Last week we closed on a custom construction loan with Washington Federal.
When it comes to construction financing, there are two major options (unless you can self-finance): get a bank loan or get a private bridge loan.
Private bridge loans allow you to move faster, can be easier to get, and provide more freedom. For example, a bank may not approve a loan for a home using non-standard construction methods. However, they are more expensive; interest was 15-20% on the loans we considered. Refinancing a private loan once construction is complete can be more difficult because the bank considers the project more risky than one it has already vetted.
Bank loans require a long process of approving the borrowers, builder, and project, but they are cheaper. Depending on the bank, a construction loan may have a standard mortgage rate plus a fee equal to some percentage of the loan or the loan may have a rate 2-3% higher during the construction period. Banks tend to be more rigorous about inspections, which can be both a benefit and a hindrance.
We chose Washington Federal on Yuval's recommendation. As a builder, he finds them easy to work with, and they have a good reputation (e.g., Erika's grandparents thinks they are the best choice). Another advantage is that their construction loan automatically converts to a standard mortgage; no refinancing needed.
The standard credit application for us was approved easily, and Yuval was already verified as a builder with them. The project approval required a fully-approved permit set, along with a budget breakdown, and some other details. This part of the process took longer than normal, first because we had to wait for the permits, and second because the bank had problems finding an available appraiser who was willing to evaluate a modern, green, construction project in Bellevue.
Once everything was approved, the bank worked on finalizing the paperwork and getting it sent to escrow. I worked on getting a course of construction insurance policy in place, along with some other minor details. Once the escrow agent had the documents, we wired the funds for the fees and down-payment, signed all the documents, and the bank managed to close the loan the same day. And now construction can start! Excavation is scheduled to start October 1st.
Sunday, September 25, 2011
Friday, September 23, 2011
Thoughts on Relative Costs
Building a house forces a shift in perspective on money and costs. We are dealing with large amounts of money, but it is still valuable to pay attention to the small savings.
The whole project costs a lot (it is much more than we planned to pay for a house just a few years ago). The land purchase alone was more than we had ever spent in an entire year, let alone all at once. The down-payment for the construction loan is as much as the cost of the land, but those together are less than half the total cost. Dealing with numbers this large makes us a bit inured to how much money we are actually spending.
However, we cannot lose sight of the smaller costs that make up the total price. Carefully considering trade-offs, even when it only saves a few hundred dollars, allows us to allocate the budget where it is most valuable without going over our target. For example, saving a few thousand dollars on appliances and eliminating unnecessary features of the kitchen cabinets will allow us to get nicer hardwood and faucets.
Depending on what we're looking at, we change what we consider the minimum worth worrying about. At the level of the project as a whole, we generally consider the costs in increments of $5,000. When looking at our savings account or cost increases, we round to the nearest $5,000. Changing lenders to reduce our financing costs by $2,000 would barely be worth it we only considered financial savings.
But the many facets of the construction budget merit closer attention. We look carefully at increases of as little as $500. That amount is trivial compared to the entire budget, but with 20-30 categories in the budget, these small changes can add up quickly. We don't worry about everything. For anything less than $100, we consider the impact minimal. Even if we added that to every category, the affect in the overall cost will hardly be noticeable.
Whenever we make a change, especially a change that affects cost, we ask ourselves, "Is this upgrade worth it to us? Can we afford it?" By considering those items, we've been able to keep the costs reasonable and choose the upgrades that will really make a difference to us.
We do hope that once this project is complete, our financial sense of scale will return to normal. For now, we barely blink at putting $4,000 on a credit card or writing a check for $10,000 because that is what we have set ourselves up to expect.
The whole project costs a lot (it is much more than we planned to pay for a house just a few years ago). The land purchase alone was more than we had ever spent in an entire year, let alone all at once. The down-payment for the construction loan is as much as the cost of the land, but those together are less than half the total cost. Dealing with numbers this large makes us a bit inured to how much money we are actually spending.
However, we cannot lose sight of the smaller costs that make up the total price. Carefully considering trade-offs, even when it only saves a few hundred dollars, allows us to allocate the budget where it is most valuable without going over our target. For example, saving a few thousand dollars on appliances and eliminating unnecessary features of the kitchen cabinets will allow us to get nicer hardwood and faucets.
