In the last post I talked about how Bre and I were going to be ordering our materials on Friday and everything was roses and unicorns. That all came crashing back to reality today. This is, in part, due to the low appraisal that I talked about, and comes full circle to my distrust and loathing of banks.
Yes, banks, mortgages and loans have their place in society. Not all of us (especially me) have cash on hand to purchase things or build houses without having a loan. However, the terms placed on loans are ridiculous. For instance, I was informed by our banker today that because we’re doing an add-on loan they can only finance us 80% of the appraised value. So, let’s do a little math here. Our appraisal with the land, cabin, driveway, electric, and well came back at $181,000. 80% of that is $144,800. That’s the max that we can borrow. Oh, but we currently owe $120,000 just for the land. We were asking for $60,000 for the septic, well, and cabin – because that’s how much it’s going to cost. So if we were to go ahead with this, we’d still be short $35,200. But wait, it gets better. Not only would we be short the amount we need, but we’d also need to bring – get this – $70,000 just to close on the loan!! How is that even possible?! We’d need more money to close on the loan than the loan is actually worth. $70,000 to close on a $60,000 loan.
Our other option is to apply for a home construction loan instead of an add-on loan. In order to do this we’d have to resubmit all of our plans and construction estimates AND redo the appraisal. Gee, we’re already three weeks behind schedule because of the last appraisal, and to do all of that again would set us back another month. That, and we’d still have to bring around $7,000 just to close.
I cannot fathom how people are able to accomplish what we’re trying to do without a bank. I have a good job, I am paying two mortgages (because we need a place to live while we’re building), and I can afford to save almost $1,000 a month. So if I wanted to save up and pay for the cabin in cash that would only take me 5 years. Yay.
I redid the math on what we’ve currently paid for and the bare minimum of what we need to build the cabin. We paid the plumber $2,950 in cash for the rough plumbing. We’re paying the slab contractor $9,500 in cash for the slab, and we’ve paid the septic contractor the $1,897 deposit in cash. Originally I had wanted $60,000 and in that I included our appliances and interior finishes. In order to get to the bare minimum of what we need going forward I omitted these figuring that we’d just have to scrape it together when the time comes. So we still need $8,933 for materials, $7,100 for spray foam, $9,322 for the well, and around $18,000 for the septic (this is a little higher because we’re also having him do the trench for the water line). That total comes to $43,355 bare minimum. As I see it, we have a few different options.
Option 1
Our first option is to go ahead and redo our loan application as a home construction loan. This would delay us another month and we’d also have to come up with some cash to close. By some, I mean around $7,000. Since I’m spending the rest of my savings to pay for the slab, it’ll be pretty hard for me to come up with that much money in a month, but we can cross that bridge when we get to it. Truth be told, I’m inclined to just keep our original land loan so that I don’t have to deal with the bank anymore, and we won’t have a higher monthly premium to them. Also, with another month delay I’m not sure if we’ll have time to finish the build and sell our house before winter. That means we’ll be maintaining two houses for who knows how long plus having the two mortgages still.
Option 2
Our second option is to list our house now and hope that it sells soon. At least that way we could plan on how much money we’ll be receiving when the closing happens. We’d need to borrow some money, at least for the materials, so we could put up the structure and have a place to live when the closing happens. Then, we could take the money we make off the sale to put in the septic and well. The downside to this is that we don’t know if or when our house will sell. Our neighbor happens to be a realtor that owns several rentals in town. Our hope is that we can sell it to him quickly, but maybe not for as much money as we could make otherwise. This option has inherent risks, and we’d have to live without any water or septic for as long as it takes to sell the house. On the other hand, we wouldn’t have to deal with the banks.
Option 3
Our third option is to just borrow the money that we need from friends and family members. This would avoid having to deal with the banks, but as they say it’s never good to do business with friends (and family). I don’t know anyone that we could borrow $43,000 from, and it would be a pain to borrow $10,000 from 4 people, but it is theoretically a possibility.
Option 4
Our fourth option is to start a crowdfunding campaign and hope that 60,000 people give us a buck. This, to me, seems unrealistic.
As it is, Bre and I have decided that option 2 is probably our best case at this point. We would alleviate having to deal with the bank, we’d be able to avoid having a higher monthly premium, and we’d only have to borrow around $10,000 for materials. Once the house sells, we’d hopefully have enough money to pay for the septic and the well. By not having the second mortgage anymore, we could pay back the $10,000 within a year. Again, the downsides to this are that we’d have to rely on selling the house, we’d be without water for perhaps an extended period of time, and we’d have to scrape together and pay for the interior finishing and appliances as we can.
I’ll be calling our realtor and seeing if he’s even interested in this. Neither one of us wants to wait another year and hope things work out then, and if we did wait another year our septic permit will have expired.