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.
Showing posts with label financial. Show all posts
Showing posts with label financial. Show all posts
Sunday, September 25, 2011
Saturday, August 27, 2011
Construction Contract
Another milestone has been reached! We signed the construction contract with YS Development.
The contract specifies the responsibilities of both sides, the fixed price of construction, the start date and timeline, and the penalties that apply if either side fails to meet their obligations. YS Development has a base contract for their projects. Our final contract integrated terms from the standard AIA contract and others terms suggested by What Your Contractor Can't Tell You into that base.
We waited this long to finalize the contract because we needed a cost. Yuval worked hard to get quotes from vendors that were as close to accurate as possible; a fixed price contract needs to be based on reliable data. The final number was close to the target we had aimed for. We included a bit extra for small changes and contingencies for some small items that need to be finalized. With the quotes in, the price of construction could be locked, and the contract signed.
This was one of the easier pieces of business we've dealt with, and now that it is settled construction can start in earnest (well, once we finalize financing).
The contract specifies the responsibilities of both sides, the fixed price of construction, the start date and timeline, and the penalties that apply if either side fails to meet their obligations. YS Development has a base contract for their projects. Our final contract integrated terms from the standard AIA contract and others terms suggested by What Your Contractor Can't Tell You into that base.
We waited this long to finalize the contract because we needed a cost. Yuval worked hard to get quotes from vendors that were as close to accurate as possible; a fixed price contract needs to be based on reliable data. The final number was close to the target we had aimed for. We included a bit extra for small changes and contingencies for some small items that need to be finalized. With the quotes in, the price of construction could be locked, and the contract signed.
This was one of the easier pieces of business we've dealt with, and now that it is settled construction can start in earnest (well, once we finalize financing).
Saturday, April 16, 2011
Appliances
The kitchen takes more design than most rooms, and you can't finalize a kitchen design without choosing the appliances. Accordingly, we recently spent a weekend (and then some) choosing appliances.
The easy choices
Our builder recommended Bosch where applicable. We did not have strong preferences on the dishwasher, refrigerator, washer, and dryer, so we chose low- to mid-range Bosch items. Yuval recommended Waste King garbage disposals, and so we chose a reasonable unit
from their selection.
This brings us to the oven and cooktop. We spend more time interacting with these appliances, and that leads to more detailed requirements.
Ovens
We wanted double wall-mount ovens. A speed oven seemed like a perfect fit for the second oven. It would eliminate the need for a separate microwave and be smaller, faster, and more efficient. There was just one problem: Bosch does not sell a speed oven in the US.
Miele makes a popular, high quality speed oven. However, a speed oven and matching full-size oven from Miele is about $2000 more than a Bosch double wall oven plus separate microwave. With a $10,000 appliance budget, this is a big deal.
Fortunately, Yuval pointed out that the high-end Bosch microwave is actually a combination oven. The difference is that the Miele speed oven is an oven first, microwave second, and can use both kinds of cooking methods together. The Bosch combination microwave is a microwave first, oven second, and can only use the cooking methods individually. We combined this with a full-size oven to accomplish our main goals: no separate microwave and a smaller secondary oven. This came in about $2400 cheaper than the Miele combination.
Cooktop
We chose a 36" gas cooktop. We considered induction, but it is more expensive and the unit we saw had confusing controls. Gas is also what we are used to. A 36" cooktop will give us five or six burners, one or two more than the standard four.
We considered three different cooktops:
Because our stove is going on the island, we needed an island mount hood. It needed to be at least 42" (6" wider than the cooktop) and be powerful enough to match the stove. We chose a 48" Kuppersbusch hood with 725 CFM of air exchange. That is more power than we need, but it is a good price and fits our needs. If it is more powerful than needed, we can use it on the lower (and quieter) fan speeds.
Totaling it up
The total cost for all of the appliances came out to about $10,000. It's only a bit over the initial budget we had set. With those settled on, we can freeze one part of the budget and finalize the kitchen design.
