Finalizing

As if the finish work were not enough to think about at the end of this process, there are certain people we need to get approval from before moving into this house. People such as Salt Lake City and The Bank.

Our fair city requires not one, not two, but EIGHT successful, separate inspections before issuing a certificate of occupancy. (Slap hand to forehead here.) We have passed all 8 of those 8. We are scheduled to pick up our certificate of occupancy from the city tomorrow morning.

The Bank requires a certificate of occupancy (see the dominoes lined up?), an appraisal, approval by the loan committee, and closing of the loan before we can move in. Our appraiser completed most of his work yesterday afternoon and will be back for a quick check today. Loan review will take place tomorrow and we are scheduled to close on the loan Thursday.

In the meantime, we will be continuing to clean the house (windows, bathrooms, floors, etc.) and will continue packing the condo in prep for the blessed move-in date.

The sealed floors look amazing, our kitchen is awesome, and everything else about the house is done and ready for us. It's going to feel so sweet to move in.

Punch list

I think we can all agree that the answer to Tai's last blog entry title is a resounding YES. But I will definitely forgive him because of all the hard work that the house has taken over the last couple of weeks.

He has all the photos, but in the meantime, here's a brief run down of what we have left to do:

• paint color walls
• master shower tile
• grout and seal all tile
• install bamboo floor upstairs
• buy and install kitchen appliances
• kitchen countertop
• clean and seal concrete floor downstairs
• bathroom cabinets and countertops
• figure out landscaping
• figure out window coverings
• resolve some differences with the bank

This is what the contractors still have left:

• complete mechanical (duct) work downstairs
• finish site grading
• start and finish site concrete (patio, sidewalks, retaining walls, etc.)
• finish electrical work — install lighting
• finish plumbing work
• finish exterior metal work
• some small finish work inside (perhaps baseboard?)

It's not a complete list, but if you don't hear from us for a while it's because we're happily buried in house work.

Itching to start

Tai is at the lot right now clearing brush from some pretty nasty overgrowth on our sideyard. If the weather cooperates, we'll be cutting down some trees tomorrow. If the weather doesn't cooperate, then we'll doing tree removal two-by-two during the evening next week.

As often happens with me these days, my earlier Tweet about applying for a building permit today isn't going to happen. For many reasons (with many people at fault), the permitting and bid sets of drawings won't be finished today in time to visit the Salt Lake City permit desk. We're hoping that visit will happen on Monday morning, which puts us about two weeks behind when we originally thought we would start the bid process (again, many people at fault).

Our current circular pinch point is that we cannot start construction until we get a full set of construction drawings from the architects. We can't get a full set of construction drawings from the architects until they are, rightfully, paid for their services. We can't pay the architects until the bank releases money from our construction loan, and the bank won't release any money until they have a detailed cost breakdown. We can't give them a detailed cost breakdown until we have completed bids from the contractor and his subs...which takes us back to the permit/bid sets of drawings that will be done by Monday morning. Stay tuned.

More Thoughts on Basements (From Tai)

Another reason that was key in our decision to forgo the basement had to do with marketability and appraisal of the final product. At first glance we thought that for marketability a basement would be necessary, but looking at it closely it proved otherwise.

Most of the homes in the neighborhood are about 1,500 to 2,000 square feet total, with half of that footage being in the basement. We will be building approximately 2,000 square feet on two levels above ground, so the quality of our 2,000 square feet should be much nicer than neighbors. But if we were to try to have a basement we would end up with a home that is closer to 3,000 square feet. Even if you figure that you can get half as much value out of the basement as you can upstairs, that would put us in a house that costs 30% to 50% more than neighboring houses, which is definitely a tough sell on an appraisal and could prove difficult in the eventual resale of the house when we are through living in it.

This was verified by the bank when we were getting our financing. They told us that they just couldn't get appraised value out of the basement and it would make the whole financing package that much less desirable to the bank.

So, yes, a basement would make good room for future expansion of the house, but expanding the house to that size would make the house too big for the neighborhood. Plus, like Kersten said, we should see significant savings in construction costs by avoiding the costs for trusses on the first floor, subflooring and finish flooring. Our slab will be all of those things. A slab will also give us really good thermal mass and greater efficiency for our radiant heat system, and perhaps most importantly, a slab will allow us to fit under the 20 foot height required for flat roofs by zoning and still have good ceiling heights.

Meet the banker

This fine gentleman is Drew Hicken from Celtic Bank:

(Hi Drew — I promised you'd be on the blog!)

