Help me plan for building a new custom home FAST

whatupdunJune 7, 2012

I need help sorting out a plan for the next year or so.

We want:

-a .33acre+ lot, upon which to build . . .

-a ~2500sf custom home

as well as

-a new truck

I believe we have enough income that if we get creative, this can all be pulled together by, say, next June.

We have: -$10k savings for this purpose

-all six credit scores for us are 760+

-$1850/mo lease thru jan '13

-$165k projected pre-tax income 2012, which provides . . .

-$30-40k (gradually) available over the next year to save/spend to hit these targets.

We're already paying around $2k/month rent. I'd like to invest that in home equity instead of pissing away over $20k/year for nothing in return.

We want a custom home instead of a tract build because we want the space arranged differently than the plans available in the Sacramento area, where we're looking to buy a lot.

Current debts:

-$19k @1.9% car

-$7k @0% credit ('toxic', but no interest; pay this or save for bigger down payment?)

-~$100/mo student loan payment (quite inconsequential, really)

If we take the $10k and put it on the car, we can prioritize for interest and have that paid off within three months. Then another two months for the credit card (if necessary) and six or seven months to save down payment for new custom home move-in July 1, 2013.

But it won't work like that . . .

We need some help figuring out the cash flow.

It seems like in order to get the house completed for next summer, we�d need to get the lot ASAP, then plan, finance and build the home ASAP.

What steps do we need to take to make this happen?

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athensmomof3

This may have changed over the past year, but most banks when we were looking required you own the lot outright before they would finance a build. Many also require 20 percent on top of the lot owned outright. Why the rush?

Also, if all you have is 10k in cash and you have close to 30k in consumer debt, it seems to me that building a house right now might not be in the cards . . .

I wouldn't think Sacramento would be a cheap place to build - I would think you would need at least 60k cash to get this off the ground.

    Bookmark   June 7, 2012 at 4:13AM
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mgmsrk

"Projected income" � Does that mean one or both of you just changed jobs or just got raises? What was your income for the last 3 years? Were you in the same field?
10K would cover the basic closing costs, not the land or any down payment.
It sounds like you have never owned before. It is always more expensive to build as opposed to buying, more so when most markets are on the low end for preexisting homes. Why not find a house you like to buy?

    Bookmark   June 7, 2012 at 7:50AM
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LuAnn_in_PA

You have only 10K to use.... for a lot, a custom house and a truck ??

A custom house is not for you at this time.
Save, save, save.

    Bookmark   June 7, 2012 at 8:21AM
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babs711

Your main problem is that you want to save money gradually that is less than what you need more than likely. You have to have the downpayment up front. You have $10k and will have $40k. $10k will be more than your closing costs. Most banks require 20% down on the cost of the house and that's after you own the lot already. So if you build a $350,000 house, you'll need $70,000 down right there. There's the rare bank that has 10% down programs but even that would be $35000 down. You'll have closing costs on top of that. And if you don't have a house to sell with any equity to get your cash from, I don't see where this money is in the numbers you gave.

Here they have programs where of you buy a lot and it's not paid off when you start construction, it's the first thing that's paid with your funds but then your construction loan is bigger because your cash paid off the lot.

So you'll be closing on a lot and need 20% for that. Then you'll close on a construction loan and need 20% more for that. And you may need more costs when you convert the loan. You guys don't sound ready. Sorry.

    Bookmark   June 7, 2012 at 9:05AM
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PRO
Epiarch Designs

while most of the above feedback is correct, it also applies to their situations. Shop around at banks. Small town banks and credit unions will work with you and have much more lax requirements. For example, my build only requires 20% of home value to loan, not 20% down. If your market is decent, as mine is, it can appraise higher then the loan, I do not need to put a dime down. If you do some of the work on it, that also counts and helps bring the price down of construction cost. You also do not need to own the land, rather it can be the first draw. it just counts towards your home value to loan ratio however.
THe best thing you can do is take you and your private info to a few bankers and see if your options are even a reality in your market.