Depending on what we're looking at, we change what we consider the minimum worth worrying about. At the level of the project as a whole, we generally consider the costs in increments of $5,000. When looking at our savings account or cost increases, we round to the nearest $5,000. Changing lenders to reduce our financing costs by $2,000 would barely be worth it we only considered financial savings.
But the many facets of the construction budget merit closer attention. We look carefully at increases of as little as $500. That amount is trivial compared to the entire budget, but with 20-30 categories in the budget, these small changes can add up quickly. We don't worry about everything. For anything less than $100, we consider the impact minimal. Even if we added that to every category, the affect in the overall cost will hardly be noticeable.
Whenever we make a change, especially a change that affects cost, we ask ourselves, "Is this upgrade worth it to us? Can we afford it?" By considering those items, we've been able to keep the costs reasonable and choose the upgrades that will really make a difference to us.
We do hope that once this project is complete, our financial sense of scale will return to normal. For now, we barely blink at putting $4,000 on a credit card or writing a check for $10,000 because that is what we have set ourselves up to expect.
Thursday, September 22, 2011
Thoughts on Feature Creep
Perhaps not surprisingly, our design has been affected by that common malady: feature creep. It is too easy to say "Let's get this nicer appliance", or "Let's add a smart electronic control system to the entire house", or "We should add another room for guests". But every addition has an impact, and must be carefully considered.
We started with a good idea of the activities we wanted to support and a rough size target based off of where we live now and sample floor plans from an earlier project. Functionally, we aimed for a master suite and two other bedrooms; a laundry/utility/craft room; an office; a kitchen fit for two cooking together; a large dining and entertaining space; a comfortably-sized entry; space for guests; a library; and a media room. We hoped to overlap functions in shared space and fit it all in 2000 sq. ft.
That was unrealistic (building on a slope didn't help). We managed to accommodate most of these functions, but with stairs and landings and making sure all the rooms were large enough, we ended up at 2700 sq. ft. While it is larger (and therefore more expensive) than we planned, we decided it was the right layout and size for what we wanted. We dropped the guest room (but left room for a future expansion), since we don't need a guest room until the other bedrooms are fully occupied.
Detailed design presented similar trade-offs. We eliminated some kitchen niceties and kept others. We opted for a cheaper (but still nice) oven and chose a nicer gas stove. We chose slightly nicer faucets and sinks and upgraded our wood flooring. However, we simplified our exterior siding, and may decrease the built-in shelving and case-work from what we had planned.
We try to find a good balance between adding and simplifying. We keep the things that are most important to us and eliminate the nice-to-have items. We are happy with our choices so far, and we have yet to feel like we've made a significant compromise just to reduce costs. (One principle we have kept in mind is that some things, like built-in shelving, are easy to add after the house is built; while others, like plumbing, are difficult.)
It has helped that Yuval has been up-front with us about the costs. We can't say we are happy about the rising cost, but we understand how it relates to our choices (such as increasing the size). With most of the quotes in and a final budget set, we are at a slightly lower per-sq.ft. cost than the early estimates. That helps us feel confident that we will strike a nice balance between extra cost and getting what we want.
We started with a good idea of the activities we wanted to support and a rough size target based off of where we live now and sample floor plans from an earlier project. Functionally, we aimed for a master suite and two other bedrooms; a laundry/utility/craft room; an office; a kitchen fit for two cooking together; a large dining and entertaining space; a comfortably-sized entry; space for guests; a library; and a media room. We hoped to overlap functions in shared space and fit it all in 2000 sq. ft.
That was unrealistic (building on a slope didn't help). We managed to accommodate most of these functions, but with stairs and landings and making sure all the rooms were large enough, we ended up at 2700 sq. ft. While it is larger (and therefore more expensive) than we planned, we decided it was the right layout and size for what we wanted. We dropped the guest room (but left room for a future expansion), since we don't need a guest room until the other bedrooms are fully occupied.
Detailed design presented similar trade-offs. We eliminated some kitchen niceties and kept others. We opted for a cheaper (but still nice) oven and chose a nicer gas stove. We chose slightly nicer faucets and sinks and upgraded our wood flooring. However, we simplified our exterior siding, and may decrease the built-in shelving and case-work from what we had planned.
We try to find a good balance between adding and simplifying. We keep the things that are most important to us and eliminate the nice-to-have items. We are happy with our choices so far, and we have yet to feel like we've made a significant compromise just to reduce costs. (One principle we have kept in mind is that some things, like built-in shelving, are easy to add after the house is built; while others, like plumbing, are difficult.)
