requirements to build a house on land with an existing house

I want to demolish the 45 yoa house and build a new house on my mortgaged property. Do I need permission from mortgage company

You cannot demolish a home that has an outstanding mortgage on it because the house (as well as the land) is the security for the repayment of the loan. In effect, demolition of the house eliminates part of the lender's security. Your mortgage undoubtedly requires you to maintain the improvements on the property. If you demolish the house and the lender finds out, the lender may declare a default, accelerate the unpaid balance, & require you to repay the loan at once.

If the loan is paid down to the level where the outstanding balance is less than the value of the land (without the house), the lender might permit a demolition and refinance, but you'd definitely need to discuss this with the lender.

- Andrea L. - Aug 16, 2015 at 11:18PM
2 Answers

If you read the 16 (or so) page deed of trust on your home, I am sure there are sections stating "you will preserve, maintain, and protect" the property. You may want to either consult your mortgage servicer, or perhaps a local attorney, before starting any project of this magnitude. While lender permission might not typically be sought for an addition or renovation, complete demolition and reconstruction of a house is a far more involved matter. You undoubtedly want a more qualified opinion that those on a mortgage Q&A site.

I agree with Ted that you need a more qualified opinion than what we can offer, however as an appraiser I can give you some advise (state of CA). If you completely tear down a home and in essence start from scratch (year built 2015), the city will treat your project as a new construction and your property taxes will sky rocket. If however you leave a section of the existing house (perhaps a single wall), remodel and add an addition you'll be taxed on the improvements only. In my area its not unusual to see a $1,000,000 fixer with $750,000 of improvements completed post purchase. If all new construction (year built 2015) the property taxes (1%)will be based on the full market value (say $2,500,000 or $25,000 per year). If a portion of the original structure is kept than your tax rate will be based on the original purchase price $1,000,000 + improvements $750,000. By keeping a section of the original structure, the yearly property tax obligation has been reduced by $7,500. If you live there for the next 30 years, your total tax savings will be $250,000. Consult professionals in your area.