The bones are bad. The location is perfect. You want to take the 1962 ranch down to the foundation — or the dirt — and put the right house on the best lot in the neighborhood. Financing demolition + new construction in one loan is exactly what we do.
One Loan That Funds Demolition, Construction, and Permanent Mortgage
The hardest part of a tear-down rebuild isn't the demolition. It's the financing. Most retail lenders refuse tear-down scenarios outright. The ones who will touch them often require three separate transactions: a lot loan, an interim construction loan, and a permanent refinance at completion. That's three closings, three sets of closing costs, and two refinances that can blow up if rates move or your income changes.
The OTC Tear-Down Rebuild Loan is structured as a single closing that funds:
- Demolition of the existing structure (including permit, abatement, hauling, site prep)
- New construction per approved plans and specs
- Permanent mortgage that auto-activates at Certificate of Occupancy
The Six Questions Tear-Down Rebuilders Ask Us
- "Can I use my existing lot equity?" — Yes. Lot value (land-only) is appraised and counts as down payment. See the Land Owner Construction Loan breakdown for the math.
- "Is the demolition cost included?" — Yes. Demolition is a soft-cost line in your project budget, funded by the loan.
- "What if the old home has asbestos or lead paint?" — Abatement cost is budgeted in. Testing is required; our network has been through this many times.
- "How is the appraisal done?" — The appraiser values the as-completed new home. The existing structure contributes zero (or minor salvage); the lot contributes its as-is land value.
- "Do I need to move out before closing?" — No. You close, then schedule demolition. You can live in the old home until demolition day if it's safe and the demo contract accommodates.
- "What about existing utilities — will they be abandoned?" — Utility disconnects are part of the demo scope. Re-connection to the new build is part of the construction budget.
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Budget Stack for a Tear-Down Rebuild
- Lot value (as-is, land-only): credited as down payment
- Demolition + abatement + haul-off: $15K–$75K typical, higher for masonry or multi-story
- Site prep + utility disconnect: $5K–$20K
- Hard costs (new construction): main project budget
- Soft costs: architect, engineering, permits, surveys, demo permit
- Contingency: 10–15% of hard costs (tear-downs carry more site-condition risk than new builds)
Common Tear-Down Traps and How We Navigate Them
- Historic designation. A 1920s bungalow in a historic overlay can't always be demolished. Check the municipal historic-register status before loan application.
- HOA restrictions. Some HOAs restrict tear-downs explicitly. Review your CC&Rs before committing.
- Insurance on the old home. Coverage on a structure slated for demolition needs to be maintained through the demo date — don't cancel early.
- Lien payoff on the existing structure. Any existing mortgage rolls into the OTC loan at closing. The old note is paid off.
- Setbacks on the new build. A new home must meet current zoning setbacks, which may differ from when the old home was built. Confirm with your architect and the municipality before finalizing plans.
Timeline — Close to Move-In
- Weeks 0–6: Application, appraisal (of as-completed new home), builder + demo contractor vetting, underwriting, single closing
- Weeks 6–10: Demolition, site prep, utility disconnect
- Months 3–11: Vertical construction with 5–7 draws
- Certificate of Occupancy: Loan auto-converts to permanent mortgage
Related Reading
- Land Owner Construction Loans — how lot equity anchors the loan
- Custom Construction Loans — Complete Guide — the underlying OTC product
- First-Time Builder Loans — if this is your first build of any kind
- OTC Construction Loan product page
- OTC calculator suite
Talk to an OTC Construction Specialist
Tell us about your project. A Homestead Capital Partners construction-loan specialist (routed through NEXA Mortgage's wholesale lender network) will review your scenario and return with program fit, rough timeline, and the documents needed to move forward.
Homestead Capital Partners NMLS #2587985 | NEXA Mortgage LLC NMLS #1660690 | Licensed in 47 states (excluding NY and GA). Equal Housing Lender. Content is informational and not a commitment to lend. All loan approvals are subject to underwriting, appraisal, title, and credit review. Program features, eligibility, down-payment, reserve, and LTV requirements are verified against United Wholesale Mortgage (UWM) product guides and Reveal Lending non-QM guidelines. Not all applicants will qualify. Rates, points, and terms are not quoted in this article and require a written loan estimate under TILA/Reg Z prior to application.