Dollars and $ense

Once you find the property you want, unless you happen to have a couple/few hundred thousand saved up, you'll need financing to purchase the property and build your home. You can also “pay as you go” which avoids a lot of debt, but from what we've seen can take at least 15 years to complete. We talked to folks at several different mortgage companies who were all very friendly until they heard the phrase “self-build”, at which point they would quickly refer us to someone else. After having been through the process, we can understand why banks are nervous about loaning to self-builders. It does take a tremendous amount of commitment to stick with the project, stay within your budget, and ultimately complete the home, which not everyone will do.

We finally ended up partnering with a general contractor, because there were certain aspects of the project we weren't prepared to do completely on our own. We consulted with the general contractor on site design and preparing estimates for building costs, so we could determine the size of loan we needed. (The rule of thumb that it is always going to take longer and cost more than you think is absolutely true.) The general contractor performed the site preparation and lined up subcontractors to pour the foundation and dig and install our well. With a general contractor signed on with our project, we found the mortgage companies much more willing to extend us a loan. (Note that the general adds a percentage on top of the subcontractors' charges, so in most cases you are better off lining up as many of your own subs as you can.)

One thing we were not entirely prepared for was on the day of creating the loan, the mortgage company handed us over to a bank (not of our choosing) for the temporary construction loan phase of the project. The bank fully expected us to complete the home in 6 months with no more than two 60 day extensions. While a team of contractors can throw up a stick frame house in 6 months, that is not very realistic for a self-build log home. We advise getting the longest time-frame you can find for your building loan, and you should also be involved in selecting the bank you will work with during construction.

Once our two extensions were up, our loan officer directed that we should do whatever it took at whatever cost to complete the home in 30 days, and agreed to hold our interest rate to the construction loan rate during that 30 days (as it threatens to skyrocket when the extension is up). Our log walls were still in process at the time, and there was no way possible to meet the bank's demands (and our demands for a quality-built home). This is where a friend helped us think outside the box and suggested we look for a new bank.

We made some calls and found our credit union was willing to buy out the loan from the other bank. We had called the credit union initially, but they didn't do loans on raw land without a well already installed. Well by this time, the well was in place, the home well begun, and I was able to show a spreadsheet showing exactly where the money had already been spent and exactly how much was still available for the remaining tasks. When our loan officer asked about our progress on completing the house in 30 days, we were able to report that we would be paying the loan off by the end of the month. She had to be satisfied with that. Prior to the transition the bank did skyrocket the interest rate erroneously, and after initially being told, “the computer never makes a mistake”, I was able to work with our loan officer's assistant to change the interest fees back to what we had been promised. It is worth your while to watch the fees that you are being charged. It also helps to find the right person to talk to who is willing to work with you as well.

Everyone has been a lot happier ever since once our loan was transferred to our credit union. While our progress was slow, they could see it was steady, and that all the receipts I turned in were directly for labor and materials on the house. Even before the home was 100% complete, our loan officer closed the construction loan and rolled us into a regular mortgage when they could see we had pretty much all the materials on site to complete the house and were making steady progress in that direction. That was a happy day. We love knowing the credit union will never sell our loan to another bank.