Category Archives: Construction Loan

Week 8: Basement Slab & Passed our Well Report

Posted in Construction Loan, Private Well, Site Work, Slabs by

This week flew by fast, and it was awesome to see the progress on the house.  At the beginning of the week they were busy working on backfilling and grading around the house, and installing the plumbing lines that needed to be in the basement slab.  I was there on Tuesday morning to talk with Matt about some of the site grading and already they were testing the plumbing to ensure there wasn’t any leaks in the pipe network.  To do this they ran a garden hose from our well up to the house – how crazy is it that we’re already using the water!?!

Here's what the house looked like at the start of the week.

Here’s a panoramic of what the house looked like at the start of the week.

Most of the backfilling around the basement had been done by now, and it's pretty awesome to see the backyard grading start to take shape.

Most of the backfilling around the basement had been done by now, and it’s pretty awesome to see the backyard grading start to take shape.

Here's Cameron, standing in the garage with it backfilled part of the way - he'll never get to do that again!

Here’s Cameron, standing in the garage with it backfilled part of the way – he’ll never get to do that again!

A good amount of site grading occurred this week. A bit more heavy equipment was on site.

A good amount of site grading occurred this week. A bit more heavy equipment was on site.

All of the plumbing that had to be run in the basement slab was installed.

All of the plumbing that had to be run in the basement slab was installed.

Speaking of that, Matt brought a sample of the well water to AMTest Laboratories for bacterial testing.  With a $10 upgrade for overnight results, on Tuesday we received the word that our water passed – no amounts of bacteria were present!  Such a relief, because that test result coupled with our well log meant that we had our source of water and the bank would be able to now allow us to draw on our construction loan.  Phew!  I also dropped off some more water to test for a complete scan which will include testing for nitrates, arsenic, ph levels, etc.  Those results will be back in two weeks.

Check out Cameron with the water coming out of the well...like a fire hose!

Check out Cameron with the water coming out of the well like a fire hose!

Our well log - finally! This well log + bacterial test results on the water = construction funding!

Our well log – finally! This well log + bacterial test results on the water = construction funding!

Every day there seemed to be a bit of progress, but it felt like it really moved along towards the end of the week.  On Wednesday and Thursday they were leveling out the gravel in the slab, installing the vapor barrier and the rigid foam insulation over the entire slab.

Here you can see the vapor barrier (black plastic) and a bit of the rigid foam insulation which is installed underneath the concrete slab. To meet King County's energy codes, we opted to install R-10 insulation underneath our entire slab. That'll also help keep the boys' toes toasty in the winter.

Here you can see some of the vapor barrier (black plastic) and a bit of the rigid foam insulation which is installed underneath the concrete slab. To meet King County’s energy codes, we opted to install R-10 insulation underneath our entire slab. That’ll also help keep the boys’ toes toasty in the winter.

R-10 rigid foam insulation all stacked up before it was installed

R-10 rigid foam insulation all stacked up before it was installed

Friday was when all of the fun happened though.  Our oldest, Cameron, had a soccer tournament all day, so I took the day off of work to be the ‘soccer mom’ and drive him up to Burlington.  But we didn’t have to leave for the first game until 10:30am, so we went out to check out the construction going on – and it was so much fun.  They were pouring basement slab on Friday so we really got to see a lot of great construction going on.  My dad even met us out there (actually got there before we did) and we all hung out for a couple hours.  Cameron had a blast and a ton of questions too!

We talked to the slab guy (Jeremy) a bit and he said that because it’s been so hot (95 degrees) out, he added in a retarder to slow down the concrete curing.  If concrete cures too fast, it will crack, and even though they started pouring at 8am, it takes at least a full 24 hours for the main curing to occur, so the afternoon heat could have really done some damage.  To help it stay cool even longer, in the early afternoon they sprayed water all over the slab to saturate and cool it down.  Without slowing down the curing, the concrete will dry (and crack) before gaining it’s full tensile strength.

The concrete and pump trucks were situated up by the road with the arm of the pump truck reaching over the basement wall.

The concrete and pump trucks were situated up by the road with the arm of the pump truck reaching over the basement wall.

Here's the pump truck - you can really see how uneven and sloped our future driveway is right now!

Here’s the pump truck – you can really see how uneven and sloped our future driveway is right now!

The arm on the pump truck was so big!

The arm on the pump truck was so big!

The crew worked so quickly and so well together - each of them had different jobs and it was really neat to watch how orchestrated the pour was. You can tell they had all been working together for a while and really knew what they were doing. They were making it look easy - but it was definitely hard work.

The crew worked so quickly and so well together – each of them had different jobs and it was really neat to watch how orchestrated the pour was. You can tell they had all been working together for a while and really knew what they were doing. They were making it look easy – but it was definitely hard work.

My dad came out and watched the slab pour too - it was fun having him there.

