in need of ready money while owning much land.
Seriously, look it up. It really pertains more to farmers than schmucks like us, but it's definition is pretty spot on for our current situation. When we started this here blog, we promised to be upfront about our finances, owing to the fact that in all of our research prior to this grand undertaking, that valuable knowledge always seemed to be skipped over, or only vaguely alluded to. Of course any one person's situation will be drastically different from another's, but we want to offer at least some anecdotal evidence, to be taken with however much salt seems fit. For anyone shy about talking finances (*ugh-hum* Christy), go ahead and at look at pinterest for a bit, 'cause I'm about to get into it!
I'll be the first to admit that we came into this game with a financial leg up. Owing to my father's passing, and the antecedent commercial success of More Than a Feeling and a couple of other classic rock anthems, we started this project with about $210,000 in the bank. (As mentioned in an earlier post, Mellish Fields West was christened so, in a round-about way, in my father's memory). Roughly $130,000 of that went into buying the land outright. We own it. That left us with $80,000 to build a house. Of the few numbers we could ever find, the rough estimate of $100 a square foot plus labor came up most often. We wanted a house close to 800 square feet using our own labor, so things seemed to be coming together quite tidily.
Man were we close! That money went pretty equally into the plans, foundation, framing materials and septic system, with another equal portion covering all of those other little expenses which, forgive the cliche, really add up. As of a week ago, we gave our last dollar to an electrician. We're framed, dried in, septified and mostly mechanized. We have 90% a house and no debt! Again, we are blessed and I am in no way belly-aching about this. The reason I'm explaining this is to illustrate a weird financial purgatory that we didn't know about, but have found ourselves in. If you have any intentions of building a house, take note.
We had been striving to finish the house debt free, because we're thrifty little beavers and it seemed doable. While we never talked about it, we both assumed that if we needed a little extra to kick it on in, a bank would be happy to loan money to such thrifty little beavers with so much equity. We owned land, after all! Land with 90% of a house on it! The shop alone was appraised at $30,000, three times what it cost us to build! (Most of that money came as a very generous donation from Christy's father, and the shop is officially called the Rick Penney Amphitheatre). It was with this confidence that we approached the local credit union, of which we were already members, to ask about construction loans. Their response was.... surprising.
In a word, "No". That's not really how construction loans work. If a bank is gong to have a vested interest in your building project, they intend to a have a big say in it's going-ons. They want a say in the plans, they want to inspect each step, they want to pay contractors and they almost certainly want a flushing toilet. They want nothing to do with our small, DIY and eco-striving house, and they wouldn't have wanted anything to do with it even if we had approached them before breaking ground (which is when they want to talk to you anyways). Not a problem, though! We have all that equity, that ought to get us a sizable loan, right?
In another word, "Nope". Banks won't loan money on an incomplete house. There's been no appraisal, there's no certificate of occupancy and they have no way of confirming it's going to be worth squat. For some reason that I still don't quite understand, they don't loan money on land either. Or Rick Penney Amphitheatres. To the eyes of anyone and their underwriters, we own nothing. "You can take out a loan against the value of your cars" they told us. It took a lot of effort not to burst out laughing at the thought of using my rusty, 22 year old toyota pickup truck as our only collateral.
So there's the purgatory: we can't borrow against our house until it has a certificate of occupancy, but we can't get a certificate of occupancy until we borrow money. Weird, huh? Even the banks (we went to a few) admitted it was weird. We are generally exceptions to rules.
I'm gonna wrap this up quick. Knowing that we are close (about $10,000 away) from owning a house and five acres worth in the realm of $250,000, are both gainfully employed, and classic rock appears to never die, a thinking person can see that we are safe candidates for a loan. We approached family with an offer of earning a higher interest rate by loaning money to us than they get from keeping money in a bank. I know, I know, I hate to take Mitt Romney's advice of asking your family for money when you need it, but it seems like a copacetic arrangement, so we don't need to feel like we're taking a handout. We are aware of how incredibly lucky we are to have family in a position to be able to help and if we did not then we would be forced to open credit cards to finish the house. Once we get our Certificate of Occupancy (a term that is taking on a reverence these days), we can borrow against it with a bank, pay off our family in full and probably pay off the bank in a year or two. *Phew!*
Happy Mayan Apocalypse, everyone!