Wowee! It’s been a while since I’ve updated my blog as I adjust to taking care of our perfect little baby, but I’m ready to get back to posting consistently. We have updates on our house, and it feels so good to have the bank piece squared away and the builder working hard to get us started! First I thought it’d be good to go over all of the little tidbits we had to take care of to get to the point where we are now in case it’s helpful for someone planning to build. Note that this is just what we did for our new build + teardown, so it’ll likely be different for others.
Going way back to the beginning three years ago, the very first thing we did was decide our ideal budget given what we needed out of our future house. You can start with the plan first, but we knew we weren’t at risk of setting a budget higher than what we needed to build LOL. We knew how much we could save per year, how many years we could save for, and also how much felt ‘comfortable’. For reference, our budget was way below the mortgage budget tool that google gives you.. we didn’t want to live just one emergency away from foreclosure!! Or spend the next how many years worried about how we’d pay our mortgage if something went wrong! Once we set our budget, we simply saved saved saved! We set our savings goal per month and when we did our budget, everything else like groceries, gas, spend money had to come after that. It became so important to budget monthly for those bigger, less frequent expenses like car insurance, vehicle registration, etc so we didn’t get blindsided and miss our savings goal. (BTW by the time the builder was ready for us, we’d saved 30% down, but after getting our real estimate, we were over budget and therefore ended up at just 25% down.)
For the tear down, we learned that in our area it’d be easiest to work with the bank if we had the old house/land paid off. Keep in mind we live in a small town where housing isn’t expensive. In a city, you may have enough real estate demand or appraisal power to have the old mortgage rolled into the new one and still come out ahead on the value of the teardown/rebuild. For us, that was unlikely given our location. Our town doesn’t see a whole lot of new construction or have demand for new construction, so we were at risk of our appraisal coming in below our cost to build. In order to build what we want and not have to be as worried about the bank signing off, we decided it was best to pay off the rest of the mortgage.
Once we got all of that saved/paid off, we focused our savings on closing costs. Using google, I estimated our closing costs and we saved for that target.
We also saved the design fee the builder gave us. This covered them drafting the plans we sketched (well, 3D rendered too since we had so much time on our hands LOL) and make any tweaks. It also included them doing all the stuff we of course didn’t know how to do like figuring out all the roofing and structural requirements! Note that they didn’t do the design work until they were ready for our project and didn’t have us pay the design fee until the contract was signed.
The remaining savings chunk we needed was for city fees like our build permit, sewer, gas, utilities, etc as well as tear down estimate of the old house.
Now, we didn’t have all of these miscellaneous expenses saved up when we decided on a builder and started reaching out. We were naive enough to just start with our down payment, but once we got close to finishing that, that’s when we looked up all the other costs that would be coming our way. I don’t like being stressed out, so this is where I spent a lot of time planning in addition to the actual design of the home! We also had more time than planned given that the builder was busy on other builds. I am so thankful that they weren’t ready for us when we came to them!! This allowed us to keep saving for longer and really nail down what we needed versus what we could hold off on.
Once the builder was ready for us, we did all of the drafting and back and forth with design changes to make sure we had it perfect. Now I’ll point out that at this stage we didn’t discuss particulars like exact flooring, exact countertop, etc. I kind of thought we’d end our estimate phase with particulars, but the builder got a feel for what level of material/finish we wanted for various parts of the house and got bids/estimated off of that. It seems like for the most part they have allowances based on what certain things have historically cost for customers. As an example, we know the flooring allowance we were given will pretty much just cover the main wood flooring and we’ll be paying out of pocket for our tile material and install. On the other hand, we got asked if we wanted blinds inside our two sliding doors after we signed for the builder and bank, so we inquired about price. Turns out they were already included in the estimate, so by us not wanting blinds in our bedroom slider just the basement one, we got a credit for the price difference!
Now once we had plans and an estimate from the builder, we started working with the bank. They recommended we go to a specific bank that they were used to working with. We wondered if we should shop around a bit and see what rates we could get for the construction loan, but ultimately decided the builder’s recommendation would be best. This was such a good choice because the bank and builder were keeping each other in the loop which sped up the process! During the build, I imagine their existing relationship will also help make sure draws happen on time and our build doesn’t stall due to miscommunication or procedural issues.
The process with the bank was fairly straightforward. They pulled our credit, had us fill out an application, and needed us to submit the plans and estimate. The appraiser was then sent out to look at our land minus existing house and using our plans, determine how much it would be worth. The appraisal number that ended up being used was with the comp/sales based approached not cost to replace. The bank will only loan out based on the appraisal or cost to build, whichever is lower. For us, our cost to build came out lower since we had land equity on the property already. Once this piece was done, the bank had us send in our abstract to be updated with the title office then had their attorney finish up the remaining pieces. We also needed builders risk insurance for the appraisal value which we tacked onto our existing home insurance policy.
To actually close on the loan, we only needed 10% down. Historically you’ve needed at least 20%, but it seems that this particular bank was trying to encourage more construction loan business by offering a lower amount down. We’re going to start with this amount and pay the rest of our down payment towards the end once we’ve gotten past any potential for big unexpected expenses around the site work just in case. Less down sounds nice, but for us it just isn’t going to be worth the higher mortgage payment! As far as logistics around closing, Friday we wired over our down payment + closing costs since Capital One doesn’t have a physical location nearby for us to get a certified check. On Monday we drove to the bank and signed all of our paperwork. Just like that – we closed on our construction loan!!
One note about our closing costs – they ended up being less than a third of what we estimated which was awesome!! Also I should point out that while our appraisal is higher than our cost to build – the cost to build is actually more than the house itself is worth. We estimated our land value based on the county assessment and thought that equity could be put towards our down payment. However, about 60% of that land equity is just helping our house be worth more than it costs to build so we don’t end up underwater! This may not be ideal for others – but this is our dream home and the years we’ll spend here will make this worth it in the long run.
Now after we signed at the bank, we drove straight over to the builder’s office and finalized our exterior selections before signing our contract! We also paid our design fee, but didn’t realize until later that this would’ve been included in our estimate and didn’t need to be paid upfront like we’d saved for.
The builder has wasted NO time with getting started now that we have the loan and contract straightened out. Oh I should probably mention that when we went to sign our contract, they said they had over half of our house’s walls framed in their shop already LOL! A day after signed, the builder came to our house and staked out the outside corners of the house, calculated our slope to know how big the hole needs to be, and looked at our site’s hookups. Our sewer seems to need to go right through our existing house to be ideal, and we ultimately decided we could wait to connect sewer to the new house until after the old is torn down. The builder said this would be a day or two without any sewer, which is a small price to pay for how much more efficient it’d be in the long run versus putting in more of a workaround solution.
Today as I type, the builder and utilities guys are outside mapping out where things run through the ground. Our build permit literally just got approved (like minutes ago), so once we pay the fee, we are just waiting on two days straight of good weather!
This has been such a long update but I hope it helps someone to see all of the steps we took to get to where we are today! If you really want to build a house, you won’t let anything stop you even it takes way longer to get started than you think! Expect another post this week (pending little baby’s temperament) as I summarize our final exterior selections as well as what we have planned next!
Thanks for reading!
Davien
fluted wood & marble 
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