It has helped that Yuval has been up-front with us about the costs. We can't say we are happy about the rising cost, but we understand how it relates to our choices (such as increasing the size). With most of the quotes in and a final budget set, we are at a slightly lower per-sq.ft. cost than the early estimates. That helps us feel confident that we will strike a nice balance between extra cost and getting what we want.
Wednesday, September 21, 2011
Thoughts on Collaborative Design
Design is collaborative. Our collaborators bring the skill, knowledge, and experience we lack. This has helped to refine our vague or unfinished ideas into a finished design that is truly brilliant (or so we think).
Our main collaborator is Yuval, the head of YS Development. He has helped us with all parts of the process. He found and verified the land long before we looked at it. He has relationships with the city, architects, designers, financing, vendors, labor, and more. He shepherded the permits through the city, and is overseeing the entire process from beginning to end. He has lead the design process and contributed significantly. He knows materials and vendors, has a taste that largely matches ours, and is familiar with construction constraints and good design practices for all parts of the house.
Our architect is Markus, with Whitney Architecture. He has done all the sketches, drafts, and final plans for our house. He was deeply involved with the structure and layout of the house, and brought many good ideas. He combined our desires with the constraints of the property to produce something that fits our needs delightfully.
Anne is our color and materials designer. She has a great eye for color/pattern/material combinations and has helped us refine our ideas into a specific palette of materials. She has suggested some themes we hadn't thought of and has helped to make details and finish just as interesting as the structure of our house.
Working with these professionals has its ups and downs; it can sometimes feel like a balancing act. Ultimately this is a business transaction, and we have made sure our agreements clearly state what each side provides in the transaction. But a process like this is all about personal interactions. Having good working relationships and getting everyone excited about the project is important. It makes meetings interesting and engaging, it provides a constant flow of insightful ideas, and everyone tries to make sure the design is as good as possible.
We are sometimes challenged working with people who have different perspectives and working styles. Everyone has provided great input and is good about listening to our ideas and feedback, but we sometimes have difficulty communicating. Sometimes our requests are unusual or couched in non-standard terminology. Sometimes what we want just can't be built. Sometimes we communicate the idea, but mis-communicate the priority (resulting in both under and over prioritization). The result is that sometimes we feel like important things are missed or misinterpreted. We have usually resolved things to our satisfaction, but the frustration and delays during the process are annoying.
There is quite a bit of compromise, especially in collaborative design. Budget, physical feasibility, and city housing codes would restrict us even if we were doing everything ourselves. Involving others brings in other limitations. The professionals are familiar with certain materials, products, vendors, and techniques that they prefer to use. Going with something they are familiar with will almost certainly have a better result than something new or untested; but it does place limits on what options we have. There are also differences of opinions that must be resolved. While we as owners have the last word, we are influenced by what others think. If they are skeptical or unenthusiastic about an idea, it can be much harder to integrate it into the whole. Fortunately, constraints often lead to a better design. Limiting our options helps prevent the paradox of choice from overwhelming us. Choosing something that is well-known and liked by the professionals provides more certainty that the finished result will work well.
Working with others has its set of challenges, but it is also valuable to have professionals involved. Our design is a lot richer and more sound for getting help with the areas in which we are weak and inexperienced.
Our main collaborator is Yuval, the head of YS Development. He has helped us with all parts of the process. He found and verified the land long before we looked at it. He has relationships with the city, architects, designers, financing, vendors, labor, and more. He shepherded the permits through the city, and is overseeing the entire process from beginning to end. He has lead the design process and contributed significantly. He knows materials and vendors, has a taste that largely matches ours, and is familiar with construction constraints and good design practices for all parts of the house.
Our architect is Markus, with Whitney Architecture. He has done all the sketches, drafts, and final plans for our house. He was deeply involved with the structure and layout of the house, and brought many good ideas. He combined our desires with the constraints of the property to produce something that fits our needs delightfully.
Anne is our color and materials designer. She has a great eye for color/pattern/material combinations and has helped us refine our ideas into a specific palette of materials. She has suggested some themes we hadn't thought of and has helped to make details and finish just as interesting as the structure of our house.
