Why not be an O/B? It's not rocket science....if one on you has the time.

This post was edited by robin0919 on Sun, Apr 27, 14 at 23:26

If the builder knows you have that much cash, they may charge more even on an unconscious level. So I don't think I would mention it. "Checking with the bank" can mean checking on your loans or checking on your accounts.

I don't think it matters where the money comes from as far as the schedule of payments, which should be predetermined and in writing. If anything you have more flexibility if the money is all in your control. And you save the stress and expense of appraisals. Though if there are any issues, the bank could play the "bad guy" and not pay til a problem is resolved.

You should consider an independent home inspector before the final payments to be sure everything seems correctly done from the time you take possession, or even along the way.

We had a home equity loan for an addition. It was both a loan and in our control.

Good luck and have fun!
lafdr

Being an O/B would be nice, but I don't think it's for us. I have a physical disability and I think it would be much too difficult to keep tabs on the work that's being done.

I'm now thinking that it might be better to utilize a small mortgage from the bank while making a very substantial down payment. This will allow the bank to do the appraisals and inspections for draws, etc. I could hire an independent inspector but then my fees would start to climb. I know I'll pay a bit more for closing costs but it might be worth it to have the bank involved and make sure my GC is doing things correctly. I could then just pay off the loan when construction is complete. I'll have to shop around and try and find a mortgage without prepayment penalties. I should still be able to save some money during construction as most of the draw money will be from my downpayment, so I won't be paying interest until the very end of construction.

I think you have to analyze the numbers for several different scenarios. I also think you would need to have total confidence in your builder, and hire an independent inspector to come at specific times- foundation pour, mechanical rough in, etc. I think the inspections would probably wind up costing far less than closing costs plus interest. Besides which a banker is not going to really know if something is done correctly; he'll just see it's done.

Of course there's an opportunity cost associated with taking money from other investments. On the other hand, there's the security of having a paid for house, which would be huge for me.

Jackson, very good comments. Those are pretty much the exact thoughts running through my mind. I'm looking at a 3% rate on a 5/1 ARM. Regarding the opportunity cost, I certainly can't find a guaranteed rate of return on my investments anywhere close to that. But, of course, the stock market has historically done much better than 3%. I'm leaning towards no mortgage simply for the security and freed up cash flow it would provide.

The other big thing that I'm trying to figure out is how much money I would save by hiring inspectors and appraisers on my own vs. paying closing costs with a mortgage. I'm assuming that I should hire an inspector at each draw. My GC would like 7 but I'll probably push for 5. I figure I can get 5 inspections for around $1000. Should I have an appraisal done pre-construction and when it's finished? I'm not really concerned that the house won't appraise for what I'm paying to have it built. But is it still wise to have them done?

The estimated closing costs that the banks are giving me really aren't that bad. Construction cost around $550,000, with a loan around $350,000...closing costs between 6 and 7 thousand. The largest portion is for title insurance. I'm not very familiar with it, but I'm assuming it would be something that I would have to pay for anyways even if I pay in cash?

I don't know why you'd have to hire inspectors. We paid for our inspections when we paid for our building permit...lol. No, seriously, we are GCing our build ourselves and we have called the building inspectors to ask for advice and help on a couple of issues and they are willing to help with anything. They are not there just to pass or fail you on your way to moving in. At least ours are very helpful. Not sure about the rest of the country. My advice would be to 1) Do not tell the GC anything about your finances except that you have been pre-approved for a loan and 2) Get a pre-construction appraisal and list all high-end finishes and use that as your guide for a budget or it could get really out of hand in a hurry.

Well, let me specify a few things that I hadn't already.

1. We have a bid from the GC in hand. We got multiple bids and all were pretty competitive. We like one GC the best and his bid was actually the lowest, but not by much. I kind of expected that because he lives about two minutes from where we're building. The other contractors would have had more travel expenses for sure. We're happy with the bid and feel quite confident we'll be able to stay within the budgeted allowance amounts. We've done quite a bit of price checking already to make sure we can stay within the allowances.

If we have a well written contract there shouldn't be much to worry about, correct? It's not like the contractor could all of a sudden increase the price by $10,000 for no reason. Obviously, there's the unusual circumstances clause in the contract in case they hit solid rock, etc. Other than if we go over our allowances, it's a lump sum contract and the price can't increase, correct?

I thought we might need multiple inspections just to make sure correct materials are being used, etc. I know the GC is supposed to represent my interests, but I thought an independent inspector might be nice to protect our interests.

Oh, and regarding letting our GC know our finances. At this point, he certainly doesn't know we could build with all cash. But, if that's the route we decide to take, I'm assuming we'll have to tell him. I'm sure he'll want to know how we plan on paying for the house. I figured he'd want to see bank statements to prove the assets. Or, he might even want to escrow funds to make sure that we don't spend the money. Again, just because he know we have money, he can't just start making random charges if we have a well written contract, right?

This post was edited by dreamer16 on Mon, Apr 28, 14 at 11:50

I'm not sure dreamer because we are our own GC so we are in a totally different situation. Maybe somebody else could answer on this one. I think I misunderstood. In the first few posts I thought you said you might get a loan and then pay it off after the build and then I thought you asked if you should get an appraisal. My bad, I probably read it too fast and screwed it up. If you would feel better by hiring independent inspectors to check the work then it would probably be the best thing to do. Good luck with your build. Hope to see progress pics on the build thread soon.

Just wanted to add, that from my experience, the Bank Appraiser/Progress inspector is NOT in a position to judge the quality or accuracy of the work being performed. This person is just there to value the build and determine how far along it is. I know my progress inspector from the bank was an ex-mortgage specialist from the same bank and the only other construction knowledge he had was the appraiser's certification. He wasn't a builder or even had experience in it. (and that was really obvious!).

Like JDez, my building inspector from the county was the one who could provide advice (I was an o/b), and he was always very willing to do so. That being said, he only comes out at specific points along the way, so if you don't know what you're looking for, he will either not catch these things (if they're just poorly done but not against code, or if they're now hidden) or he'd make me have them fixed (my plumbing had to be ripped out in one section which cost me all the replacement fittings, and in another section he originally wanted me to do a very expensive bracing on a floor joist that was over-cut...thankfully I knew enough to be able to compromise and just cripple the joists in a few places and double up in others to meet his requirements.

Had that not been the case, I would have been responsible for all the repair costs. You really need to either know what you're doing or hire someone who does. You can't expect the bank or the building inspector to do that for you.

Thanks for the advice. I would be sure to hire a building inspector to do the progress checks. I sure don't have expertise or know what I'd be looking for.

My GC has a very good relationship with the township building inspector. He is well known in the community and serves on the county building association's board. I really trust him and have seen and walked through previous houses that he has built. I guess what I'm saying is that I'm not really worried about getting ripped off but at the same time I'm certainly going to protect myself.

I spoke with a real estate attorney earlier today who estimated that I'd probably save between 5 and 10 thousand dollars during the construction period by avoiding a mortgage. So that's the direction I'm leaning towards now.