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due diligence
power grid
What We Want In A Home Versus What We Can Afford
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What We Want In A Home Versus What We Can Afford

To recap the prior articles we have located, researched, done the due diligence, and successfully negotiated the purchase price on our land. Having maneuvered our way through escrow, and now know what the taxes are, what leans are in place, and what utilities are located near or on our property. We also know if there is any building encumbrance at this time.

We have located a professional to put our dream home to paper and do a proper design. Hopefully they will shepherd your project through the bureaucratic maze. As this process is going on you have located, interview, and checked references of General contractors.

The general contractor was given a preliminary set of plan with which to give a bid. This bid is for the dream house you want with every thing you desire in it. Most likely it will be more expensive than what you wish to spend. This is what I like to call dream versus reality time.

The general contractor we chose was trying to keep the general bid at $100 a foot, so for our 2770 square-foot home, we were looking for $280,000 at the most. Well the bid we saw was $360,000, and so after I took my heart medication. The cutting begin we had a 28 x 20 carport( $28,000), concrete 50-year roof versus a composite roof( $18,000), brick facade on the front of the home( $25,000), two fireplaces with flagstone chimney( $10,000) so you can see we were able to cut $80,000.

Because we wished to have a photovoltaic (P.V.) solar powered home, tied in to the power grid. The basic price for our 8.4 kWh P.V. array was $16,000. This did not include installation, but was less expensive due to the fact the contractor was doing the work on the array. As we had found solar contractors wanted $44,000 up front and then through various means the cost was reduced to $18,000. You still had to come up with a $44,000 first and throughout the year you received the money back.

So there we were sitting with our new home going to cost in the vicinity of $300,000. This is when the fun and games started with the banks. In the new construction Banks or any lending institution will look at the price of the land plus the approximate value of the home at completion. Banks combined total of both these and then loan between 70 and 75% of that value, and this is the construction loan. We found two banks that would loan us money.

The difference is one bank had the construction loan for one year regardless of how long the build was, at 4.5%. The other bank had a loan at 5% but only for the time of construction (our estimate five months) then it would convert to attend 10, 15, or 30 year note at 31/4%. Both banks require at least 10% of the loan amount in cash in a bank account for the duration of the loan. Needless to say this was a surprise, as we owned the land ($150,000), and all fees and permits were paid per-construction by us ($50,000). So after we had spent $200,000 we needed to come up with another $30,000 to cover the 10%.

As we go through this will it seems to be a bit like an onion as you peel back each layer there is a progressively smaller layer to go through. There are many complex procedures to follow in order to build your dream home. In maneuvering the bureaucrat maze for city, county, and state permit. At your local bank to get the loan. Once you have negotiated those, you still have to make sure that the construction cost does not outstrip your pocketbook.

Street Talk

Great article Gregg. Being an ex-contractor and dealing with banks was just as hard as dealing with some homeowners. Then you have to trust the contractor to deliver what the homeowners want and do it right.

  about 1 decade ago
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