Working with these professionals has its ups and downs; it can sometimes feel like a balancing act. Ultimately this is a business transaction, and we have made sure our agreements clearly state what each side provides in the transaction. But a process like this is all about personal interactions. Having good working relationships and getting everyone excited about the project is important. It makes meetings interesting and engaging, it provides a constant flow of insightful ideas, and everyone tries to make sure the design is as good as possible.
We are sometimes challenged working with people who have different perspectives and working styles. Everyone has provided great input and is good about listening to our ideas and feedback, but we sometimes have difficulty communicating. Sometimes our requests are unusual or couched in non-standard terminology. Sometimes what we want just can't be built. Sometimes we communicate the idea, but mis-communicate the priority (resulting in both under and over prioritization). The result is that sometimes we feel like important things are missed or misinterpreted. We have usually resolved things to our satisfaction, but the frustration and delays during the process are annoying.
There is quite a bit of compromise, especially in collaborative design. Budget, physical feasibility, and city housing codes would restrict us even if we were doing everything ourselves. Involving others brings in other limitations. The professionals are familiar with certain materials, products, vendors, and techniques that they prefer to use. Going with something they are familiar with will almost certainly have a better result than something new or untested; but it does place limits on what options we have. There are also differences of opinions that must be resolved. While we as owners have the last word, we are influenced by what others think. If they are skeptical or unenthusiastic about an idea, it can be much harder to integrate it into the whole. Fortunately, constraints often lead to a better design. Limiting our options helps prevent the paradox of choice from overwhelming us. Choosing something that is well-known and liked by the professionals provides more certainty that the finished result will work well.
Working with others has its set of challenges, but it is also valuable to have professionals involved. Our design is a lot richer and more sound for getting help with the areas in which we are weak and inexperienced.
Tuesday, September 20, 2011
Thoughts on the Design Process
Pre-construction work comprises more than design, but design is where we have spent most of time and effort. We are learning as we go, but we started with some useful skills and knowledge.
We came prepared. Erika has read quite a few house design books. We strongly recommend A Pattern Language, Patterns of Home, and The Not So Big House. Although we lack practical or professional experience, having basic understanding of what is good and bad in a house (and why) provides benefits: we had an idea of the rooms we wanted, their purposes, and their connections and chose a basic layout pretty quickly.
We know our tastes and needs. For example, we knew that we wanted a particular (and peculiar) layout for the master suite. We knew it would work well for us and were firm about getting it into the design. We don't always know exactly what we want (especially on materials and colors), but once we find something we like, we commit quickly. Jeff's inspiration for the upstairs bathrooms needed some refinement from Anne (our color designer) and Yuval, but we knew the result fit our tastes. Because of our confidence in our choices, we haven't wasted time revisiting or regretting the choices we have made.
We are organized. It can be hard to keep all the design tasks straight. Yuval keeps us on track and makes sure we make decisions on schedule. Generally, we work on decisions in advance. We chose appliances well before they were needed which made them easy to integrate into the kitchen design. Months ago, we spent a weekend choosing all the plumbing fixtures because it was fun. Yuval mentioned that we are among the most organized of his clients. Organization helps us make decisions early and lock them quickly. When it comes to process, we feel comfortable that we will be ready for whatever is needed next.
We have similar tastes. We find ourselves attracted to similar colors and materials and designs. When our opinions diverge, we only have one strong opinion (usually...), and can reach a choice that satisfies us both. This streamlines decision making. We don't agree perfectly on everything. We've had debates and even some arguments, but after a discussion of the trade-offs, we nearly always come to a conclusion we are both happy with.
Design has been fun. Being deeply involved in the creation of our own house has increased our appreciation of home design. Most spec-built houses would require many more compromises in taste and value. Our house will feel more comfortable and intimate to us because of how deeply we have invested in it.
We came prepared. Erika has read quite a few house design books. We strongly recommend A Pattern Language, Patterns of Home, and The Not So Big House. Although we lack practical or professional experience, having basic understanding of what is good and bad in a house (and why) provides benefits: we had an idea of the rooms we wanted, their purposes, and their connections and chose a basic layout pretty quickly.
We know our tastes and needs. For example, we knew that we wanted a particular (and peculiar) layout for the master suite. We knew it would work well for us and were firm about getting it into the design. We don't always know exactly what we want (especially on materials and colors), but once we find something we like, we commit quickly. Jeff's inspiration for the upstairs bathrooms needed some refinement from Anne (our color designer) and Yuval, but we knew the result fit our tastes. Because of our confidence in our choices, we haven't wasted time revisiting or regretting the choices we have made.