The easy choices
Our builder recommended Bosch where applicable. We did not have strong preferences on the dishwasher, refrigerator, washer, and dryer, so we chose low- to mid-range Bosch items. Yuval recommended Waste King garbage disposals, and so we chose a reasonable unit
from their selection.This brings us to the oven and cooktop. We spend more time interacting with these appliances, and that leads to more detailed requirements.
Ovens
We wanted double wall-mount ovens. A speed oven seemed like a perfect fit for the second oven. It would eliminate the need for a separate microwave and be smaller, faster, and more efficient. There was just one problem: Bosch does not sell a speed oven in the US.
Miele makes a popular, high quality speed oven. However, a speed oven and matching full-size oven from Miele is about $2000 more than a Bosch double wall oven plus separate microwave. With a $10,000 appliance budget, this is a big deal.
Fortunately, Yuval pointed out that the high-end Bosch microwave is actually a combination oven. The difference is that the Miele speed oven is an oven first, microwave second, and can use both kinds of cooking methods together. The Bosch combination microwave is a microwave first, oven second, and can only use the cooking methods individually. We combined this with a full-size oven to accomplish our main goals: no separate microwave and a smaller secondary oven. This came in about $2400 cheaper than the Miele combination.
Cooktop
We chose a 36" gas cooktop. We considered induction, but it is more expensive and the unit we saw had confusing controls. Gas is also what we are used to. A 36" cooktop will give us five or six burners, one or two more than the standard four.
We considered three different cooktops:
- The Bertazzoni Professional cooktop looks the nicest, but we were less fond of the mechanism for lighting the burner, and the simmer does not seem as good.
- The DCS cooktop has a nice simmer using a separate ring on all burners and a wonderful lighting mechanism. It costs slightly less than the Bertazzoni.
- The BlueStar drop-in cooktop costs the most and has an industrial look some may dislike. It has a nice lighting mechanism, good simmer on all burners (and one simmer-specific burner), more powerful burners (two at 22,000 BTU), and a knob layout arranged to match the burner layout. The burners use an open burner design which should provide more even heating.
Because our stove is going on the island, we needed an island mount hood. It needed to be at least 42" (6" wider than the cooktop) and be powerful enough to match the stove. We chose a 48" Kuppersbusch hood with 725 CFM of air exchange. That is more power than we need, but it is a good price and fits our needs. If it is more powerful than needed, we can use it on the lower (and quieter) fan speeds.
Totaling it up
The total cost for all of the appliances came out to about $10,000. It's only a bit over the initial budget we had set. With those settled on, we can freeze one part of the budget and finalize the kitchen design.
Friday, October 8, 2010
Land: Acquired
As of last Wednesday, September 29th, we officially own the land in Bellevue for our house. This is the first full commitment to the project, but also means that the whole process and timeline is now a go. We will be starting design very shortly (as soon as we recover from various bouts of busy and sickness over this past weekend), and spend the next few months on that.
The land acquisition ended up being a bit quicker than we thought. The lot was owned by the bank, so we would be negotiating with them on the price, and doing the actual purchase from them. We informed Yuval of our decision on the Bellevue 41st project, and he told us he would work on our land purchase in about a week and a half, after he had finished closing a transaction on another lot in that same project. However, less than a week later, I got a call Monday after lunch from Yuval that someone else had put in a bid for that parcel! This would have a couple of potential problems: obviously it would put our project back into limbo; but as this was someone not involved with YS Development, a one-off house along with the other four houses from the Bellevue 41st project could throw off the continuity of the community there. So we had to get an offer submitted ASAP that could beat this other offer.
We met with Yuval that evening, and he had an offer prepared to submit to the bank next morning. It was for an even $200,000, which was $25k-50k above what we hoped to be able to negotiate down to; but we felt this should be enough for the bank to accept a competing offer; and while it was at the same price as the other offer, we had the advantage that our offer was all cash (therefore a quicker process not dependent on getting financing), and did not have any brokers or agents involved (avoiding the extra commission the bank would have to pay out of the proceeds). Unfortunately, this did bump up the overall price to around $730,000. While not great, this project still offered the best timeline; and a 4% increase is not terrible. Since we've been waiting around 9-10 months, we decided that with the extra savings we've accumulated in that time, we could cover the increase, so we decided to go ahead with the offer.