My dad came out and watched the slab pour too – it was fun having him there.

The final product! Very exciting to have it done!!!

The final product! Very exciting to have it done!!!

Quick Design Changes

At the last minute, just before the plumbing went in, I shifted the wall between the guest shower and the tech closet to increase the size of the guest shower.  Hopefully it feels roomier in there (and there’s less splashing outside of the shower since I don’t want a shower door.  Other than that, Matt shifted a wall in the boys’ bathroom because the exterior foundation wall was longer than our architect had planned, and that created a thicker exterior wall.  Instead of shrinking the boys’ shower size (which wasn’t very big to begin with), he reduced the walking space by the sinks from 3’6” to 3’0”.

Crawling…to…Closing

Posted in Construction Loan by

It’s been two (long) weeks since I gave my last update on the house, and the one thing in our way – getting to closing!  HomeStreet has taken SO LONG to get us to closing, but we’re finally there.  We (as individuals) were completely approved by underwriting, so that wasn’t holding us up, but there were two things on the build that were.

The first was the type of contract we had set-up with Ruttan Construction.  We agreed to a cost plus fixed fee contract (which took forever to negotiate), but HomeStreet doesn’t like that set-up and required us to make an amendment to our contract to basically say that the contracted amount is a guaranteed maximum cost and is sufficient to provide the minimum quality and quantity of materials outlined in our plans & specs.  This doesn’t mean that we can’t have change orders and go over our budgeted amount, but it means that we can build the house for the amount specified (to a minimum level…obviously that can be done).  To wrap up that requirement we and Ruttan had to sign the amendment and then we were fine.

The second thing that HomeStreet didn’t like is that we need a private well for a water source and that the well is not already in place.  Our loan officer had to do a bunch of research with the County to prove that there has never been a private well applied for in Western Washington that didn’t have potable water.  All of that paperwork was sent to the head guys at HomeStreet and they finally gave their approval of the loan. The only caveat is that they won’t fund our first draw without the well being installed and the testing results back.  We were told on Monday that the private well was approved by their VPs, but it still took the remainder of the week to get it passed and through all of the document controls and underwriting.

Finally today was the day though – we finally had everything approved.  And to make things go through even faster, we signed papers at about 10pm tonight!  Our loan officer came to our house and we signed them on the kitchen table.  Break out the bubbly…and we did…our loan officer actually brought us a bottle of French Champagne!  We’re officially funded and going to begin construction!!

Picked Up Our Building Permit!

Posted in Construction Loan, Permits by

I finally did it – picked up our building permit today!  It’s been ready for a while, but as soon as you pick up your building permit the clock starts to tick and it actually expires 12 months later (or you pay for an extension).  Since we’ve already paid $25,000+ for permits, I’d rather not give them any more of our money and simply wait until we needed the permit to pick it up.  So today was the day!  Of course there was a bit of a hiccup in getting the permit – some paperwork they thought I needed but really didn’t – but besides that it was smooth sailing.  We just needed to drop off our covenant for drainage best management practices (BMPs), pay our remaining balance and I was on my way!  I know it’s really just a piece of paper, but it feels like such a huge accomplishment to get the permit…definitely reason to celebrate tonight!

Huge Milestone: I picked up our Construction Permit today!

Huge Milestone: I picked up our Construction Permit today!

Besides that, we have an update on our loan process.  HomeStreet came back with a slightly higher appraised value, and with better rates and lower fees, they were an easy choice for us.  We anticipated to be closed on our loan by now, but apparently they’ve been swamped.  So hopefully we’ll be closed by the end of next week.  (So much for their 30 day close, but hopefully it’s not too much longer).

Other news is that the empty property next to ours is no longer pending and has officially sold this week!  Cheers to them and to having neighbors (now we’ll just need to meet them) 🙂

Moving Homes and Construction Lending

Posted in Construction Loan, Moving Homes by

These past couple of weeks have been pretty busy!  We sold our home and it closed on March 31st…under 30 days.  So that meant we had to be out of the house and moved into our rental home on the weekend prior.  But we did it – got all moved in on March 28th & 29th.  With help from a moving company (Moving Help) for the heavy lifting and my Aunt Nancy for her mad-unpacking skills, things are looking pretty good for us as we’ve already settled into the new home.  So we’re officially non-home owners any longer!  Feels so strange not to really care about the home we’re living in; especially knowing that it’s for less than a year.  We haven’t put up any art or pictures and I’m not even sure that we will!  The house has been great though and our boys have already met kids to play with in the neighborhood.  Love that!

