Tag: #buildingtimeline

Farmhouse

Construction Loan and Draws

Sam

So I really suggest building a house without the use of a loan at all. That isn’t what Kyle and I did (and it may be unrealistic for most of America) but it would have reduced 90% of my stress. Plus you could then build whatever house you wanted, whenever you wanted!

For example: let’s say you want to build a two bedroom house with a basement and put two bedrooms in the basement (so now you are essentially a 4 bedroom house)…. well the bank is not going to loan you that much on that house (so you’ll need to fork over a lot of cash) because the resale value on the house (and what the auditors site will report in our county at least) is that the house is only a two bedroom house.

Ok. maybe that example isn’t applicable. How about this one……… you buy your land out right and decide to do some of the land clearing yourself and add a half driveway so that you aren’t parking your truck on a busy road. Well, when you go and get your loan the bank considers the driveway a land improvement and there now could exist a lien on your property and the bank is going to be real skeptical about loaning you money. (A lien might exist if you hire a dump truck to bring you a ton or two of gravel- you pay the driver of the truck, but he never pays the gravel company…. the gravel company can now put a lien on your land until they get paid by the driver.)

The second example did happen to us. Not the lien, thank goodness, but rather the bank was not happy we put a half driveway in.

I know that some of us are not in a position to pay for a $300K-$400K house in cash so a loan is inevitable. So, there are some basic recommendations and knowledge I’d love to share with you on the whole loan/drawing money process. Plus some suggestions on how to choose a mortgage company. However, like all my posts, my disclaimer is that this is different with each bank and builder…… so the following is just how it worked for us:

1) I would suggest a 100 times over to pick a mortgage company that your builder has worked with before. We did not do this. This will come in handy when you go to do draws. It will come in handy with inspections for draws. And it will come in handy to avoid things like my example above.

    • Our mortgage contact was wonderful, but the construction department was where it would have been easier to work with someone who was familiar with our builder. So if you know someone in the mortgage business- maybe use them (if the rates are favorable) for after the construction loan is done (if that is even allowed??).

2) To be qualified for our loan we had to provide all the typical W2’s, Tax Returns, Bank Statements, etc. plus the following:

    • House plans.
    • Our cost sheet. Our bank had some questions on our cost sheet (ex: the house plans show an extensive porch so they wanted to know which line item the porch was included in since it was not a separate item.)
    • Then they had us turn in a cost sheet breakdown that they typically use (so basically just copying the information from my sheet to theirs) and having our builder sign it.
    • A Builder’s Contract. Our builder didn’t have one of these nor our bank.
    • Letter of Explanation, receipts, and lien waivers for the half drive way.

3) The bank will require you to put (in cash or property) 10% to 20% of the total amount your house appraises at. So some math:

    • The cost sheet of my house to build (without consideration of any of the savings I plan/did have) was $382K.
    • Our land was purchased at $36,500 and appraised at $42,500.
    • Our house (based off comps in our area and our cost sheet) appraised at $425K.
    • The “comps in our area” is very important. Let’s say we had one of the more expensive houses in our area to build, but the housing market didn’t support that, the bank won’t lend you money on it because if you foreclose they won’t be able to sell it because it is too expensive of a house). So that would mean you either need to downgrade your house to meet comps in the area or put more cash into it yourself.
    • So the amount of cash or property we needed to bring to the table at closing was $42,500 (for 10%) and $85,000 (for 20%).
    • So our land that was already purchased covered 10% down. So that was our “down payment”.
    • We decided to only do 10% at that time. The reason we did this was because 1) we planned to not really owe $382K by some of the savings we did so the 20% down when we go to convert the loan to a 15 or 30 year will be less than $85,000 and 2) we wanted to save some of our cash to be able to float while building.

4) You will also need to pay closing costs. Ours was about $5K.

