The Dream to Build Step 1: Finances & Banks

| Sunlit Farmhouse

How to Build a House

A few weeks ago, I shared with you the details of how and why we decided to move back to our hometown. We are thriving here and so happy with our decision! The farmhouse is coming along nicely, the foundation is in place and framing is starting this week. The build should be completed in spring of this year, which feels both hard to believe and incredibly exciting!

One of my goals during the building process is to share with you as many of the details as I can. It's funny how little we knew about the process. Building a home was a complete mystery to me. How does it work and where do we start? I began to follow some other builds and was so excited to see every new update. If you're intrigued by the thought of building your own home, I hope to demystify the process for you as we find and share our own answers along the way.

And let me just say, if I can do it, you can do it!

First things first - finding a bank.

We weren't sure if we needed a land loan, a construction loan or just lots of cash in hand (?!). So, well before we put our house on the market, we called our bank with lots of questions, and I'm so glad we did! It helped us learn where we needed to be financially and if we would even qualify to do something like build our own home. Turns out, every bank works differently so it's best to call all of the ones you have accounts with, and maybe even a few more. Ask to speak to a loan officer and just start asking questions. Even if you're 1-2 years out from actually building, talking to a loan officer will help you know where you stand and what you'll need in terms of finances to get going. They will most likely need your last few year's tax returns and if you're self-employed (like me!) they'll likely average your income from the last 2-3 years.

We're fortunate enough to have an account with the State Employees Credit Union (David was a deputy for the first year we were married) and they have been a dream to work with. Very easy and accommodating, plus I love how they work their construction loans. Every bank is different, but our SECU gave us several options: we could either get a joint land + construction loan, as long as we had 20% of the land value in cash and 10% of the construction loan in cash. Or, we could pay for the land outright and use it as our down payment for the construction loan. OR, if we already owned the land we wanted to build on, we could have used it as our down payment (wasn't our situation, but might be for you?).

We found out that many banks have you pay a 'mortgage' based on the percentage of money that's been taken out for the construction, so the amount starts out small and grows each month until you reach the final mortgage amount. This is nice, but could make it difficult to manage an additional rental/mortgage payment as well. The SECU gave us the option to pay all of the interest (for the length of the construction loan, either 6 or 9 months) at closing, with NO payments until the house was complete (which we were delighted with).

Asking questions early on let us know what we needed to do in order to make our dream happen. We started saving money and new exactly how much we needed to sell our house for to make it all come together. Once we put our house on the market, we had an offer come in the same week (!!). After minimal back and forth, we went under contract for an amount that we new would help us build the home we wanted to. Upon closing, we immediately put the profit into a savings account we had been building to secure it and make sure it didn't begin to slip away with day to day expenses (<< that's essential!).

Soon after the house went under contract, we began thinking about where we would live once it sold. For us, the best solution was to move into an apartment my parent's had. We've heard of people renting, living with relatives, living in an RV, even camping during a build! We knew moving into the apartment would meaning living small, but saving BIG which would be so helpful during the process. 

During the 6 weeks before closing on our house, we really stepped up our game in the search for land, which is what I'll talk about more tomorrow. Stay tuned!

In this series:

Finally Going Home to Roost
Finances + Banks
Looking for Land
Designing a Home

Choosing a Contractor coming soon
Breaking Ground coming soon

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Comments

  • This is fabulous, Bonnie – so enlightening. I purchased a new home last year, and for the first time, trusted my self-employed income to go on the application. For me, that was a huge step so I’m very proud of you for boldly charging down this uncut road! I am so excited to follow this journey.

    • Lisa, that’s amazing! I’ve been enjoying following along with your journey as well. Good things happening!

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