For our build, we’ve been working for the past few weeks with the lender getting all of our paperwork turned in.  The bank needs to have everything they normally require for lending (W2’s, bank statements, etc, in addition to things about what we’re building – our contract, budget, scope, plans, etc).  They then pass all the build information on to an appraiser who determines a “future appraised value” of the home.  And that value is what the banks end up lending on.  Most banks I found do an 80% loan to value.  So if your home’s future appraised value will be $1M once the construction is finished, they will lend you up to 80% of that, or $800,000 for the construction.  If your contract amount with the builder is more than that, they you’ll need to come up with the remainder in cash at closing.

We’ve hit a bit of a speedbump with our lender though.  At first we were going to use Banner Bank – a friend recommended them, and although the loan officer was great, he ended up changing the terms of the loan at the last minute (after we had already paid $550 for the appraisal, ugh).  He wanted to charge an origination fee of $7,500.  Although that might not sound too bad, this isn’t a loan that we’re keeping forever – at most we’ll only have it for a year, and then refinance once the construction is done.  So at this point we’re going through the whole process again with HomeStreet Bank.  I’ve been talking with the loan officer there for about a year now (off and on) asking lending questions and making sure we’re on track with our savings.   He’s been great and says that he can close by the end of the month (which was the same time frame as Banner Bank).  And he’s even waiving the appraisal fee!  His rate is the same as at Banner Bank too, and he doesn’t charge any origination points.  So far so good!  He has just submitted everything for the appraiser, put a rush order on it, and we should be hearing back with what the future appraised value is by Monday.  Fingers crossed it came in the same (or higher) as the appraisal from Banner Bank!  If not, we may end up actually going back to Banner and we would have wasted a few weeks in the process ugh.  I guess its Banner Bank vs. HomeStreet!

banner vs homestreet

30-day Loan Process Schedule

In case you’re wondering, here’s been our schedule working through the loan process (and what it’s estimated to be):

April 1-2: Turn in initial paperwork from Owner & Builder to Bank

April 3-5: Receive and sign Good Faith Estimate and lender’s underwriting paperwork

April 6-7: Revised budget based on a last minute design change (oops!)

April 8-13: Order Appraisal & Appraisal Time

April 14: Appraisal Completed

April 15-22: Underwriting

April 23-28: Escrow

April 29: Signing at Escrow

April 30: Closing…construction can officially begin!

Calculating the Construction Loan & What You Need to Save

Posted in Construction Loan by

It seems that there’s really no good information online about how construction loans are calculated, or at least not that I’ve found. But it’s really important to figure out ahead of time for planning and saving. I’ve read that a lot of people are surprised when they apply for a construction loan due to not understanding how much is actually required for the down payment and how it’s calculated. I’ve spoken to a couple of different banks and they all pretty much are calculated the same way – it’s just that different banks will loan different Loan-To-Value (LTV) amounts.

Here’s the basics for how construction loans are calculated:

Step 1: Add up the following: current/appraised land value + builder’s contract + anything you’ve already paid for the house/land (architectural plans, site design, permits) + construction closing costs

Step 2: The bank will loan you the lesser of the two amounts: 1) the appraised value after your house is built, or 2) a percentage of the cost to build. The percentage of the cost to build (LTV) can vary based on each bank, but I’ve found that 80% LTV is average.

Step 3: Take the loan amount from Step 2 and subtract any remaining balance you may have to pay-off your lot loan. This is now the funds available to use towards your builder’s contract price.

Step 4: Take your builder’s contract price that you’ve gotten from your builder and subtract the amount from Step 3. The difference between those two is the amount that you need to bring to close the loan – your down payment.

Step 5: That’s not all that you need to save though in order to build home. You also need to save up for all of those expenses that goes into the home building process prior to breaking ground (closing costs, architect/engineering fees, site design, and permits prior to closing). Add all of those things plus the down payment calculated in Step 4 and that’s the TOTAL amount that you need to save in order to build a home.

I’m sure this is a little hard to follow, and if you’re anything like me, you’ll want to see this in excel to be able to play around with different costs/values. The attached spreadsheet does just that. This of course is based on our loan and house values. It shows the calculation I did for HomeStreet Bank. I worked with Adam Stoecker at HomeStreet Bank and he said that for our house, they would ideally not loan more than 80% of the value assumed, but they do have the ability to loan higher if needed. The attached calculation is pretty basic but does a good job at showing how much we need to save in order to build (click on the link to get the excel file).

 Example Downpayment Calculation

Example Down Payment Calculation

 

The banks also want to make sure that you have a reserve of 6 months of your future house payment liquid. They basically want to ensure that you’re not spending every last dime you have to build your home.

So, just exactly how are you supposed to save so much? Well, of course you can use your savings, and whatever profit you have from selling your current home (if any). But I was surprised to find out that one of the banks we looked into (Washington Federal) only requires that 5% of the down payment actually comes from your own funds. So, if you have some wealthy relatives, or a hefty 401k plan and would like to take a loan for the other 95%, you can do that. But if you’re like us – we’re going to fund our down payment the good ol’ fashioned way – saving!