5) Once you secure the loan your builder can start work and you can start to make draws. Our contract was written that 5 draws would occur after completion of certain steps. (i.e. foundation was poured was one draw, “dried in”- with windows and doors was another draw)

6) Your builder is ready for the first draw. Now what? I suggest praying and also keeping in the back of your mind it is going to take some back and forth.

    • You’ll need an affidavit….. probably. Our bank required it, but I think if we would have went with a bank our builder is familiar with we would have forgone this step and just turned in invoices.
    • We used Kim’s affidavit. (513) 528-7250 She helped walk us through getting the invoices our bank required, changing language so that our builder would sign it, and turned it all around quickly for us. We had to pay her for each affidavit but this was worth it to us.
    • On one draw you can request several checks: so we would often have one for our builder, our electrician, our heating/air subcontract, flooring, cabinets, etc.
    • You can also have yourself as someone whose getting paid back. Since Kyle did a lot of plumbing and electric work himself we did this often for the materials we bought.
    • The bank will come out and inspect to make sure that the portion needed to be completed for the draw was actually completed. So if you take out a draw for foundation work and there was no concrete poured- they aren’t going to give you money. Fairly positive that would be some sort of money laundering thing too…….

7) After you turn in for your first draw, you’ll start paying on interest for the amount you drew. So our payments started out low, $200, and then reached upwards to $2,000.

      • On a side note; construction loans are usually only good for 6 months. If your build goes longer than this (like ours did, thanks Ohio weather) you’ll need to do an extension. It shouldn’t cost any money, just a signature.

8) Once you’ve had your last draw and get your occupancy permit you’ll then want to convert your loan from a construction loan to a conventional loan. In full disclosure we aren’t here yet- so I’ll come back and update if the conversion part turns into a nightmare.

Ok I think that is all the knowledge I have. Honestly, it might not even be that great of a help because if I have blocked anything from my memory for this build it is in regards to the loan process.

So to recap: pay for your house in cash and do not take out a loan.

Farmhouse

Building Timeline

Sam

So here’s the deal. I am going to give you an actual check list of what order things are typically done when building. But I need you to know that building a house is dependent on………. weather, humans, and where you are building. Which means that if you have terrible weather (thank you Ohio) this list might change and timing might be adjusted. And because building is so dependent on sub-contractors, if one is running behind it can mess up timing of other things too. Also, depending on where you live this list can have things it is missing or things that need to be added to it (i.e. a structural engineer stamp or added township inspections).

Also, I know you know this but planning is key. I highly suggest you read First Things First: Building a House. This list is really for after you have your land secured and builder selected. Also, because I am super nice if you want this in a PDF list scroll to the bottom.

