Sunday, February 12, 2017

Buying Land and Building a House..

We have been MIA in real life for a couple of reasons:

1) Graham has been working 60+ hours per week
2) Apparently, two kids are more work than one.
3) We've been in the process of buying land to build a house.

Yes, I know.. insane. Let me explain. Several months ago, we started saving money for some house improvements. We were thinking about replacing the siding on our house and installing a portico above the front porch. The work would be estimated between $10-15K, depending on the quality of the siding we chose. I started making plans for this big project, when I noticed that a lot was for sale on Redfin for $59K in a gated neighborhood near our house. It made me think. Hmmm.. why spend this much money on our current house when we wouldn't recoup the cost, and we can afford to build a home in a nicer neighborhood? Our current home doesn't meet all of our needs--my brother cannot stay with us due to the stairs, there is no master bath or big closet, and no extra room for the kids' toys. Building a home with everything we need sounded like a great option compared to big renovations and projects on our current house. This got us started on a roller coaster to actively looking for land and building our home.

I got super excited thinking about the process of building our own home. Growing up in California, I felt like only the super rich people had enough money to build their own house. In fact, I looked up the cost of a lot in my hometown of Folsom, California, and a small lot was $240K.. which obviously doesn't even cover the cost of the house. Yeah, we could never afford to do that in CA. But, here in the sticks, land is much more affordable, and building your own home is more obtainable. I started going on Pinterest again (I've been on a 3-year hiatus), pinning floor plans, design ideas, etc.. I was seriously dreaming about specific floor plans with decks, covered patios, and a daylight basement. I was hooked on the prospect of building my own home, and we hadn't even started yet.

We had some pretty strict guidelines on where we could buy land. Without saying exactly where we live, we live on a sub-peninsula, which is basically a peninsula on a peninsula. It's hard to describe without a map, but we'll just say it's by the Puget Sound. We like our current area because it's more rural, but it's still only 10 minutes away from Costco and Target. We could buy land cheaper if we went out further on the peninsula, but no thanks. As my doctor described that area, it's far enough out that you can hear the banjos playing. Plus, we want to stay in our ward at church, and avoid the sketchy middle school farther out in the sticks. So, the land mass we were considering is fairly small. The first lot we considered was a 1/2 acre sloped lot in a gated neighborhood that also bordered on a small stream. It looked like a great lot for a great price, especially since the septic design was already paid for, the land was already cleared, and a lot of work had been done on the lot, but we had to decline. The house footprint on the lot was only 48 by 34 feet, which is TINY considering you had to have a 3-car garage  and 2400+ sqaure feet for the neighborhood (the minimum for the neighborhood). We would've had to build a 3-story house in order to meet the community guidelines, and that wasn't our idea of a "forever home", so we moved on.

Then, a 3/4 acre lot in a different neighborhood went back on the market (it was previously pending). I got super excited when I found out that the lot already had water and electricity (two big cost items). So, we put in an offer, pending a feasibility study. Since many of you may not have had experience with building a home, let me talk about this.. A feasibility study is a specified time frame in which the buyer can investigate a particular lot to see if it's cost effective to build on that lot. If it's not, the buyer can back out of the deal without penalty prior to closing. A feasibility study includes the following: water, electricity, fire prevention, septic design availability, legal easements on the lot, possible site plans, and building capabilities. I'd already done most of the work for this lot, such as verifying the water and electricity, but we had yet to contact a septic designer to do a soil test (to see if it's amenable to a septic tank) and pick a particular builder.. So, I contacted a surveying/engineering firm to get the soil test done, and I got in touch with several builders (that's a different story altogether--stay tuned). The geologist I spoke with was amazing and super helpful. He looked up the soil info for the lot, the contours of the land, and put together a site plan that included a scale drawing of the house, driveway, storm drains, and septic tank within literally 45 minutes from the time we started talking. It made the process so much less scary to have someone so helpful in the initial process.

Anyways, the only snag we found in the feasibility study was the need for a fire hydrant, which would be $8K(!!!) for the planning and installation. The seller was not willing to budge on the price of the lot despite the fact that the seller owns all of the other lots in the area that would benefit from the hydrant. The other lots close by are not inhabited or currently for sale, so guess who gets to pay for the full hydrant? WE do. Not happy about it. Graham wants to put the hydrant in a place on the street where none of the other lots can benefit from the presence of the fire hydrant. According to county code, even putting in fire sprinklers wouldn't make us immune from having to install the hydrant. Argh. We've considered many alternatives, but it's NOT an option to go without a freaking hydrant. If our lot was over an acre, it wouldn't even be an issue.

Anyways.. financing. This is where buying land or a lot gets complicated. It's not as easy to get a loan for just land/lot, so we had to go to local banks and credit unions. Plus, the interest rates are way higher because of the greater risk to the bank with a land-only loan. I've read practically every article on land loans there is, and we finally found a local credit union through a builder that had our best deal: 20% down, 7.5% interest rate, 20 year term, with a balloon payment at 5 years. Do you know what a balloon payment is? $48,000 due at Year 5.Yikes. That definitely put a strict timeline on us to have our home built within 5 years to avoid paying that giant payment. There were other options, such as 30% down, 20 years, with a lower interest rate, but we didn't have the cash. Another option was 20% down, 8-9% interest rate for 15 years. That monthly payment would've been a little higher than what we wanted due to the shorter term. So yeah, we found the right loan, the right credit union.. and now we just had to wait for the appraisal.

If the appraisal came back as being less than what we wanted to finance it for, we would've had to put more money down, or get the seller to decrease the price. We've never had land appraised before, so it really made us nervous. Plus, the time line was 4-6 weeks out, so it put our closing date out to late January, as opposed to late December. Luckily, the appraisal came back as being $100 more than the selling price, so we were good. Getting the title was another headache, as the communication wasn't great between our lender and the title company. I was completely stressed out a few days prior to closing because the time was passing by so quickly and everything wasn't set yet. However, everything came together at the last moment, and we closed on the land on January 31st.

All in all, it was a stressful experience because it was something completely foreign to me, but it all worked out. But, the stress is just beginning.. We have to sell our house, and move into a temporary place while our new house is being built. I will be blogging along the way, so check my blog if you want to follow along in our process.

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