Home building questions

Discussion in 'Homesteading Questions' started by sidepasser, Jan 14, 2005.

  1. sidepasser

    sidepasser Well-Known Member

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    Hi,

    Ok, I have debated with myself for quite a while over building a house vs. finishing my conversion of stable into house. Well, here is the outcome:

    I went to the bank to discuss an equity loan (my land is nearly paid for) to pay for finishing the barn. I need approximately $50,000 to finish this project. One bank told me that I qualify for the loan (yea!) but:

    1. I would have to get affidavits from everyone who had ever worked on the house stating that nothing was owed;
    2. I would have to get affidavits from everyone who ever delivered building materials to the site stating that nothing was owed.

    Well that is impossible as I paid cash for all the building materials over a period of 11 years. Two of the subcontractors are dead so don't think they'd be able to swear to much at all.

    Over the past 11 years I have bought tons of materials at Home Depot and Lowes, my friendly neighborhood salvage business, and from contractors who had extra materials that were left over from building spec houses. I couldn't begin to name all the people that have worked on this house with me, or stood by and taught me how to lay plumbing, block, etc.

    So, the bank's suggestion was I build from scratch, turn the barn back into a barn, and go from there. Also, was told that I would need to subdivide the property to only include 10 acres with the house in case I had a problem with payments sometime in the future, doing that would ensure I would not lose the whole place. Can't do that as the property is in a farm conservation program...and I would lose all my past tax credits if I do that and would have to pay back double the taxes saved for the past three years (it's a ten year program that I renewed three years ago). Neither bank would agree to loaning me the money and letting me be my own contractor which would save me a ton of money..the builder or remodeler must be licensed, bonded, and insured and approved by the bank.

    How in the world do other people get financing for something like this? I went to a bank and a savings and loan...same story different person telling it.

    My land appraises at well over what I want to borrow for either plan, so the equity is there, my credit is good, and now I am thinking I am probably going to be 80 before I finish my barn or get a house built.

    And to top it off, I spoke with a builder today who said the house I want to build would cost in the neighborhood of $50,000 more than I originally estimated...a whopping $78/square foot and that's for a very plain Jane type house, 3 bed/2 bath, 1900 square feet including the porch, no garage, no formal living room or dining room, all plumbing centrally located and I already have the well, septic and power run with a driveway to the site.

    I think I'm going to scream now :eek:

    What do I do now? I can't live in this barn forever unfinished, and can't seem to come up with the cash to finish it. Another problem - insurance, can't get it insured until it's finished and can't get it finished without lots of cash....

    This has been a very frustrating day! sorry for the length!
    Sidepasser
     
  2. Momo

    Momo Well-Known Member

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    That is common banking practice nowadays. A friend of mine had to do the same thing. Most of the reason for the affidavits is that no one will be able to file a lien on your property which the bank would technically own if it leant you the money. We avoided all of this by doing it ourselves. Unfortunately, not everyone can build this way. It took us nearly 2 years to do it.

    A friend of ours fired his builder for just cause. The bank told him they approved the loan for that builder only. He had to go crawling back to the doofus and beg him to finish the home. What a mess.

    We didn't have any problems with insurance while we were under construction though. Maybe it was because we had the same company for a very long time.

    Maybe some others here will have figured out some shortcuts to help you out. I know how frustrated you must be.

    I wish the government would be as careful as these banks are, when they are handing out the millions and billions that they do!
     

  3. Chas in Me

    Chas in Me Well-Known Member

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    I think there is a time limit on when leins can be placed on your house by workers or suppliers. These leins are invalid after a certain amount of time has passed, in other words. Talk to a lawyer and find out what this time limit(statute of limitations) is. Then go over your records and look for slips from suppliers who sold you stuff during that time. Get a statement from them only to take to the banker.
    Also, go to any local supplier or contractor who worked on the place and get them to sign off. Take all this stuff to a bank. Then, just baffle them with the bullsh*t.
     
  4. snoozan

    snoozan New Member

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    The best thing to do would be to create a paper trail. My banker loves paper trails, because it clears up everything. For example, when we were first renovating our building for a business, everyone that helped received a free meal. This meal was then written off as a business expense, and then all those hours counted towards the sweat equity. We would also account for anything, like an old truck or old gas heater, that we gave to our buddies for helping out. But in your situation, the best thing to do would to find a licensed, insured and bonded contractor that will let you work at your own pace, and he just consults and inspects your work. For us, we had a friend that would do the consultation for free. He helped us on anything we couldn't tackle ourselves, and we paid him for his time. On your materials, you could sell them [in an itemized lot] to the contractor, then have him sell them back to you with maybe an inspection fee on the resale. No materials have to leave your place, you just need the paper trail. You will actually have to make out the checks, though, because money does need to change hands. That way, your bank is assured that no lien is owed on the materials. As for the labor on the building, invite everyone over for a barbeque affidavit party.
     