Drew has been a great advocate for us in our successful efforts to get financing. He's been responsive, helpful, and friendly — just the sort of person you want working for the bank that's funding your home. He helped finance the Lucy Avenue house (of Grassroots Modern blogging fame) and has built a nice residential niche in working with modern home owners and builders. (Plus, his hair is longer than Tai's, which bolsters Tai's argument that you CAN be a businessman with long hair.)

Thanks for all the hard work to this point, Drew, and here's a promise for that cost breakdown ASAP.

Financing

Our loan went for final approval before the loan committee at our bank yesterday. Things went very well and our loan was approved and stamped. We were very excited.

Initially we thought that we would first have to buy the lot with a lot loan and then refinance that loan later into a construction loan once we had plans and a cost breakdown. The bank decided that it would just be easiest to just do a construction loan now with the lot being our first draw on the loan. This should save us a significant amount of money in loan origination fees. We will go in with our equity injection next week and close on the construction loan at the same time that we are closing on the lot.

Since the bank usually doesn't fund construction loans without a cost breakdown we had to back our way into the numbers. The way we have approached this is that we have a certain amount of cash to inject into the project, so if we consider that amount at 20% of the total value, that tells us how much the total project can cost. We don't want a loan greater than 80% and on new construction a bank generally won't lend more than 80% anyway. This is especially true in the current economic climate. Our loan officer has been great and has really been proactive in getting this approved.

The first step was to get us approved for the permanent financing at the end of construction since it would make little sense to build a house and then not qualify to buy the house you just built. An extra challenge for us is that we own the condo we are currently in and we had to qualify for the final loan with our current mortgage payments part of the debt to income ratio. Otherwise we would have had to scramble to either sell or lease our condo before they would close on our permanent financing. Not knowing how the housing market will be 10 months from now, it could have been pretty stress inducing. So, this made it pretty tight on our debt to income ratio, but we did ultimately get qualified. Our condo will most likely be for sale though as we near completion of the house.

Once we were qualified for the permanent we were able to start working on the construction financing. Again, we don't have plans or a cost breakdown yet, but knowing what we are qualified for on the permanent financing lets us back into a number that defines our budget. This number will be our guide as we move towards designing the home. We are okay with this because we have talked with contractors and architects who think our budget is doable, even if it will be tight. With smart planning and a bit of sweat equity we should be able to pull it off.

These charts show roughly how the money is allocated in the budget:

Overall Construction Budget:


Breakdown of Soft Costs:


One thing that helped our loan sail through approval is the neighborhood we will be in. It is close to some really great neighborhoods that have high home values and the initial appraisal showed that we should not have any problems getting a good value on the home for the permanent financing.

So, anyway we have financing in place and we are excited to get moving on the design process.

Stimulation

Two things about this are turning out to be way more expensive than I had initially thought. The first is architecture. To have a good architect design us something that will really be a modern gem, it is going to cost in the range of 8% to 10% of the construction budget. Because of my experience in commercial development, I had 6% in mind, but those are much bigger construction budgets, so 6% goes a little further. I can see how a there is probably a lot more fine detail that goes into building a small, compact home, rather than a vanilla shell retail structure. If we wanted to go have a stock home plan converted to our site, it would cost a fraction of an architect, but if we did that, what would be the point in building a house ourselves? Might as well move to a subdivision and steal a house from a bankrupt home builder. We really will have budget constraints though, so we will have to negotiate with the architect the best we can. We feel like we perhaps are a little more prepared with knowing what we want and what is realistic than the average consumer. I have been researching this so long and my every day business does put me a little more in the know, so hopefully that will result in making the job just a little bit easier for the architect.

The second thing that is going to cost more than I had initially thought are all the costs associated with financing. I had never really tried to put a number on it, but I had a number in my mind that was about half to two/thirds what it will actually cost. In the end, we will probably spend as much in costs associated with financing (origination fees, title insurance, escrow fees, appraisals and course of construction interest) as we will spend on architecture. Here's hoping that construction interest and origination points are something that I get to deduct on my taxes. The origination fees should at least count.

I need to figure out a way to get some sort of tax credit or something from the stimulus package. Building a home in this market, there ought to be some sort of gold star from the government. We're just doing our best to turn the wheels of the economy ever so slightly. If we build this house the following economies will be stimulated: loan officer, title officer, appraiser, architect, engineer, general contractor, various sub-contractors, sales reps for various building material suppliers. City planners and inspectors will have something to do. The city will get to collect impact fees and permit fees. The utility companies will get to have a new customer and someone will be employed to make the utility connections. I think someone gets our first born too

So, anyway, all I'm asking is that President Obama call us himself and tell us how grateful he is. That, and no taxes in 2009.