  • Address
    • Through Township- Our township trustees are only there a few times/hours a month, but we got it approved the day we took it
    • Also register mail address with USPS- took a few weeks
  • Driveway Permit
    • Through ODOT (Ohio Dept. of Transportation because we built on a State road)
    • Ours came within a week
  • Soil Samples
    • Took about a month
  • Site Survey/Septic Design
    • We gave a set of plans we drew up that showed approx. footage off the road, size of house, angle of house, etc.
    • They used this for official plans which was sent to the Septic Designer who overlaid Septic Plans
    • Site Survey said 6 weeks out but took more like 8 weeks- dependent on how backed up your contractor is
    • Once the Septic Designer got the Site Survey and soil results this only took a few weeks
  • House Plans (working on at the same time as septic etc.)
    • This took almost 10 weeks and I had to stay on top of them
    • We did not have to have an engineer stamp
    • Our plans had trusses not rafters (trusses are stamped by the manufacture of the trusses)
    • Our plans had the basic electric work up (i.e. pointed out where the double oven was, smoke detectors, etc.) but did not include the number of circuits needed which we got that number from our electrician (we needed this for the permit application)
  • Township Permit
    • Through our Township- they are only there a few times/hours a month, but again this was approved the day we took it
    • You will need your Site Survey
  • Septic Permit
    • Through the Board of Health
    • You will need your Site Survey, Township Permit, and Septic Design
    • Approved within a week, typically whoever is doing your septic gets this for you but he was busy so we just went ahead and got it
  • Building Permit
    • Through our County
    • You will need your approved Septic Permit, multiple sets of plans, Site Survey, Township permit, and plus we had to fill out an application
    • We had our plans not accepted once because we needed to mark two small things (CO detectors outside all bedrooms and bathroom exhaust fans needed to vent outside)
    • The process of turning them in, rejection, then resubmitting and approval took 5 days
  • Temporary Electric
    • This was through our electric company and our electrician helped set it up
    • We had to wait on land clearing and loan completion
  • Loan Process
    • Pre-approved in March, construction loan finalized in August. (6 months) (I think this can go faster if you stay on top of the bank. We were not in a rush.)
    • Items the Bank requested
      • Financials Records (W2, Tax Returns, paystubs, etc.)
      • Cost breakdown (Builder’s cost plus all “other” costs)
      • Builder’s Contract
      • Builder’s Risk Insurance (through your agent)- this is good for one year
      • Additionally, since we did do some land clearing and half driveway before our loan was approved we had to send a Letter of Intention
      • Application fee, plus down payment
  • Final plan design with Builder
    • Once we had the loan closing date we scheduled a time with our Builder to go over the plan one more time.
  • Foundation Poured (footers and basement walls)
    • Two weeks out from loan closing
    • I think this depends on what projects they have going and where you are on the list
    • Footers need inspected.
    • Also, if like us you do a roughed-in future bathroom in the basement, this will need inspected before you pour concrete.
  • Framing
    • Completed within a month of ground breaking
    • Framing needs inspected.
  • Dried In
    • This includes outside wall sheeting, windows, and doors installed
    • Within 2 months of foundation being poured
  • HVAC, Electric and Plumbing
    • Once your house has doors and windows and can be locked you can start on these projects
    • These all take a lot of time. I’m hesitant to even give a typical time frame as it is really on-going the entire time you are building.
    • All this will need a “rough-in” inspection and a final inspection.
  • Water Tap and Permanent electric
    • Through whoever your utilities are through.
    • From applying for the taps/meters to install this was about 10 days.
    • Make sure you meet with these utility companies before they install so you know where you’ll be running these from the road to your house.
    • Once the tap/permanent electric is done you can run these pipes/conduit to your house
  • Septic Installation
    • This can actually be installed as soon as your basement walls are up and your pipe is through the wall. Again, we did not have city sewer and the wait list for contractors in our area was a YEAR. Seriously. It is based on how wet it is, and for us we picked the wettest year in Ohio.
    • This will need an inspection.
  • Exterior and Interior Insulation
    • Took a couple days to do.
    • This will need to be inspected too. When in doubt get everything inspected.
  • Drywall
    • You have to have insulation and HVAC done. Side note: make sure your HVAC does not run when they are sanding drywall. Trust me.
    • This take about 2 to 3 weeks.
  • Painting and Staining
    • About a week.
  • Doors and Trim
    • About a week.
  • Flooring
    • Again about a week.
  • Kitchen Cabinets, Appliances, and Counter-Tops
    • You want to make sure you are timing this right. Our cabinets came in about 4 weeks too early, which the company who we bought the cabinets from was nice enough to let us store them in their warehouse.
  • Final grading
    • This will typically include some final landscaping and sidewalks.
  • Final Inspection
  • Occupancy Permit
  • House warming party that you invite me to and serve wine at?

YIKES. Are you still with me????? Did your eyes glaze over???? I’ll admit it is a lot. This was by far my least favorite post to write because of how overwhelming it is. Even now I’m afraid I might have missed something. I still think it gives you a good approximate timing of projects and order. And in full disclosure since we aren’t 100% moved into our house (again thank you Ohio weather) I will update this if it changes. If you just want the PDF of this list click here.

If I missed something please let me know!