Monday, October 1, 2012

Building a Home: The Waiting Game

Just to give you a quick update on the house front: We qualified for an 85% loan (we'll switch to an 80% loan for our permanent loan, once construction is complete). That wasn't really a surprise because we've been crunching the numbers for a long time, but it was still a relief. 

Next step: Wait to hear how the appraisal goes. In order to actually get the loan, the total cost of the house we're going to build (plus the land it sits on) has to be comparable to other houses in the neighborhood. This process can be difficult in gentrifying areas, since the sales prices of homes fluctuate wildly.

The realtor we've been working with ran the comps for our neighborhood and the next neighborhood over. According to her numbers, it looks like we're only $3/square foot over the average for the past six months (and under the highest by $23/square foot). 

Normally, if an appraisal comes in lower than the construction budget + land, the buyers simply pay the difference in cash. Matt and I are definitely not in a place to be able to pay the difference, so we're just over here crossing our fingers and toes that it's going to come through okay. 

Of course my planning brain is brainstorming what our next steps will be if the appraisal doesn't come through (it makes me feel better to have a contingency plan). We might be able to shave some of the total cost off (e.g., getting rid of the fence, not including the kitchen appliances in the budget, etc.), but we won't be able to reduce it by very much. If we have to wait any longer to build our house, all of our current bids will expire, and we'll be back at the beginning with the construction budget. 

So we're waiting! And hoping! (and still living as frugally as possible to save up money for the closing costs and down payment for our permanent loan).

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Anonymous said...

Hi! I wanted to wish you the best of luck on your new home construction loan.

We are in the exact same boat. We began the process on June 1st and just now have got the closing date. Living in a northern state, it's very frustrating with winter coming up on us. We were told it would take 1-2 months. It took several months from when the bank informed us that we were approved pending the appraisal before the appraisal actually got completed. They claimed it was because so many people were re-financing. The appraiser gave a lower value for the home than what we believe but it was still high enough that we don't have to pay in. Building in a very rural area, there weren't a lot of comparable homes like what we're building. We're hoping we can break ground in 3 weeks, hopefully!

Banks have become very nervous since the recession to loan out money particularly for new home construction loans. I think they intentionally delay the process to avoid paying if they can. Stay forceful and on their case if they delay in the least. We lost some time trying to be the "nice guys". Banks don't respect "nice guys"; they only respond to formal complaints and threats to go elsewhere. Our experience with this bank has soured us to such an extent that once we are finally approved, we are moving all of our other accounts there to a credit union.

However, I don't mean to bring you down or worry you in any way. The good news is that even with as horrible of an experience as we have had, we still were approved and are going to start building. I absolutely cannot wait!

Rachel said...

My construction loan was the most expensive I've ever gotten, and I owned the land and my current home. The loooong construction period, when you will have to pay both rent and all of these loans, will be tight.

This is exciting and it really is something to look forward to, but I can see how it may be a lot of pressure on your husband, as the sole breadwinner for all of this.

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