Tuesday, January 8, 2008

Budget meeting and the next step... financing!

I just updated our budget for those curious eyes who want to see how the costs are stacking up. Well, they stacked up pretty high, but that's how it goes with green building! Anyway, tomorrow, we are meeting with U Build It to go over this budget and make any tweaks and adjustments. They have a list of subs that we may go with in exchange for ones we have gotten bids for. Also, we went through this spreadsheet for any line items we can do ourselves (marked DIY). For example, painting came in at about $3,400 labor only, but we opted to do this ourselves. The cost of paint can also vary depending on what you get, but we are getting the No VOC paint, so we want to select it ourselves.

The hard part was trying to find and budget for all the little stuff, which can add up! For example, door hardware, tiles, track lights, etc - you would put it in the spreadsheet as allowances, because you don't know exact costs just yet. You just need to be a good shopper.

The next step is to find financing for the construction of our house. Because we are owner builders going through U Build It, we have limited choices as to who will finance us since we need to get a construction loan first and then it will convert to a mortgage loan. We are trying to do a Loan to Value ratio so that we can get 100% financing. Here's how we will do it (simplified version, as I'm not a Finance person :-)):

1) Once the bidding is done, you have to choose the subcontractors you want to go with and input their costs in a budget spreadsheet.
2) This budget spreadsheet will be simplified by consolidating some line item costs for the lender to view the costs.
3) The lender needs the budget, all the architectural plans, your credit history and income to appraise your house and determine a construction loan amount that they can offer.
4) In order to get 100% financed, the total costs should be at minimum 80% of the appraised value of the house and lot. For example, to get a construction loan of $480,000, your house and lot needs to be appraised at least $600,000 by the lender's appraiser to get 100% financing.

The tricky part is to get an appraiser that can appreciate and not undervalue green building methods, as they are more expensive up front. Also, they have to realize that you save money in the long run. This is probably our greatest fear right now, that our appraisal won't come in at a sufficient amount, but we think we'll make it! Our lot has appreciated a great deal and we will do a lot ourselves, so I want to stay positive!!!

10 comments:

Guy said...

I ran across this in some green build website. It might be worth a look. mountainclassicmortgages.com I am really anxious to hear how your financing works out as the mortgage industry is self-destructing through all the improper lending practices during the housing bubble. Good luck and please post all the details when you secure financing.

Shawn said...

Be careful here. I was in a similar situation and hired an appraiser who had little experience in evaluating new construction. As a result, the appraisal came in much lower than the actual cost to build. Once they've appraised a property, appraisers are loath to go back and change figures.

Make sure you interview the appraiser first, and discuss their experience.

Jan & Myleen said...

Thanks Guy and Shawn for your valuable advice. Yes, it's very nerve racking right now and we want to get a very pro-green advocate, so I hope we will get the appraisal we want! I'll let you know.

Anonymous said...

I noticed in your budget you are paying Ubildit $5.50 a sq. ft. The Ubildit in my area gave me a price of $8.50. Did you negotiate your price?

Mark

Jan & Myleen said...

No, we didn't negotiate a price at all. It could be that it is a different fee for each state or that your U Build It fee might include more services. Ours included 20 site visits, building manual, subcontractor list, service support and back up on our lending. Which state are you in and did your fee include more than this?

Anonymous said...

We are in the Oklahoma City area. I don't know of any other businesses in this area that compete with Ubuildit that may have something to do with it. As for services I went to one of their syminars last summer and I believe their fee included help with finding a building site which we don't need. I think it included 25 visits but everything else sounds the same.
they also want $2.50 a sq. ft. for things like decks and patios. I would have thought that ours fees here would have been cheaper because our cost of living is a lot lower than Austins. I didn't get a lot of time to look over your web site because I'm spending most of my spare time cleaning up from the ice storm but from what little I saw it will be of good use. We are going green as much as we can so that our kids will have a healhtier place to grow up. I'm doing everything I can to avoid the $20,000 design fees but it's not going to be easy because I can't find a plan that fits my needs or taste. We would like to go ICF because we live right in the middle of tornado alley but cost maybe a issue. We are not in a big hurry but with morgage rates on the way down again it is time to get moving. I really liked your taste in roofs. Flat is the way I would like to go but have been a little scared of it. Please keep up with your web site. Watching someone else go thru this will help make it a little less nerve racking.

Mark

Jan & Myleen said...

Mark, that's so great to hear that you're going green and that you're going to make a conscious effort to build for your children's future. I'm glad to hear that! Have you thought about using SIPs? SIPs are still a lot stronger than stick built, more energy efficient and very cost effective/more inexpensive than ICFs. I know that tornadoes are a concern there, but I would do the SIPs if not for just the energy saving reason. Regarding the fee for covered/outdoor areas, that's what the other owner builder networks did too... but the U Build It here only did A/C square footage. Were we lucky? Yeah, probably... but they are the best guys to work with, and I would even pay the outdoor areas just to work with our U Build It guys! These guys told us that U Build It is actually a franchise, so maybe they have the freedom to charge what they want. Our guys are also custom home builders, believe it or not, and have the U Build It franchise as an option to people who want to do it themselves. I think that's pretty remarkable. Let me know if you have any questions and you can just e-mail me if you want more details on something. Hope the budget and info on this blog helps!

Chad said...

Great blog guys. Another note I found out recently on owner/building financing is that many banks want to see a much lower debt to income ratio since building a home can be one of the riskiest loans for a bank. I recently tried to help someone get pre-approved for a construction loan and they were turned down only due to this fact.

Good luck. The details on your blog look great and I plan to catch up on past posts to learn more...

Jan & Myleen said...

Good tip Chad. Yes, you're right. Debt to income is all important! Lenders are being super strict thanks to the subprime crisis. For at least 1 year before you this, get your act together before starting a process like this! We did a lot to try to get our credit perfect.

Abbie said...

My husband and I still have a lot to learn in these processes on getting a home. We're about to move in to Alberta; best mortgages there were found by our mortgage broker.

Also, I admire your commitment towards building a green, energy-efficient home. Maybe I should also discuss this with my husband. With prices continuing to shoot up and an Alberta home loan to pay, we've gotta have ways to save a fortune. Keep it up, Jan and Myleen!