Late the next morning we heard that the bank had accepted our offer; so in under 24 hours we had gone from biding our time, to having a pending purchase in place! The offer was set up to give us about 10 days to cancel if we decided the lot really wasn't feasible for us; and a few more days beyond that as a buffer so that we could maintain a closing date before the end of the month. Since YS Development had already planned on using this parcel, a lot of the work for assessing building, permitting, etc. feasibility had already been done; so it was mostly a matter of verifying that it would work for us in particular.
The first piece of this was an initial meeting with the architect to get an idea of what our house might look like. I'll cover this in more detail soon, but the short of it is that we got a good feeling for how the land would constrain our design, but also showed us the possibilities that it offered.
The next piece was to make sure everything else was in order. For the legal part, we used a benefit from Google which is (essentially) a subscription legal service, where we pay a fixed amount every month, but can use the service at any time to have a lawyer take care of standard things, such as reviewing real estate documents. A few good points were identified, and prompted us to get a title report in enough time to have it reviewed, too. There ended up being quite a few things on the title report; which isn't entirely unexpected, given that this is a recently-subdivided part of a lot in Bellevue proper which has been privately owned but not yet built on since sometime in the 1960s or so. Along with all the expected utility easements, there were also claims for a road (which has since been built and is the main access to the parcel) and similar. But nothing was objectionable, and the review pointed out a few items that weren't relevant anymore and could be cleared.
On Monday the 27th, two days before the scheduled closing, we gave the go-ahead for the purchase. We were going through Chicago Title for the title insurance and escrow/closing, since Yuval had worked with them and knew they were good. We got a closing statement and wire instructions that day, and the next morning we sent a wire transfer from our bank to the escrow account. Then Tuesday afternoon we went in-person to sign the documents for our part of the closing. On Wednesday the 29th, the bank completed their part of the transaction, and the land was officially transferred to us.
This was our first ever real estate transaction, and overall went relatively smoothly. It was fairly quick; luckily most of the hard work was done by others, especially YS Development. I probably learned the most from the lawyer's comments — while in some ways they felt like extra complications, they did help to point out issues we weren't really clear on, and helped to clarify some vague points. We also learned that in a cash transaction, the amount of documents to sign is actually pretty small (apparently that changes completely if you have financing involved); the purchase offer to the bank was a half-dozen pages (one of which we signed and the rest we initialed), the title policy was maybe 10-20 pages total (but none that we had to sign), the closing statement and documents were about 15 pages, of which we signed seven. The only large part was the supporting documentation for the title report, which was over 100 pages; but that was all copies of county and city documents and I certainly didn't read through it all.
Now that we own the land, we do have a bit of recurring expenses for it: taxes and utilities. Since it is bare property, the taxes are not too bad; about $1600 for the whole year (this will obviously go up a lot once we have a house on it). For utilities, the city bills for storm drainage for all land, though the bills should be small since the land is undeveloped (0% impervious coverage).
I will admit that the financial and business transaction parts of this process are not my favorite. I'm glad that this portion has been successfully resolved; and now we can focus on the more enjoyable design process for the next few months.
The land acquisition ended up being a bit quicker than we thought. The lot was owned by the bank, so we would be negotiating with them on the price, and doing the actual purchase from them. We informed Yuval of our decision on the Bellevue 41st project, and he told us he would work on our land purchase in about a week and a half, after he had finished closing a transaction on another lot in that same project. However, less than a week later, I got a call Monday after lunch from Yuval that someone else had put in a bid for that parcel! This would have a couple of potential problems: obviously it would put our project back into limbo; but as this was someone not involved with YS Development, a one-off house along with the other four houses from the Bellevue 41st project could throw off the continuity of the community there. So we had to get an offer submitted ASAP that could beat this other offer.