    Bookmark   June 7, 2012 at 10:05AM
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kelhuck

I speak from experience:

You need to get rid of the car. Sell it and drive a beater. Don't waste $10k cash on a depreciating car. Put yourself on a very limited budget. Get a part time evening job. When your lease is up, rent an even smaller space. Stockpile all the money you can get.

Then take all your money and snowball it until you have enough for a down payment. (Call your local banks-not national banks- and see what their requirements are; every area is different.)

Once you have the required cash, then you can make a plan to build or buy a smaller, step-up home. With the numbers you posted, you just aren't ready at this time.

Don't let pride stand in the way of fast-tracking your dream; there is much more love and character in a small house you drug yourself thru the mud to get, than a shiny new tract house with mortgage upon mortgage and a shiny borrowed car in the garage.

In the meantime, check our Dave Ramsey. He's awesome!

Good luck!!

    Bookmark   June 7, 2012 at 10:06AM
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pbx2_gw

Posted by lzerarc (My Page) on
Thu, Jun 7, 12 at 10:05

while most of the above feedback is correct, it also applies to their situations. Shop around at banks. Small town banks and credit unions will work with you and have much more lax requirements. For example, my build only requires 20% of home value to loan, not 20% down. If your market is decent, as mine is, it can appraise higher then the loan, I do not need to put a dime down. If you do some of the work on it, that also counts and helps bring the price down of construction cost. You also do not need to own the land, rather it can be the first draw. it just counts towards your home value to loan ratio however.
THe best thing you can do is take you and your private info to a few bankers and see if your options are even a reality in your market.

I agree with most of what lzerarc wrote. Shop around locally & with a CP experienced bank. There is at least one in every city. True CP experience can structure any deal with any $tatus.

In our situation:

We are buying the Land from & having the house build by the same guy.

Our small regional/local bank could have done 95% financing if we wanted to.

Luckily we have the 20% for the entire project but we didn't have the closing.

They structured the deal so we still are getting a 2nd Lien HELOC to fund the closing.
& with rates expected to stay at or below current levels for the next couple years (Euro issue & slow growth in US) they even advised us to take a 1 year ARM because the rates now will be still be here 7 months from now & most likely lower.

But the point is that shop around!
A CP specific banker can make any situation work for you!

    Bookmark   June 7, 2012 at 10:38AM
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auroraborelis

There are some banks where you can get a construction loan with 20% down, though most require 30%. I have yet to find a Bay Area local bank that offers reasonable mortgage rates/fees, and you will likely need to work with a national bank. I suggest US Bank.

You can buy the lot first with 30% down, and then when you are ready to build the equity in the lot will be put towards your cost to build.

All that being said, given the current cost of houses, and interest rates I think you should reconsider your plan. House prices in California are starting to go back up, and by the time you have saved the money to get started interest rates will be quite a bit higher.

You should look into either buying a new home with a national builder where you can get an FHA loan and put down 3.5%, or buy a home which you can remodel to meet your needs later.

    Bookmark   June 7, 2012 at 10:52AM
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worthy

Our small regional/local bank could have done 95% financing if we wanted to.

Looks like no one has learned anything from the ongoing housing bust.

The OP has ten grand and wants to leverage up to a minimum $280,000 worth of wheels, housing and land. Good luck to him!

    Bookmark   June 7, 2012 at 11:10AM
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phoggie

You have so many "wants" on such a limited savings~~
What are your ages? Children? Why not find a "starter" home instead of a new custom one? When you get that first one paid off, you can then move up to something better. It bothers me that so many think they need it "all" right now! That seems to me is what has caused so many to fall into the pits of debt and see no way out....just my 2 cents!

    Bookmark   June 7, 2012 at 11:38AM
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PRO
Sophie Wheeler

Skip "wanting" a new truck right now. That's money down the drain that you can't afford. "Custom" is also a loaded want inducing term that isn't doing your coveting attitude any good here. Look at smaller cheaper existing homes for sale that are available with a Homepath loan and start climbing the ladder from the actual ground you are standing on rather than trying to take a flying leap 3/4 of the way up. People that try that generally miss and hit the ground hard in a big way. Step by step is the way to go, holding on firmly so that you keep your progress.