  5. seedspreader

    seedspreader AFKA ZealYouthGuy

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    Sidepasser, not sure of your situation totally, married or not, but the one solution I could see is that you sell the property (to a friend, spouse, family member that you trust) during which time the title search would assure that there are not liens and then when you "buy" it back, that would eliminate the possibility of anyone coming back on it. Also perhaps you could finance the "purchase" of the place to include the upgrades you want.

    Of course this all depends on the laws of your state, but it would be worth asking the bank if "someone else" wanted to purchase the place if they would have the same restrictions on their loan. A good real estate lawyer could probably tell you any loopholes.
     
  6. whodunit

    whodunit Well-Known Member Supporter

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    I am no finacial whiz and I am hesitant to even suggest this, but have you thought about credit cards?

    I have excellent credit and not a day goes by that I don't get an offer for low interest loans.

    I currently have several thousand dollars in consolidated debt on a credit card at 3.9% interest, and will soon be considering moving it to one with 2.9% interest. I could bounce it around at 0% forever, but I've heard that can affect a credit rating.

    I also have a couple thousand at 0% for purchases and balance transfers for up to a year, which will be mostly paid off with income tax money and definitely paid off within that year.

    Another suggestion is join a credit union. All you need to qualify in our area is to be a resident of the county. Start with small loans, and use a vehicle as collateral, then pay the loan off quickly and ask for more. They tend to be more informal and give loans based on their record with them and based on trust.
     
  7. Hoop

    Hoop Well-Known Member

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    I'm surprised at the situation.

    In the past, I'm fully aware that banks would GENERALLY only lend money for home construction loans to those that went through licensed general contractors.

    Back in 1991, when I was working for someone building log homes, one of my co-workers had to have his home built. He already owned the land.
    The bank would only lend him money if he went through a licensed general contractor....who in this case......happened to be his employer. He did nearly all the work himself. Here is the hook. He was being paid $8/hour for his work, while the general contractor was charging him $30/hour.
    You can't begin to imagine how wild this made the guy building his house.

    I thought in todays world of easy credit, it would be far easier to get a "owner built" home loan.....especially with all your equity.

    I would be inclined to continue searching for other lending agencies. Go online, check with S & L's, Credit Unions, etc. Someone with your equity and good credit should be able to find something.
     
  8. sidepasser

    sidepasser Well-Known Member

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    Hi,

    I'm not married, but do belong to a credit union. Have a good track record with them but since I'm like most here, averse to loans, in the 14 years I've been with them, I've only had two, both for vehicles, one paid off and the other up to date and paid on time.

    I may call them Monday just to discuss this. Seems like if a body has a lot of land, and a huge building like my barn already on the property and it is nearly paid off, appraises well over the amount asked for, it would be a simple matter to get a house or refurbishment done. NOT...

    I have credit cards, low, low balances but don't think I'd want to have my mortgage on one. Credit cards scare the you know what out of me, so I never carry a balance over what I could pay in one year. I've put lots of building materials on my card, but normally no more than what I could pay off in six months. My cards do carry a low rate, but I'd probably worry myself to death if I had a high balance.

    I have a good job, never been unemployed, and no long term loans...other than my mortgage. It's just in my humble opinion, that banks want everyone to have their little home on one acre or less, built by their "approved" builder, and so that makes it easier for them. Seems they can't really "think outside the box" much...too bad. I would loan someone the money in a heartbeat if the property itself appraised at three times the loan value, not including the building...seems like a good risk to me. I did find out that most banks here will not even do a "land loan" unless you plan to build on the property within three years. You have to pay 20 percent down, have the same requirements of licensed builder, and have plans drawn at closing on the land. At the end of three years, the land loan is converted to a conventional mortgage under the same rules as buying a home, except the house must sit on ten acres seperate from the rest of the property (on the deed)...

    Lots to learn about things like this, guess I've been away from the financing world too long. I can always just continue like I've been, but I'm getting older and it is getting harder to cope with building by myself. I'm 45 and have been working on this conversion, paying cash since 1991. Costs are rising every day and it is taking longer and longer to get the money together for major things.

    Did have a builder tell me yesterday to beware of those metal roofs. He said while he liked them, the green colored ones are fading after two to three years. He doesn't know if the brand has changed, the paint has changed or what, but he advised me to get a warranty in writing against sun fading. Told me they have not noticed that problem with the other colors including red. Just the green...must be the paint? Anyway that is the type of roof I want to put on this barn or the house thet I end up building.