We met with Yuval that evening, and he had an offer prepared to submit to the bank next morning. It was for an even $200,000, which was $25k-50k above what we hoped to be able to negotiate down to; but we felt this should be enough for the bank to accept a competing offer; and while it was at the same price as the other offer, we had the advantage that our offer was all cash (therefore a quicker process not dependent on getting financing), and did not have any brokers or agents involved (avoiding the extra commission the bank would have to pay out of the proceeds). Unfortunately, this did bump up the overall price to around $730,000. While not great, this project still offered the best timeline; and a 4% increase is not terrible. Since we've been waiting around 9-10 months, we decided that with the extra savings we've accumulated in that time, we could cover the increase, so we decided to go ahead with the offer.
Late the next morning we heard that the bank had accepted our offer; so in under 24 hours we had gone from biding our time, to having a pending purchase in place! The offer was set up to give us about 10 days to cancel if we decided the lot really wasn't feasible for us; and a few more days beyond that as a buffer so that we could maintain a closing date before the end of the month. Since YS Development had already planned on using this parcel, a lot of the work for assessing building, permitting, etc. feasibility had already been done; so it was mostly a matter of verifying that it would work for us in particular.
The first piece of this was an initial meeting with the architect to get an idea of what our house might look like. I'll cover this in more detail soon, but the short of it is that we got a good feeling for how the land would constrain our design, but also showed us the possibilities that it offered.
The next piece was to make sure everything else was in order. For the legal part, we used a benefit from Google which is (essentially) a subscription legal service, where we pay a fixed amount every month, but can use the service at any time to have a lawyer take care of standard things, such as reviewing real estate documents. A few good points were identified, and prompted us to get a title report in enough time to have it reviewed, too. There ended up being quite a few things on the title report; which isn't entirely unexpected, given that this is a recently-subdivided part of a lot in Bellevue proper which has been privately owned but not yet built on since sometime in the 1960s or so. Along with all the expected utility easements, there were also claims for a road (which has since been built and is the main access to the parcel) and similar. But nothing was objectionable, and the review pointed out a few items that weren't relevant anymore and could be cleared.
On Monday the 27th, two days before the scheduled closing, we gave the go-ahead for the purchase. We were going through Chicago Title for the title insurance and escrow/closing, since Yuval had worked with them and knew they were good. We got a closing statement and wire instructions that day, and the next morning we sent a wire transfer from our bank to the escrow account. Then Tuesday afternoon we went in-person to sign the documents for our part of the closing. On Wednesday the 29th, the bank completed their part of the transaction, and the land was officially transferred to us.
This was our first ever real estate transaction, and overall went relatively smoothly. It was fairly quick; luckily most of the hard work was done by others, especially YS Development. I probably learned the most from the lawyer's comments — while in some ways they felt like extra complications, they did help to point out issues we weren't really clear on, and helped to clarify some vague points. We also learned that in a cash transaction, the amount of documents to sign is actually pretty small (apparently that changes completely if you have financing involved); the purchase offer to the bank was a half-dozen pages (one of which we signed and the rest we initialed), the title policy was maybe 10-20 pages total (but none that we had to sign), the closing statement and documents were about 15 pages, of which we signed seven. The only large part was the supporting documentation for the title report, which was over 100 pages; but that was all copies of county and city documents and I certainly didn't read through it all.
Now that we own the land, we do have a bit of recurring expenses for it: taxes and utilities. Since it is bare property, the taxes are not too bad; about $1600 for the whole year (this will obviously go up a lot once we have a house on it). For utilities, the city bills for storm drainage for all land, though the bills should be small since the land is undeveloped (0% impervious coverage).
I will admit that the financial and business transaction parts of this process are not my favorite. I'm glad that this portion has been successfully resolved; and now we can focus on the more enjoyable design process for the next few months.
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