    Bookmark   June 7, 2012 at 11:56AM
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GreenDesigns

Stop confusing wants with needs. And that's the big stumbling block here. You "want" a lot of things, but you may be surprised at how little you really "need". Take care of the absolute basics, and anything else is superfluous to your goal of owning a home.

Crawl before you run here. Continue saving, and when your lease is up, move to a cheaper place so you can save more. A house note isn't the only thing you'll need to pay when you own your own home. Insurance, little repairs, and furnishing it are all additional expenses, even on a brand new house. Donn't be so focused on affording just the house that when you finally do get there, there isn't anything left over to live in it with. I've known some people who when they needed a new roof, either lived with it leaking or sold to an investor to get out from underneath the house because they couldn't afford the 10K repair expense. Don't aspire to being house poor. It's a really untenable position to be in.

Get rid of the new car and the idea of a new truck. Sell the car and buy something used and reliable like a Honda hatchback that you can still stuff your groceries into. Do the proper preventative maintenance on it, and you most likely will have very minimal actual repairs and they will all be under the dollar figure that you are paying monthly for the privilege of the new car smell.

If you need a truck for it's hauling capabilities, then buy an old beater and keep it parked most of the time unless you need to haul a load of mulch or whatever. Drive something more gas efficient everyday as the primary, and it should be used as well. Trucks milage may have improved over what they were, but they can still pose a significant monthly expense above what an econobox will cost.

Stop eating out. Pack your own sandwiches and drinks. Any habits like smoking or drinking should be eliminated. Pay off your credit cards first and then put any of the rest into your savings.

When you have at least 50K, then you can go land shopping. Or look at existing homes for a better bargain. Your choice, for sure. But, if you choose to build, you'll need to pay off the land first (and it's yearly taxes etc.) while at the same time still focusing on saving enough for a down payment for the home. And, since you want custom, you know you'll be paying roughly 2x the cost of an existing home to get it, so focus on saving 3x what you currently are managing. If you can manage that, then you can have this conversation again in 5-7 years.

    Bookmark   June 7, 2012 at 12:33PM
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lolauren

I know you want someone to tell you a magic way you can make this all work, and you might be able to. However, I don't think it is the best direction, in general...

I think your priorities should be eliminating all your consumer debt first and then start saving. It would be the best thing for you to do financially in the long run. Even your 0% interest credit card is just hanging on to you, encouraging more debt and worsening your financial situation every day it is there, imo.

I agree that you need to downsize your current car w/ the high loan amount left and replace it with a "beater." You don't need that loan hanging around. If you need a truck, buy a used older one that is safe, but nothing flashy. You should buy one you can afford without a loan. If your ultimate goal is a new, custom home, don't put money into a new vehicle that will depreciate. It's a bad investment.

Once you address those debts and have nothing left except the student loans, you should start saving for the house. This really shouldn't take you too long with your income; you just need to commit to doing things in the best order to help you financially. While you're knocking out the smaller items, you'll have time to shop around with builders/banks/floor plans to find what will really work for you. Don't rush anything. Make sure it's all right...

So.... what we did for our custom build was find a builder who would take out the construction loan himself, buy our chosen lot and sell us the house after. This meant we didn't need to buy the lot ourselves or put down 20%+ at the start of the project (or any point, we only needed 5% minimum with our credit union.) I doubt most builders would be willing to do the above, but we had a special situation (that made him very confident with that risk.) So, I suggest you shop around while you're paying off your debt.... find out what all your options are..... do any builders have lots already you're fine with? In which case, they probably offer to sell the homes pre-sale.....

    Bookmark   June 7, 2012 at 1:06PM
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theballs

You will pay $16k in interest the first year on a $350k home @ 4% interest for 30 years. Im assuming $250k for house and $100k for lot.