    Where's Ed McMann when you need him??? :D Thanks to everyone who responded, but I don't think I'd like to sell my property to anyone and then buy it back - what if they decided they loved it and kept it and wouldn't sell it back??? oh well, guess that would be what my cemetary is for...SSS.

    I figure I am going to have to get real creative to get this done. Funny, but you know that people finance all kinds of things, covered arenas on their horse farms, houseboats, even saw one house that was made out of a covered bridge (it still sits over the water, the owners just made a house out of the bridge), and earth houses, stawbale houses, etc. My project is pretty simple, yet my bankers have NO vision at all. I don't want to go unconventional loan route, too much interest to pay, so will have to find a lender who can think outside the box. Hmm, think that is too much to ask for? ha!

    Y'all take care, I'll let you know what comes of this. At the worst case, in less than two years, the whole place is mine and I can take the mortgage and start sinking it in the building.

    Just a long time to live in a unfinished house...
    Sidepasser
     
  9. Beeman

    Beeman Well-Known Member

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    You should save receipts for every thing you do on your house. I know it's too late now, but possibly for the future. This helps for when you sell your place (I know you don't plan on selling, but things change) to help soften capital gains taxes.
    Possibly you could find private financing, someone willing to hold your deed for the loan. I'm sure you might have to pay more for interest, but at least you could finish your house and then get conventional financing and pay off the private lender. With a contractor finishing the work you would have paperwork to hand the bank.

    Your situation is an interesting one and should be part of a handbook for all of the people that come here looking for advice on how to get started. It shows a lot of pitfalls of the I'll do it myself and the gov't program.
     
  10. desdawg

    desdawg Well-Known Member

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    I would keep looking for another lender. Someone will take your situation, maybe not a local bank but someone. Judging from the amount of junk mail I get there seems to be an abundance of money that lenders want to put to work. You may have to pay a higher interest rate while you finish your building but when it is done you can refinance. I did what you are doing, spent 9 years one paycheck at a time, one 2 X 4 at a time. I wound up getting a home equity type loan at the finish, the type of loan that would normally be a second mortgage but there was no first so they wound up in first position. That was with Norwest at the time, now it is Wells Fargo. They don't even impound taxes and insurance, just check once a year to make sure I have paid them. So I would say keep looking. Mortgage brokers get paid on commission. If they don't write new business they don't get a paycheck. Let them do the legwork. Find one that is willing to help you get your financing.
     
  11. MorrisonCorner

    MorrisonCorner Mansfield, VT for 200 yrs

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    Wait a sec.. someone here had a very good idea: sell the place. But not to "someone." Place your property in a revocable living trust.. you control it, it is sort of "you, only better," but I think in placing a piece of property into the trust, the title search would have to be done, showing the property free and clear.

    Would that work?
     
  12. Thoughthound

    Thoughthound Well-Known Member

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    Couldn't you just pay for a title search without selling?
     
  13. sidepasser

    sidepasser Well-Known Member

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    Hi,

    I had a title search done last year going back 50 years, no liens, no back taxes, etc.

    When I bought the property, a title search was done that went back as far as records were kept, over 100 years. Found one tax lien on the property, that was paid, but not recorded as such, got the tax commissioner to release the lien (it was over 50 years old). Other than the current mortgage, there's nothing owed, and because I paid cash and did most of the work myself, I didn't see a need to keep every receipt.

    I did keep receipts for major purchases like lumber over 2,000. But did not keep receipts for the screws bought by the box or the concrete poured by the room...I know I should have now.

    I did get two independant appraisals, five years apart, to show the property has increased in value. It has went up 150% since I started this barn house based on the prevailing property values in the immediate (10 mile area). Even the banker, sight unseen, said the land itself, not counting the improvements would be worth more than 100,000. That is what I don't understand about getting a mortgage. If they know the property is worth three times what I want to borrow, why not take the risk? The worst that can happen is that they reposses it, divide it up into lots, and sell it for 20,000 a lot? It would seem that the land would stand good for the loan, doesn't it?

    Land here starts at 3,000 per acre (swamp, uncleared land) and goes to $90,000 an acre if located on the lake. Most runs about $6,000 to $10,000 if cleared and improved without a house. For example, there is 71 acres for sale for $375,000 - no house, no well, no improvements of any kind. Also just sold was a 110 acres, fenced, crossfenced, with a cabin and well for 610,000 - it is located 15 miles from town. Nearby within a mile of me are lots for $20,000 to $90,000 (no house), with houses, the costs are more - $168,000 for 1/2 acre and small 1400 sq. ft. home to 1/2 million for one acre fronting the lake with a 4 bedroom home.

