the interim loan will be in the family member's name (with you as a consigner), it is he or she that must qualify for this mortgage. If and when your family member does this, he or she will be the one that gets the money from the lender. They in turn must let you use that money. Whatever happens during the construction period, be nice to that family member, without them you would probably be buying a ready-made home, or run out of money trying to build it the "old fashion way," with the Construction Loan. Once your house has been built for 45 days, you now mortgage your new home for $100000, take the money and payoff the interim mortgage on your benefactor's house. Using off-site security is a really easy way of building your own house, without the hassles of the construction loan. Finding an adequate family member is the toughest part.