You will pay $20k in rent to stay in your current place.

"Losing" out on that extra $4k would pay off in the long run in a variety of ways.

    Bookmark   June 7, 2012 at 1:56PM
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auroraborelis

I whole heartedly agree with everyone's advice that the OP needs to save, not worry about the truck, and downsize his expectations.

That said, there are several points that aren't in line with the realities of building in California (or at least the SF Bay area, which in this case I'm going to extend to Sacramento)

- You don't need to pay off the land first, a few national banks will give you a construction loan which includes the cost of land for 20-30% down (including equity in land)
- As far as I know, no local banks offer terms better than the national options
- I doubt anyone can find a contractor in California who will take out the construction loan on the owners behalf during the build.
- My guess is that a 2500 sq ft home on the newer side in a nice neighborhood in/near Sacramento probably costs $450,000-$650,000, and if you can find a reasonably priced builder/lot, and not go overboard on the extras building can cost about the same as buying. Though the catch is you need 20-30% down, whereas you can get a mortgage for an existing home for 3.5%.

    Bookmark   June 7, 2012 at 7:41PM
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krycek1984

I agree with most of the advice here other than the car. In the grand scheme of things, a 19k car note at 1.9% is not a big deal at all. Heck, a brand new Toyota Corolla or Honda Civic can run into the lower 20's. The car loan is really the least of the worries.

Not to mention, most Americans depend on their vehicles as their sole means of transportation, so a newer and/or reliable vehicle is important. I wouldn't trust my daily commute, and my ability to provide for my family, to a "beater".

Lastly, cars in the last few years have become *much* safer than even 5 or 10 years ago. Electronic Stability Control and Side Air Bags are on all new cars now; both of these features have been proven to have profound effects on avoiding crashes (ESC) and surviving a crash (Side Air Bags). It's not worth going back to a vehicle without those features. Your life is more important than a few bucks.

BTW, using the simple and conservative multiplier of 2.5 for what you can afford gives 412k...so you'd probably want something in the 400k range...which means if you need to save a 20% down payment, that's 80k (conservatively again).

I think it makes the most sense for you to purchase a pre-existing home (3.5% down payment), build a little equity in that instead of throwing money away to rent, and then move up to building a home after that. Owning a home will be very satisfying for you, even if you don't build it just how you like. Even better would be 350k so you can save a little for your future custom home, but I'm not sure what 350k will buy you in Sacramento (for all I know it could buy a tiny little house in a bad neighborhood). It would by you a very large house on a nice lot here in Ohio.

    Bookmark   June 7, 2012 at 10:02PM
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whatupdun

Wow, thanks so much for the feedback. There's a huge range of ideas here and more replies than any of the other forums where I asked this question. I'm already getting a better feel for how this needs to be mapped out!

I'm going to challenge some of the responses and explain myself more so we can keep getting closer to where we want to be. If I'm being 'fair', I can see how FAST in all-caps might scream 'SUB PRIME', but it's really just that shooting for a target that challenges me, is when I thrive.

    Bookmark   June 8, 2012 at 6:16AM
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whatupdun

Tract homes are offered here at 0% down. I don't know any more about those deals than you've explained about the 20% 'standard' bank loan.
This will not be a 'rush' job. I put a target out there that some people believe for them is unattainable. I clearly explained how the 30k debt is gone in a year with 10-20k 'savings' right behind it.
My question deals directly with how to best leverage this cash flow. The 'downsizing' feedback gets me thinking in a different and thus helpful direction, but let's stick to the puzzle here on the table.
The question remains: how can we put this together?

Let's examine the $1850/mo home I currently lease. It sold fourteen months ago for $272k. Using a quick mortgage calculator, I see that even with a hypothetical '0%' downpayment, montly mortgage payments equal roughly $1300.