    Any type of land here will cost upwards of 3,000 an acre if there are no improvements though. That was my reasoning behind getting a house finished, later I can sell it and move where there are less people....too crowded around here now.

    I will keep looking for a lender, my credit union is pretty easy to deal with, but they are out of state. I'm calling them on Monday and see what they say. Also will look into AgSouth, a farm lender in the area and see what they say.

    Sidepasser
     
  14. Bruce in NE

    Bruce in NE Well-Known Member

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    "That was my reasoning behind getting a house finished, later I can sell it and move where there are less people....too crowded around here now."

    With the sky high price of raw land in your area, why on earth bother to build a house if you're plan is to sell it and move, anyway? You could buy a house and acreage somewhere else for what you get for your land as it sits now. And what if the real estate bubble bursts in the next few years, as I think it will. You'll be stuck with loan payments and deflated land values. I say forget the loan and sell now.
     
  15. Mike in Ohio

    Mike in Ohio Well-Known Member

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    Try Farm Credit Services (name varies slightly by region covered).

    Mike
     
  16. Nik

    Nik Well-Known Member

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    I agree with Desdawg, find a mortgage broker and talk to them. When our house burned down 5 years ago I was in the middle of my next to last semester of school with no other income other than a part time job. The bank wouldn't talk to me because I didn't have a a high enough income, but the mortgage broker found a few within a day who would loan the money simply on the basis of the equity in the property. I know how frustrating it is right now, but if you keep looking you will find a solution.

    Nik
     
  17. barbarake

    barbarake Well-Known Member

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    Maybe I'm missing something but there seems to be a very easy solution. Don't get a 'home mortgage'.

    A home mortgage is based (obviously) on the value of the house. But forget about the house. Tell the bank you want a loan based only on the value of the land. You say the land is almost paid for and that the land appraises for well over the amount of money you need. So take a mortgage against the land. Then the bank doesn't need to concern itself with the house since it knows it's covered by the land alone.

    That's what I did. The land was valued significantly more than what I needed for the house. I mortgaged the land. Am almost done building the house, then I'll sell my current house and pay off the mortgage on the land.
     
  18. sisterpine

    sisterpine Goshen Farm Supporter

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    Sidepasser- I dont blame ya, go ahead and scream though it wont help. It took us three years to find a home equity lender who would loan on our rural, remote, solar, compost toilet type home that we built ourselves. It seems to me if you dont tell them it is to build a house, then they wont care about the contractors and other stuff. We said we wanted to drill a well and remodel the existing house and they bought that idea. I would never hire a contractor (esp in montana) if i could do the work my self! So maybe you will have to tell them to pack sand.
     
  19. Cygnet

    Cygnet Well-Known Member Supporter

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    On credit cards -- I bought a car using one, once. It was used, and the card had a better interest rate than the banks offered. That credit card loan when I was 18 was why I was able to qualify for a zero down loan on my property when I was 25 -- it gave me good credit because I paid it off and then KEPT the card.

    *shrug* Credit cards are NOT a secured loan. You're not going to lose your house or your car if disaster strikes and you can't make your payments. That's an advantage. Also, the minimum payment is generally less than what it would be on a traditional loan (though calculate that out to make sure, the formulas they use vary) -- which is nice if you're pinched for money one month. Obviously, you want to pay a good bit more than the minimum if you ever plan on paying it off.

    Primary disadvantages are in the case of using a card for
    home improvement: no tax break on the interest, and credit card companies like to change the terms on you with minimal notice and they make it hard to defeat that. i.e., they'll send a notice in tiny print in a plane-jane envelope that looks like junk mail. If you see that they're raising the interest rate 10% and if you want to keep your old terms, you need to write to yadda yadda address by XYZ date or to bad, so sad. (I got nailed like this once by a company that changed the terms on me from 6.9% fixed to 12.9 over prime, and said they sent a notice, but I never saw the notice. My response was to promptly transfer my laon over to a new card with a 0% for a year rate.) Also, if something happens to your credit -- not necessarily related to that card -- you may find your interest rate suddenly jacked thru the roof and be unable to qualify for another card.

    One more thing: Having a couple of cards long term, which you carry a low balance on (significantly below the maximum) REALLY helps your credit rating. If you decide to cancel some cards, always keep the oldest ones around even if you don't use them.

    Leva
     
  20. agmantoo

    agmantoo agmantoo Supporter

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    You are dealing with an "in town" banker that is worried what he would do on the acreage if you defaulted. He would have trouble foreclosing on the acreage. As mentioned above, you need to approach a farm credit or production credit type organizating and you will get a loan.