We are organized. It can be hard to keep all the design tasks straight. Yuval keeps us on track and makes sure we make decisions on schedule. Generally, we work on decisions in advance. We chose appliances well before they were needed which made them easy to integrate into the kitchen design. Months ago, we spent a weekend choosing all the plumbing fixtures because it was fun. Yuval mentioned that we are among the most organized of his clients. Organization helps us make decisions early and lock them quickly. When it comes to process, we feel comfortable that we will be ready for whatever is needed next.
We have similar tastes. We find ourselves attracted to similar colors and materials and designs. When our opinions diverge, we only have one strong opinion (usually...), and can reach a choice that satisfies us both. This streamlines decision making. We don't agree perfectly on everything. We've had debates and even some arguments, but after a discussion of the trade-offs, we nearly always come to a conclusion we are both happy with.
Design has been fun. Being deeply involved in the creation of our own house has increased our appreciation of home design. Most spec-built houses would require many more compromises in taste and value. Our house will feel more comfortable and intimate to us because of how deeply we have invested in it.
Monday, September 19, 2011
Thoughts on Custom Home Design
We're about half-way through building our custom home, and it has been a bit over one year since we started this project. The process has taken longer than we expected, and has produced some unexpected challenges. Permitting and major parts of design are done, and construction will be starting shortly. It is a good time to reflect on the process so far. We'll provide some general thoughts here, and explore some other areas in more detail in future posts.
The process has been hard at times. Our schedule was already full with our regular jobs and frequent activities with friends and family. We've sometimes had to stretch to fit design into our schedule. Permitting complications and delays, both before and after submission, have put us significantly behind schedule. With those and some of the other difficulties, we've felt discouraged and frustrated at times, with that frustration sometimes turning into arguments. We started to semi-seriously look at homes to purchase when things were really grim.
Through it all, we've always return to a positive view. Our design fits us better than anything we've seen for sale. As it has slowly come together on paper and in our minds, we've become more realistic about what our house will and won't be. It won't be perfect, but we like how the design is turning out.
The thought of turning that design into a physical structure intimidates us. We've been planning and designing, in some form or another, for over a year. But so far it has all been on paper. Once construction starts, the design will be locked; we can't add another room or rearrange things. As it progresses, more and more details will be fixed in place. So we have to hope that things will turn out how we hope, and that we don't have too many regrets once it is done.
But our hesitation is mixed with excitement. Whenever we visit the house currently under construction, we see the potential of our own. We will finally see the physical realization of what we've spent so much time and energy designing.
We are only half-way through, and there is still lots left to do. We have plenty of design details to decide on, and we'll spend quite a bit of time following the construction progress. We'll drastically increase our spending, and it will probably be a bit of a shock to spend so much money so quickly. Despite everything so far, we're looking forward to the next stage of our house.
The process has been hard at times. Our schedule was already full with our regular jobs and frequent activities with friends and family. We've sometimes had to stretch to fit design into our schedule. Permitting complications and delays, both before and after submission, have put us significantly behind schedule. With those and some of the other difficulties, we've felt discouraged and frustrated at times, with that frustration sometimes turning into arguments. We started to semi-seriously look at homes to purchase when things were really grim.
Through it all, we've always return to a positive view. Our design fits us better than anything we've seen for sale. As it has slowly come together on paper and in our minds, we've become more realistic about what our house will and won't be. It won't be perfect, but we like how the design is turning out.
The thought of turning that design into a physical structure intimidates us. We've been planning and designing, in some form or another, for over a year. But so far it has all been on paper. Once construction starts, the design will be locked; we can't add another room or rearrange things. As it progresses, more and more details will be fixed in place. So we have to hope that things will turn out how we hope, and that we don't have too many regrets once it is done.
But our hesitation is mixed with excitement. Whenever we visit the house currently under construction, we see the potential of our own. We will finally see the physical realization of what we've spent so much time and energy designing.
We are only half-way through, and there is still lots left to do. We have plenty of design details to decide on, and we'll spend quite a bit of time following the construction progress. We'll drastically increase our spending, and it will probably be a bit of a shock to spend so much money so quickly. Despite everything so far, we're looking forward to the next stage of our house.
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