    Bookmark   June 8, 2012 at 6:17AM
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whatupdun

Our income has increased in our respective careers/projects each of the past four years, which would put the average just north of 100k. We both run small businesses and contract independently, basically taking advantage of 1099 income because W2 is for suckers :P

    Bookmark   June 8, 2012 at 6:18AM
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whatupdun

Yours was the first reply, chronologically, that I felt was closer to the heart of my inquiry than a cautionary reminder. Your tip about taking the OP deals to banks to shop around might be the best piece of advice in the whole thing so far.

    Bookmark   June 8, 2012 at 6:19AM
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whatupdun

I'm in the early stages, just dipping my toes into the water to see what this process is all about. Your feedback, like the guy you quoted, falls squarely into the empathetic and useful category -- makes me happy when it starts to balance out!
What's a CP, or CP specific banker?
I'll be making the rounds with local mortgage peeps soon.
Thanks again for the first-hand EXPERIENCE. As much as you care to share about the experience where you feel it might be helpful, it's all appreciated!

    Bookmark   June 8, 2012 at 6:20AM
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whatupdun

Ironic handle.

    Bookmark   June 8, 2012 at 6:22AM
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whatupdun

‘wants’ sounds like a Ramseyism. I’m going to have to check out his work for myself.
We don’t have or want children for the time being, but thinking about building a home that’s attractive to families and the larger market is a concern when deciding whether custom is the way to go.
My reasons for (leaning toward) a new custom home (or maybe something in a tract that I’ll touch up) as of a ‘starter’:
1. Let’s build equity instead of LOSING rent
2. New homes are more efficient, less guessing/hidden problems.
a. Again, I was thinking about the layout with the ‘custom’ pinning, but now more just curious: would it be better for me to do full custom, or just maybe look for a workable tract home and knock out a wall or two.
3. This project is about continuing forward. The one step back for two steps forward comes from things like tightening food and discretionary spending, not from living in a place that feels like re-entering awkward puberty. If we lived in an age when I felt like I had to save 20%+ in order for buying a home to be a +EV decision, I might consider doing just that. My understanding of the loans available to me with my credit and income suggests a huge leap back for a big slingshot forward might be more jarring and actually less productive/efficient in the long term.
4. This IS this is my plan for a starter home, starting to take shape. My dream home would be far grander. Putting my roots down here and now, is that I feel this is the right place to build a platform that can launch me toward that dream. How much better will it be to have 10k in equity after five years or $50k in ten?
Even if I were (able) to downsize my rent by half, it’d save me about 10k a year. But living in a $900 apartment in Sacramento is terrible.
I love this area (it’s my favorite place in the world that I can afford to live at a standard that makes me feel good and growing) so moving away to save up for a home that I might be able to get here later isn’t worth the setback.
I could venture a guess it’s not exactly like that for everyone. Some people can do what we’re doing with ramen noodles, with their bedrooms and home offices. For me, improving my key areas is highly correlated with greater success. Part of buying this home is to have a level of control where this positive relationship can thrive.

    Bookmark   June 8, 2012 at 6:23AM
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whatupdun

This Ramsey-ism hit home more than the others. The truck idea comes from:
1. Needing/’wanting’ a tool for hauling
2. The 10k was initially earmarked to replace wife’s literally melting ’01 Corolla (we own that one outright; jealous?). Discussing this with her, she’s willing to reconsider/reprioritize. We get to the point where she’d be fine with a beater truck and might just want a car, but really the car can wait because I drive us everywhere anyway.
Homepath is all foreclosures, right?
I like your flying ladder leap analogy. Exactly what I don’t want to do here is faceplant onto the concrete. Even though I read implied assumptions in many of these cautionary replies, yours in particular helps me realize that while I do want to sprint to the ledge on the glider I’m building for this plan, there’s a level beyond that where Homepath is about selling the place I sunk instead of me getting a great deal. Your parting sentence reminded me of how I managed my bankroll when I played online poker professionally for a period: the whole game is about managing risk exposure and though you can’t control some of the variables, a solid long-term strategy puts you ahead of everyone else. Are you smart enough to find the line of how hard to push , disciplined enough to ride it and honest enough to assess the ongoing feedback?
You guys have given me more from this thread than I could have ever explicitly asked, and that’s exactly what I expected lol!!

