Perhaps the most difficult part of any house project is
financing. Especially since the Wild West days of creative mortgage financing
are at least a temporary thing of the past. This isn’t a bad thing necessarily—our
financial system is certainly better off without liar loans and some of the
other craziness that so defined last decade’s housing bubble and crash—but it
does require a little more effort to find the right financial institution to
fund your project.
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| (Not our bank, but what better way to bring together architecture and community banking than American master Louis Sullivan.) |
Our experience has been that you might as well forget the
big banks if you want anything more than a line of credit or a smallish home
equity loan. The bigger the bank the less interested they seem to be in
anything that isn’t a standard product that they can buy, trade, slice, dice,
or otherwise commoditize. So what to do? Your friendly neighborhood community
bank is what you want to look for. But even then it might take some time
calling around to find a few that do the kind of construction lending you are looking
for. (You can click here to find a community bank in your neck of the woods.) Not only are they much more likely to do
construction lending for residential projects but they also tend not to
outsource the regular inspections that are needed each time the contractor
wants to draw on the funds. Plus their construction programs seem to be
renovation junkies who take a real interest in your project.
To be really helpful, I would love to into all the details
of our financing. But that starts to get really personal really fast, so I will
resist my urge to lay it all out on the table. I will say that it took us
months and months trying to figure it all out. How much we would need, how much
cash they would make us put into the project, reams and reams of information for
underwriters, appraisals, and the list goes on. And it all came down to that
appointment this week where you just cross your fingers hoping that everything is
in place for closing.
Essentially, the bank is paying off our existing mortgage
and funding 80% of what we need for construction. And all of that, together
with closing costs turns out to be 80% of what the house will be worth when
construction is finished. Simple, right?
Since the money starts accruing interest as soon as the loan
funds we really wanted to leave closing until the last moment before the project
actually began. But even I didn’t think we would close on our loan in the
morning and then have our kick-off meeting with our contractor that afternoon.
The kick-off meeting is kind of self-explanatory. It’s the
moment when client, contractor, and architect are all in the room at the same time
to discuss roles and responsibilities, schedules, work plan, change order processes,
etc. In this case it was our architect, her project architect, the contractor,
his project manager, and the two of us. The project manager, the project architect
and most likely me, are the three that are probably going to be interacting the
most over the next 12 months.
I’ve already written about how much confidence we have in
our architect and her team, let me now just say a word or two about our
contractor and his project manager. First they exude calm confidence and are
excellent communicators. I have no worries about working with them. I think in
the world of contracting there are those that do good work but may fly a little
by the seat of the pants when it comes to administration and overall professional
demeanor. I would imagine it would be a lot like the ones you see Jeff Lewis
using on his show Flipping Out. Our contractor is not that kind of contractor.
I know we will have to pay attention and keep an eye on things but the word
turnkey keeps coming into my mind.
Next week: Work begins.
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