Mortgage Specialists…
I’ve been speaking with three mortgage brokers about financing the house. Below is their contact info and general synopsis of our conversations so far:
Kao Saechao, Northwest General Mortgage
p: 503-595-4848
Synopsis: Kao has more traditional loan products - refinancing of existing structures, new home loans, etc. Not many options for construction. If we could get the property appraised as-is for $400,000 (unlikely), then we’d be looking at two loans:
1st loan (80%) 320,000
Payment: 1,633 (interest only)2nd loan 40,000
Payment: 275.00
These rates seem quite good, considering that our current loans ($250,000) run us about $1600 per month (interest only). So, for about $300 more per month, we’d have a second strcuture in the backyard. Howeverall of this is predicated on a high appraisal, which would be a stretch. It is a good benchmark, however, for comparisons.
Mike Maguire, Countrywide
p:(503) 806-0113 (cell)
Mike seems to have a similar product as Chuck (below). It’s a single-close construction loan. Mike’s been talking with a Realtor/friend and he thinks the property could appraise at $425-$450 (conservatively). He’s basing it on this math:
- Average per-sq ft price of homes in this area is around $170 (including land). The new structure would value at $136,000 (not counting the garage, which would add more). He mentioned that the value of the land was round 30% - I need to check with him on this. Does it mean that 30% of $170 is the land? If so, then the value would be lower - closer to 95k. Still, with the garage factored in, I’m sure you could get over $100k new value.
- Factor in the appreciation of the property. $25-50k. Perhaps more.
How the loan works:
- Get approval from the city for the ADU
- Develop a FULL set of plans.
- Hire a “special appraiser” to determine the value of the property once the new structure is built. Because there are so many variables with construction (build materials, quality, etc) the appraiser will need full plans in order to complete his assessment.
- Hire a builder. The builder gets certified with the lender.
- Funds are released in increments by a disbursement department. Mike says the funds can be accessed by just me, the builder, or both of us.
- Funds can be applied to anything that’s in the building plan, INCLUDING a new roof for the existing house.
- Like Chuck’s loan, the loan payments can be paid after construction or during the process.
The reality is that it’s looking more and more like the architect’s fees will have to be paid out of pocket - at least for the initial design specs. This is unfortunate, because now we’re looking at $1300 for initial plans, $1200+ for Land use review, and an unknown amount to take the plans to a final, permit-ready phase. Timing is also an issue: Mike says to estimate 30-45 days for closing!
Chuck Banta, Homes123
p: 503-624-5427
It sounds like Chuck has the exact product I am looking for. It’s a combo construction/permanent financing loan. Here’s how it works:
- Meet with a designer and develop a site map and elevation drawing (no interiors needed-see previous post for more info)
- Get initial ADU approval from the city, including adjustments
- Develop a set of working drawings and plans
- Find a builder
- Get the builder approved through Chuck’s company
- Close the loan. The loan is made for the estimated value of the property after construction is complete.
- The builder can then draw money from the account to fund construction (I need to look into this more - I’m not sure I want anyone to have control of the purse strings besides me)
- The house is built
A few notes on this type of loan:
- During construction, there isn’t any cost out of pocket. Instead, this money is paid out at the end of construction, thus making it easier on the homeowner. I need to look into exactly how this works - for example, if your loan closes for $400k, then are you paying interest on the $400k during the entire construction phase? This could add up, and you’d be paying for money you aren’t immediately using.
- Pre loan construction period can be set at a period of 6,9,12 or 18 months.
- The loan can fund between 90-95% of the finished value, so you want to get a HIGHER estimate so that you have wiggle room. For example, if my current house loan is for $250,000 and my new house costs $100,000 then I’ll need a loan for $350k. However, since they fund 90-95% of appraised value, I would need an appraisal of roughly $375k.
- Chuck suggests getting the amount approved for higher than what the builder estimates. This will help cover unexpected cost overruns, which are certain to happen.
- I asked Chuck about appliances. He says that it might be possible to include these in the loan *if* we have them as part of the builder’s estimate. That’s something to think about when factoring in other services/products like landscaping
The rate, if closed today, would be about 6.25%. The rate for a construction type loan is slightly higher because it locks in the rate for a year.
UPDATE: Since first writing this post, the mortgage market has changed DRAMATICALLY. Homes 123 is out of business, and my Countrywide guy is no longer in the picture. I’ll update with new financing info soon.