    Bookmark   June 8, 2012 at 6:24AM
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whatupdun

See my replies above for more on why "anything else is superfluous to your goal of owning a home," reveals that I wasn�t clear enough in my OP, you are assuming something false, or more likely, a combination of the two.
Insurance and taxes are included when considering the tradeoffs of mortgage vs lease.
Repairs and maintenance were considered when coming up with the upper limit for lot/home loan at $400k total. The monthlies on mortgage, average insurance and taxes as well as estimates for ongoing expenses are comparable to my current rent.
We built up the furnishings in this 3000sqft place to the point where furnishing a smaller home will be practically negligible.
Not considering selling the car. Explained indirectly above.
Now strongly considering a beater truck. Thanks for that; helped me realize that maybe wife wanted truck because it fit my want for a hauling tool. I can get that on the cheap and she�s willing to reconsider buying a new auto . . . wait, I just said that.
We are slashing out-eating, bargain shopping for groceries and hope to cut the monthly food budget by a third or more.
$50k would buy a nice .33 acre lot I visited a week ago, right next door to a $900k house. The HOA is another story . . .
Tell me more about that 2x multiplier for custom construction?

    Bookmark   June 8, 2012 at 6:25AM
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whatupdun

‘Magic’ implies a certain trickery or defiance of natural order. I’m looking to figure out exactly how this stuff works so I can make the best of it, so more like cold reading than psychic powers, knamean?
My intuition is to also prioritize the consumer debt. I’m looking for details to push me either way, and I bet a loan counselor or whomever banker I’m shopping around with can get me an idea of how to balance my variables.
One theme in so many of these replies is the discipline of taking a step back to take a few forward. Go back to when you were a little kid and anything was possible and consider that the car worked in a similar way: by assuming a reasonable ‘debt’ (such a loaded word, aye?) I created a situation where every single time I go to buy a Slurpee, I feel so good about everything in my life, so grateful, that since I’ve had that thing, I can track improvements in just about every area of my life. The car was really just a symbol of that too, being able to afford it and realizing that it was a good decision for me even if it wasn’t a textbook investment. The car was more of a ‘ladder leap’ and it has worked out perfectly. I’m going to be more careful with the house, but the very reasons I’m able to consider buying a home now dictate that I don’t slash too far.
Crazy, right?
But it’s kind of like I have my own little ‘economy’, that either grows or shrinks. I have to keep pushing myself and this seems like a good spot to apply the energy because the rewards are so numerous. Buying a home extracts extra value/growth out of money that already has to be spent.
Were I looking to maximize my assets, I’d move to the most affordable town in America and just lock myself in my room for 16 hours a day working on my online businesses. There’s a balance in all of this, and mine seems to skew toward a point where it seems frivolous or irresponsible. I hope I can mitigate some of that with all these words and what’s left, I need to keep improving.

    Bookmark   June 8, 2012 at 6:26AM
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whatupdun

With the down %ages, I just have to do the footwork, I reckon.
The price range on that kind of square footage depends quite a bit on how ‘nice’ a ‘nice neighborhood’ might be.
Can someone confirm that custom house loan is going to have to be considerably more down than FHA or other ‘bargain’ down payments?
With that in mind, it’s a no-brainer to consider more of a national builder/tract situation and mold it to my needs, rather than spending more on construction, waiting longer to start and pissing away even more rent money. Especially when there are new homes just waiting with keys right down the street! If it turns out we decide that a custom build is too costly, it’s then time to focus on looking at plans and molding them to our needs.

