Over the past couple of months, David and Jane have been refining the estimates, changing specs to get the price down. In the meantime, I've been using my valuable resources to find bankers I might speak to about the project. My theory is that if I'm introduced by a mutual friend/colleague I can a) get to the right person and b) be more than a financial statement.
The week before Easter, Katherine and I made a trip to St. Marys for my meetings. My friend Charlie connected me with two couples who live in Cumberland Harbour, and they were kind enough to invite us to cocktails and dinner. We both really liked these folks, and had a fun evening. Katherine admitted that she's less worried now about me going down there and being all by myself.
Rita and Susan told me about the Friday Neighborhood Nights at the Spring House. People bring a dish to share and whatever they want to drink. Sometimes four people show up, other times there's a bigger crowd. They encouraged me to plan my next trip to include a Friday night, and now I'm on Rita's email list for notices of upcoming events. These are fun people, and they were genuinely anxious for me to get this house built and join them!
Both couples gave enthusiastic endorsements of David, since he built both their homes, which have been virtually trouble-free for the 4-5 years they've lived in them.
I met with three bankers introduced to me by my friend Russell. I had been in touch with all three by phone to establish our mutual connection, and all of them were warm and positive about possibilities. I learned so much about the process, which works generally as follows:
Once I submit my financial profile and an application, they'll run numbers to see how much they're comfortable lending me. Once I surmount that first hurdle, which of course includes a credit check, they examine the project specs and architectural drawings and commission an appraiser to conduct an as-built appraisal. Essentially, this is what the house would fetch on the market once it's completed, and of course includes the value of the land. They will then generally loan 80% of the appraised value.
Here's the sticky part: because home prices are so depressed at present, David warned that banks' appraisals often are less than what it will cost to build the home. Compounding the situation is the value the appraiser will put on the lot. There's a sizable inventory of foreclosed lots on the market at fire sale prices -- 10% of what I paid for mine. The perfect storm created by these two factors could mean that I will need substantially more cash upfront than I ever dreamed.
I also learned about jumbo loans vs. conventional ones for the permanent financing. One of the bankers told me that any loan over $417000 is considered jumbo and these are backed by private investors. They are reluctant to lock in long-term interest rates, so the rates on jumbos tend to be higher, and the loan-to-value ratio lower. Mortgages under 417 are backed by Fannie Mae and Freddie Mac, are easier to get, and carry interest rates right now of under 5%.
One of the banks has a one-time close, where you secure the construction loan and permanent mortgage at the same time, which saves some money on fees. However, they only loan 75% of appraised value, and there's a time limit of 12 months for construction.
Needless to say, my head was spinning by the time we made our way back home, and in the intervening weeks I have been trying to tamp down my expectations. I don't know if I can swallow what I think I might have to surrender in cash, especially since retirement is looming. I'm beginning to wonder if this is a pipe dream. But, ever the optimist, I just feel that this will somehow work out.
The week before Easter, Katherine and I made a trip to St. Marys for my meetings. My friend Charlie connected me with two couples who live in Cumberland Harbour, and they were kind enough to invite us to cocktails and dinner. We both really liked these folks, and had a fun evening. Katherine admitted that she's less worried now about me going down there and being all by myself.
Rita and Susan told me about the Friday Neighborhood Nights at the Spring House. People bring a dish to share and whatever they want to drink. Sometimes four people show up, other times there's a bigger crowd. They encouraged me to plan my next trip to include a Friday night, and now I'm on Rita's email list for notices of upcoming events. These are fun people, and they were genuinely anxious for me to get this house built and join them!
Both couples gave enthusiastic endorsements of David, since he built both their homes, which have been virtually trouble-free for the 4-5 years they've lived in them.
I met with three bankers introduced to me by my friend Russell. I had been in touch with all three by phone to establish our mutual connection, and all of them were warm and positive about possibilities. I learned so much about the process, which works generally as follows:
Once I submit my financial profile and an application, they'll run numbers to see how much they're comfortable lending me. Once I surmount that first hurdle, which of course includes a credit check, they examine the project specs and architectural drawings and commission an appraiser to conduct an as-built appraisal. Essentially, this is what the house would fetch on the market once it's completed, and of course includes the value of the land. They will then generally loan 80% of the appraised value.
Here's the sticky part: because home prices are so depressed at present, David warned that banks' appraisals often are less than what it will cost to build the home. Compounding the situation is the value the appraiser will put on the lot. There's a sizable inventory of foreclosed lots on the market at fire sale prices -- 10% of what I paid for mine. The perfect storm created by these two factors could mean that I will need substantially more cash upfront than I ever dreamed.
I also learned about jumbo loans vs. conventional ones for the permanent financing. One of the bankers told me that any loan over $417000 is considered jumbo and these are backed by private investors. They are reluctant to lock in long-term interest rates, so the rates on jumbos tend to be higher, and the loan-to-value ratio lower. Mortgages under 417 are backed by Fannie Mae and Freddie Mac, are easier to get, and carry interest rates right now of under 5%.
One of the banks has a one-time close, where you secure the construction loan and permanent mortgage at the same time, which saves some money on fees. However, they only loan 75% of appraised value, and there's a time limit of 12 months for construction.
Needless to say, my head was spinning by the time we made our way back home, and in the intervening weeks I have been trying to tamp down my expectations. I don't know if I can swallow what I think I might have to surrender in cash, especially since retirement is looming. I'm beginning to wonder if this is a pipe dream. But, ever the optimist, I just feel that this will somehow work out.
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