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OUR BASTROP BUILD: The Financial Side

First of all we want to start by reiterating that this process is different for each home build. We should also note that this is for someone that is not self-employed.  That process is different and frankly harder.  One thing we can say about it, is that if you are self-employed and thinking about purchasing a home in the next two years then you should consider how much you write off as that will affect the lenders decisions. Additionally, start yesterday! Ha!

PART ONE: Lot Transaction: We opted to purchase our land BEFORE the building process. There are a lot of different types of construction loans but the one we chose is based around us owning the land prior. For transparency, we chose this option because land in Bastrop was not only hard to find, but the cost to buy was increasing rapidly. Purchasing when we did allowed us to save money as apposed to waiting a few more months and paying more. 

  • Last 2 years of W-2s
  • Last 2 years of 1040 Personal Tax Returns – All Pages, All Schedules
  • Last 2 years of Business Tax Returns (if applicable - - 1120s or 1065, if applicable – all Schedules including K1’s)
  • Copy of paystubs to cover the most recent 30 days (if applicable - if paid every two weeks, please provide the most recent three stubs).  If you are paid on a bonus schedule and you would like to include that as revenue then you must have pay stubs from two different years that shows that bonus. (note: as the months pass by during the transaction, you will have update your lender with the most recent copies. So, if it takes three months to close, you'll provide three paystubs.)
  • Most recent bank statements. (see above about monthly updates)
  • Documentation for other real estate owned
  • Recent mortgage statement from all owned properties
  • Copy of the home owners insurance declarations page for all owned properties.
  • HOA statement showing the monthly, quarterly or annual payment (if applicable).
  • Because of COVID it is important to note that if you are in any sort of forbearance then all accumulated debt from said forbearance must be paid current. 
Here are our loan specifics for the property buy:
  • 15% down
  • Conventional
  • 240 months
My understanding is we wanted to do what we could to get the note as low as possible on the front end.  We would need to start building on the lot in 24 months to ensure that we were built and out of this loan before the interest sky rocketed towards the end of the loan.  

PART TWO: One Time Construction Loan
  • The idea of this loan is to combine your amount due on the lot with the new construction loan amount.  
  • Lender will send out an appraiser to appraise the property using comps in the area as well as looking at your completed house plans from your builder. (THIS IS WHY WE SUGGEST FINDING A BUILDER BEFORE (!!) YOU BUY THE LAND.)
  • Ideally you will want to have your lot and build come in at or above the loan amount so that way you don’t have to come in with any money to offset the equity. (This is not all loans - only the type we did.  Every other loan was requiring 10-20% of the loan amount down. The amount that was required from us was 10% over asking price.  I think it is different for everyone.  ) 
  • You will need to come with some cash to close even if you do the above.  You will need the cash to pay all closing costs associated.  If it appraises for less than the loan amount, you will also come to the table with the difference also. 
  • You will also need to take into account what your escrow account will look like (taxes and insurance)
    • So it is best to do look at some comps in the area and then also call your insurance agent to see what kind of pricing you can get. 

Other Things To Note:
  • Proposed interest rate for both the lot and the construction loan
  • Amount of interest you will pay during the construction process. 
  • Your note for the lot while you do your research
  • Are there any easement issues (build line restrictions or utility lines). Again, this is why we suggest getting a builder on board BEFORE you purchase land. 

  • Because of COVID and the transition of power between presidents, you will now likely be asked to show liquid assets you did not need to account for before. For example, our lender asked to see 12 months of mortgage payments in a bank account prior to applying for the construction loan. So, on a $500,000 home, this total was roughly $50,000. If you do not have this, you will not be able to move forward with the contraction loan. 
  • One other important note, you cannot move money around within the account and immediately move forward with the loan. You must show the 12 months of liquid assets in an account for TWO COMPLETE STATEMENTS aka two months. 

Our Construction Loan Process
Well, it's been just that, a process. 

It's been 36 weeks since we closed on our property. And all 36 weeks we've been waiting and working for today. That's right....WE ARE FINALLY BUILDING THIS HOUSE! Wow, not gonna lie, there were many days where I was convinced we'd never see this day come but GOD IS SO GOOD! 

Here's a quick breakdown of what all has happened the last 36 weeks:
- October 23rd: We closed on our land. This officially means it's ours and we can now move forward with finalizing our plans + applying for our construction loan. 

- November 11th: The day we pretty much never saw coming that sent us down a whole different path. "Due To Covid" (aka the sentence we've grown to hate), we were given new guidelines and requirements we must meet before we can start the process of getting the construction loan. See the CHANGES TO THE LOAN PROCESS DUE TO COVID above for all the details. 

- December-February: These were our "two complete statement months". During this time, we've worked to finalize selections and our overall plan.

- March 18: We got our bid from our builders. Not gonna lie, we were over budget (which we low-key expected). Thankfully, we are in range of where we want to be and will be able to move forward with the construction loan amount. 

Well,  after the Texas snowstorm from you know where, we decided we needed to make adjustments. We went back to the builders and had them add in everything we would need for a generator as well as switch our appliances and water heater to gas!

- March 27th: Final bid came back from our builders with the adjustments we made. (this included some changes to the flooring selections, adjusting the countertops/backsplash, changing the material of the driveway, and adding in all the changes we made with the propane and generator additions.

- May 18th: Drive-by appraisal of our current home happened today. This is something our lender requires. From our understanding, it's just to confirm the home (by looking at the outside only) is worth whatever the proposed appraised values are (equity). The man drove up, took a selfie and 3 photos and that was it. Bye bye $500 but helllooooo one checkmark on the list. 

- June 15th: Appraisal is here! 
Here's a little backstory on how this works: An appraiser that our lender chooses will drive to our land and look at the property itself. They will then look at our plans and compare them to comps in the area. They will then appraise the land + home together and say, "after this is built on this land, we think it will be worth $____. As long as this number is the amount of your loan or higher, your'e good to go. If it's less than what you're asking for in your loan, then you'll be responsible for the extra amount.  FOR EXAMPLE: If you are asking for $500,000 and your property + plans appraises for $480,000 you will be responsible for the $20,000 up front plus the down payment amount which in our case, was 10%. Again, this will all change from bank to bank. 

- June 30th: CLOSING DAY! We did it! Now the real fun begins! Let's build this beauty!

Here's a few photos from June 30th! 
Let's just say this, it was eventful. We locked our keys in the car 30 seconds before we signed the papers. Thankful for the bets neighbor (shoutout Kelli!) for driving an hour to bring us the extra set of keys so we could head on down to Wells Fargo and get our closing costs for the title company. Also a fun note, Eddie took work calls out in front of the title company while we waited for our keys and there was a very chatty rooster who kept forcing him to mute his calls. Hey, at least it'll be a day we never forget.