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Sun, Feb 13
7:00 am

Financing & Building Your Own Home: Yesterday I heard that Fannie and Freddie Mac may be dissolved over the next few years. It will inspire banks and mortgage companies to make better loans, knowing they can't just resell them to the government, but it will also mean higher interest rates and more down-payment needed. So, I thought I'd talk about the financing of building your own house, particulary when you use straw bale.

I have a mortage on my home and I was led to a mortgage broker who knew which companies would lend on them. The mortgage has switched hands several times now and there is a good chance that the original mortgager is no longer in business. I make payments to PNC mortgage. I think the biggest issue to a lender is that you pass all the inspections required in your area and get an occupancy permit. That is the county or city's promise that your home will last for the term of the loan.

We often forget that we aren't just building for ourselves. Even if we have enough cash to fund the construction, we may be building for the person that buys the house from us. I am already looking at retirement some day and wondering if I want to stay out here in the desert or possibly volunteer at National Parks and travel around. So, I possibly would sell the house or pass it along to one of my children.

I mention the inspection process in the book and to summarize, when I got my building permit from Pima County, I was handed an inspection list of 23 inspections and a phone number to call when I was ready for them. There was no information on what they would be looking for during each inspection and I completely blew it on one of the foundation inspections. That's when I hired a consultant. If you don't know construction, you really will need someone who does to at least advise, guide you and recommend sub-contractors or helpers when you need them. I paid for some carpenters who did very little all day when I wasn't watching them, too.

I am very open about how I financed my construction in the book also, but for those who have not read it, you need to come up with enough money to get it built and then once you have your final permit, you can get a conventional mortgage. With a construction loan, you often have a 6-month time limit and this house took me 1.5 years to bare bones livable condition, working very hard every evening, weekend and vacation. I do know some people who convinced their bank that they knew enough about building to be their own general contractor and built with a construction loan, but that was in the old days. I don't think you could do that now. As a general rule, both of those will not let you do the work - the contractor won't want the risk or won't want to clean up after your mistakes and the bank won't trust your work.

I had some money from the sale of another house, but not enough. I sold my car, got out the credit cards, borrowed from my parents and my working son - everything. One of the reasons I began writing was because I really had no idea how much this would cost. If you hire a general contractor and let him purchase all the materials, then he will give you a total estimate. If you do this on your own, nobody can estimate the cost. My greatest savings was not in materials, but in labor and the only way I could do the labor myself was to not have a bank construction loan and a general contractor.

So, if you want to build your own home to save money, find someone who will guide and consult with you for an hourly fee. There are many builders out of work these days or low on work, so it should be possible. Then, draw up a small, simple house, no larger than what I built. I'll discuss the passive solar design in the next blog. Buy recycled doors and windows and whatever else you can. I really recommend you read the book to fully understand what I went through and how I saved money on materials. Earthen plasters are far less expensive than stucco and concrete, but you have to understand their limits. I'll discuss those in future weeks, also. General contractors get discounts on materials, so perhaps your builder/consultant can help you there. If he will loan you tools, that will save you a great deal of money, also. Every job aspect needs a different tool. If you build something that doesn't last, you have just wasted a bunch of money.

I looked at some of the build-your-own-home websites out there and was not impressed. I think they are based on you being your general contractor, but not really based on you doing the work. General contractors get discounts on materials and they have laborers on staff, which saves them money - you wouldn't have either of these. So, I don't buy it.

I think your best bet is to figure out a way to put the minimum down on your land and save your cash for building the house. I recommend finding a piece of land with an old mobile home on it. Live in the home while you build to save money. Try to build the simplest home you can to get your occupancy permit - just do whatever is the minimum necessary to live in it and then use whatever spare cash you get each month to begin the finishing touches. When you move in, you can sell that old mobile home for a little extra cash, too. How great, because then you don't pay 30 years of interest on all that you don't borrow! If you have to borrow to get the house built, then get a mortgage when you are done and pay back your family and friends. =) Interestingly enough, the least expensive construction materials are often those that are best for the environment - recycled and natura - and the most beautiful. Good luck!

Keep it Simple - and be kind!