Q&A

We've been getting a few questions from people who are curious about our plans. Here are some answers.

Q: Is it a tear-down?

A: No. There has never been a home on the lot that we are purchasing. (We actually looked at a couple of tear-down candidates in our property search, but financing a tear-down and new-home build proved to be even trickier than a new construction loan.)

Q: Why build a new house?

A: We actually went back and forth for a while about whether to purchase an older home and remodel versus the hassle of finding land and building something. We settled on the latter for a couple of reasons. The first was the money equation that I laid out above -- we would have spent a lot of money getting an older home to a place where we wanted it, and the second is that we simply wanted something that was truly ours. We want something that reflects our aesthetics, our century (i.e. not cut-up little spaces, crawl-space "basements", etc.) and our personalities. So, after we got through that debate, it made a lot of sense for us to be patient on a land hunt to get what it was that we truly wanted.

Q: Why do you want to stay downtown? / Wouldn't it be easier to build further out?

A: Of course, it would be easier to build further away from downtown. We know several people (including family members) who have done so and are very, very happy with their decisions. We are also happy for them. But it's not for us.

We do our working/eating/shopping downtown. We like the personality of downtown and cities in general. We like living five minutes from our work. Plus, when I moved back to Salt Lake from New York City to marry Tai there was a deal struck — suburbs definitely were not part of that deal.

Q: There are still lots downtown??

A: Yes, but you have to look hard for them and be prepared for some weird dimensions.

Q: Will it cost you more or less than just purchasing a home in your area?

A: What we're doing will end up costing us more per square foot than just purchasing an older home in the neighborhood. We're ok with that, though, because if we were to purchase an older home in that area, we would likely end up doing expensive remodeling — major appliances, roof, plumbing, electrical, structural, reconfiguring floor plan, new kitchen, etc. — that would drastically add to the cost of a pre-built home.

Q: How will your financing work? / How is it different from a conventional house loan?

A: Financing lot and construction loans was always going to be different a bit trickier than a conventional house loan.

Short answer: it takes more up-front money to build than it does to buy a pre-built house, so we sold our old condo, banked the equity from that place and are using it now to build.

Long answer: Several years ago, we were watching a couple blogs about building modern houses in Salt Lake. Tai corresponded with those authors about the mechanics of the process, including financing. Each author recommended that we have something to bank on when we purchased a lot — to one of the authors, that meant having good equity in your current place; to another author, that meant a greater cash down payment. We did the math on refinancing our condo at the time (the original slc202), and realized that it would be too risky for us. By far the safer option would be to sell the condo, bank the equity and then look around for land. That's how slc202 was born. Since then, of course, we remodeled our current place, which we're planning on staying in throughout the building process. And since then, of course, the world economy has also entered the Great Recession/the Good Depression/Global Economy vs. Banana Peel, and financing has become, ahem, less available than it was when those other blogs were building. More than 18 months later, here we are — finally making good on that goal to build.

It has been immensely gratifying to move forward on this process that we started two years ago. It feels so good to be working toward this goal and seeing it actually happen.

The first To Do list

OK, now that we have stopped grinning momentarily, here is a bit more information from Tai about why we extended our contract period:

We have until March 23rd to close on the lot. This is mostly because we are going to be in Australia right in the middle of this thing, but for now, what must happen is:

A) we have to get some kind of written confirmation from Salt Lake City, that this lot is indeed a buildable lot. It currently doesn't conform to zoning requirements for building in the zone, but if at any time during it's existence it did comply, then it is grandfathered in. The seller says she had a building permit before, so it is likely buildable, but we want to confirm.

B) We have to arrange for and get financing for the lot.

C) We have to do some due diligence with an architect and a builder to make sure that what we want to do is feasible within our budget.

Once we determine that the lot is buildable, have financing, and think we can do what we want to do, we will close on the lot.

After we have closed we need to let the lot loan age for 90 days so that we can "refinance" it into a new loan that will cash out the previous lot loan, provide a construction loan and the permanent loan at the end of construction. This works out well because we will need those 90 days to get designs we like, get them bid, make adjustments and get a building permit.

We will have to put 30% down on the lot, and with the refinance into a one-time construction loan, we will need to have 10% of the whole cost in equity, which the 30% would count towards and take care of. We will end up with 20% down, but if we were to try to do the one-time loan from the start, we would have to have 25% of the total, which is just slightly beyond our grasp, so this all works out fine.

Financing has gotten a bit more difficult in the last few months, but rates are definitely good right now. Wish us luck.