    Bookmark   June 8, 2012 at 6:27AM
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whatupdun

Good to have another perspective on the car.
You also point to the fact that an existing home appears more tenable than building a custom job, especially from the down % standpoint. $14k on a $400k loan seems very doable, while also paying off the car and credit card.
You're right about the relative prices. My gains in quality of life here compared to my first quarter-century in Virginia more than offset the multiplier. And if I were willing to live anywhere, this thing might end up at 25k words instead of 2500 lol

    Bookmark   June 8, 2012 at 6:28AM
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whatupdun

THANKS AGAIN EVERYONE!
You guys really got me thinking. Looking forward to round three!

    Bookmark   June 8, 2012 at 6:30AM
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LuAnn_in_PA

Well, that was awkward and confusing.....

    Bookmark   June 8, 2012 at 9:09AM
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auroraborelis

Whatupdun - it was difficult to follow your your responses as you didn't reference each posters name in your response, but I think I figured out your general train of thought.

- Regarding down payments on home construction you will either need 20-30% down on the total cost to build, or some banks are more stringent asking for you to own the land outright first. There are no FHA style loans for construction.

- It sounds as if you are still skeptical about requiring min 20% down, if so start calling banks and asking them about it. You'll find very very few even offer construction loans as an option. Start with Wells Fargo and US Bank, also google construction loans and talk to some of the construction loan lenders (they have hirer fees than dealing with banks directly).

- Prices are less in your area than I expected, which puts you in the "it's more affordable to buy and remodel than build" column. While some people do this math and still decide to build, that is because they are building their "forever" home, not a 5 year investment.

- Here is a cost breakdown, your cost to build in Sacramento will be min $150 sq ft, and that is keeping things very basic. Therefore your 2500 sq ft house will cost a min of $375,000 to build, that is not including planning and engineering ($10,000 for engineering, $20,000 for planning), land and permits. If your lot is $100,000k then you would need a $95,000 downpayment, $10,000 for closing, and another $30,000 for planning and engineering.

- Generally you end up buying the lot first at 30% down, paying closing fees, and then refinancing it into a construction loan. So that adds another $10,000 in closing costs you are paying twice. You will also need to refinance from an ARM to a 30 year mortgage at the tail end of construction (unless you are happy with an ARM) which adds yet another $10,000 to your costs. So overall you are looking at $30,000 in closing costs as you are paying it three times.

- If you can find suitable homes for $400,000 you are better off to get an FHA mortgage now at a 4% interest rate. Your closing costs would be about $10,000, your downpayment $14,000 and then you could probably do some very nice renovations for the remaining money you mention saving. Post on here and I can point you towards some affordable contractors in the area.

- As part of your renovations you can add insulation, solar, and anything else you feel makes the house more efficient for less than the cost of building.

- You mention tract homes at 0% down. I didn't know that was possible anymore, but if you are talking about new construction then I would jump on it as you could afford that now without saving further.

- Finally regarding renovations and resale value, given your desires you will need to be careful, especially if you only plan on staying for 5 years, which isn't very long for renovations to pay off. If you find a house that will work discuss your renovation plans with a real estate agent and a designer, and keep plans for how it can be reconverted afterwards. If you take down a wall between two bedrooms, be prepared to put it back up when you go to sell!

    Bookmark   June 8, 2012 at 10:58AM
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beaglesdoitbetter1

You need to show at least two years of reliable and steady self-employment income before a bank is going to lend to you based on it. At least. Self employed makes banks nervous. And they will only count the lowest two years. So don't count on your increasing or projected income qualifying you for anything.

    Bookmark   June 8, 2012 at 12:00PM
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athensmomof3

I think the reason you have gotten so many responses is that most people who can afford to build a custom home in this day and age have much more in savings than you, a higher net worth and many have a higher income. Of course, you can do it with a lower income if your net worth is higher, but it seems that you actually have a negative net worth which doesn't bode well for building a custom home.

As has been pointed out above, banks are very tight with their lending right now due to the housing crash, and it is virtually always cheaper to buy than build. Not to mention that if you buy you can usually eliminate some closing costs and may very well be able to put less money down.

If you want to build a 400k custom home, I think most banks would require around 100k in liquid assets to do so (downpayment and closing costs - most require separate closings for lot and house and perhaps a third closing for permanent loan). If the only difference is 4k a year and you plan to sell in 5 years, you will just barely cover the closing costs of buying in the first place.

    Bookmark   June 8, 2012 at 12:26PM
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whatupdun

LAURA12::

You didn't see your name at the top of two of these replies in bold, to the right of a pink star, one response each for your two posts? :P
This forum has provided me with some great feedback, but the layout, search features and almost everything about the website itself could be improved and made more user friendly.

'Skeptical', maybe. Maybe 'ignorant', 'naive' or 'just starting' plus 'stubborn' (or if we're gonna be friends, 'determined') would more precisely describe my mentality lol. I saw FHA, new construction and other very affordable down % and took that into my want for a custom home, not realizing that the custom requires more up front.

Your cost breakdown is quite helpful and the $150/sqft mark makes sense when I consider the prices I've seen for houses other than ticky-tacky. This one here we're currently renting sold last April sold for something like $91/sqft, and the more I'm seeing, the more I realize how good a deal that purchase was.

I'm now more strongly leaning toward more of a mass construction and I'll be sure to keep asking about any kinds of alterations with regards to resale value.

You mentioned something about affordable contractors in the area?

    Bookmark   June 8, 2012 at 12:53PM
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drewem

anyone else hearing the theme music to Psycho in the background??

    Bookmark   June 8, 2012 at 1:19PM
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whatupdun

I'm glad to have gotten so many objections because it does indeed seem like a custom isn't the way I should go at this point in my life. Like you said, I'll think more about building my dream home once I have a solid foundation (further solidified by owning instead of losing rent).

Taking the custom element out of the equation, my inquiry circles back to figuring out the best course for paying my current debts re:securing the most favorable mortgage.

So since it looks like I'll be buying, not building, should I pay off the car and credit card or would that ~$15k (the amount beyond minimum payments) put toward a down payment afford us better mortgage rates?

    Bookmark   June 8, 2012 at 1:37PM
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auroraborelis

whatupdun - You can get an affordable mortgage on new construction if you are buying from a national builder, not if you are buying land and hiring a builder yourself. I'm thinking that by now you have gotten that message.

I should also say, that I'm building for $150 sq ft, and it is really really difficult in this area.

Regarding contractors, I meant after you find a house and you are looking for specific things, new floors, cabinets, granite, someone to knock down a wall I can point you towards different contractors.

    Bookmark   June 8, 2012 at 1:41PM
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auroraborelis

It sounds like you have gotten to the point where you should be talking to a mortgage broker more than all of us.

Find out what you qualify for right now as a starting point.

    Bookmark   June 8, 2012 at 1:44PM
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whatupdun

Yup, this thread has most definitely served its purpose. I'm clearer on where we need to be now, and it seems like time to begin preliminary mortgage shopping.

Thanks again to everyone for all the feedback and feel free to let me know if there's anything else I should consider.

    Bookmark   June 8, 2012 at 1:57PM
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aa62579

WHATUPUN - As an FYI, I have found most people that have been on this forum ignore the Subject line after the first post. All replies automatically have it the same and there is normally no reason to even look at it.

Common to just put the person's name you are responding to at the beginning of your message or the beginning of the paragraph if you want to respond to multiple people in one post.

    Bookmark   June 8, 2012 at 2:55PM
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lavender_lass

I think you have an excellent idea in paying off your credit card and getting your vehicles paid off. I would do this first, then look at property and houses.

Since it sounds like you're just starting out, I would get all the bills paid off, then see what kind of home you would like...and not have those 'pesky' monthly payments. If you can pay off the student loan quickly that might be a good idea, too.

I understand that you want to get some property and build a home...but do you have kids? Do you plan to have any? Are you sure you only want .33 acres...or does the '+' sound even better? Having a larger lot will give you more options with building and more room for your yard (and kids) if you do have some.

Hope this helps and best of luck with your plans! :)

    Bookmark   June 8, 2012 at 3:56PM
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