Updated: Aug 2
Photography by Visible Style
Let’s talk financing! If you will be paying cash, none of this part applies to you, but there are some helpful tips further down! However, if you plan on getting a construction to perm loan, depending on where you live, you may need to know how we did it. Additionally, if you are self-employed, you can read our tips for getting financed here.
In the state of Florida, it is almost impossible to get financed as an owner builder. There have been too many situations where investors did sloppy work or people took draws and didn’t complete the work that banks pretty much stopped doing owner builder financing. So to fulfill our dream of owner building, without cash in hand, we had to find a way to get financed. Daniel was born and raised in this area and has been in the construction industry doing flooring, tile, and restoration work most of his adult life. So he has very good relationships with a lot of GC’s. One particular one has been lifelong friends of Daniel’s family, so he personally has watched Daniel grow up and knows his character very well. We have also done a lot of work with him, so he knows how we do business and our quality of work. We also explicitly trust him, so we were not worried to give him access to the hundreds of thousands of dollars that had to flow through him. Because of this relationship, we were able to hire him to act as our GC as far as the bank, insurance company and county were concerned. He took a major risk on his shoulders and we were so grateful he was willing to put his name on the line for us. Not everyone will be able to do this, but it worked for us.
We tried to do a USDA loan at first, but they basically just wasted 6 months of our time. We ended up doing traditional financing, working with a regional bank and a lending agent that was absolutely amazing. She knew our situation and walked us through the entire process. Again, she knew us and trusted us to do what we said we were going to do, so she was willing to go to bat for us.
Here is what we learned and how we would be better prepared next time. To get financed, we had to pay off my car and pay Daniel’s truck down. This cost an additional 10k that we were not planning on spending. This in a addition to the money down we had to have, depleted our savings quickly. We received the first draw when we originated the construction loan. This was enough to get us to 15% of the build. We assumed once we got to that point, we would be given the next amount to get us to the next percentage, but no! We were expected to get us to 20% and beyond on our own dime, then get reimbursed once it was inspected. This really put us in a bad spot because we were still running our business, which a lot of times means we are paying for materials and payroll before we actually get paid on a job, but now we were also floating another 20k to 100k in materials for our house. Talk about stressful! So if we were to do it again, we would make sure we had more operating capital so financially things would not be so stressful.
We ended up spending more than we originally planned on spending, which can be contributed to a myriad of factors. Yes, we under budgeted in some areas, but really it had more to do with social media. While collaborations saved us money on finishes, it drove up the cost of other areas of the build because it now needed to be a “Instagram worthy home.” We couldn’t promise companies marketing quality photos and not have every aspect of the home be top notch. So things we might have waited 5 years to finish, now had to be done by the time the house was done. This is not something a normal build would have to worry about, just explaining what happened to us. Regardless, we would recommend have as much cash on hand as you possibly can so whatever circumstances arise, you won’t be caught off guard.
Whether you are owner building or you have a builder, from the moment you start making decisions, you are going to be tempted to upgrade every single thing. An extra thousand or 10% for this or that may seem so small and so tempting, it may offer additional features, protections or warranties that make total sense! But remember, all those little bits add up and while yes, some upgrades make total sense, when you get to the end of your build and its time to decide on the finishes you will actually see every day, you are going to wish you had that extra money to upgrade to better countertops or flooring versus something you are not going to notice for 10 years. We work with so many customers that get to their finishes and have no budget left, so they end up choosing products that do not match the caliber of their home, simply because they are out of money. Just keep the end result in mind and carefully consider your whole budget before agreeing to every single upgrade you are presented with.
It is also very important to do as much research as you can on every single decision to ensure you are getting the best price. We saved tens of thousands of dollars by calling around to various retailers to get different quotes. We always recommend getting at least three bids or quotes to see where they fall. When we were researching our roofing materials, one guy called to give us his quote after a week of preparing it, and his first question was “what was your budget again?” That is a major red flag! Never give someone your budget! You want their best price so you can shop it around! He finally gave us a price and Daniel then reminded him he is a local contractor and the guy immediately took another 5k off the price. He was just throwing out numbers, hoping we hadn’t done our research and would pay what he was asking. We ended up getting it for about half of what his lowest price was. It is also important to remember that cheapest is not always best! Quality labor is worth every penny! However, if its the same product, get it for the best price you can!
Honestly, the financial stress of our build was the hardest part for us. If we had been better prepared with more savings, it would have made the entire process way less stressful. If you are thinking of building your own home, have as much cash on hand as you possibly can! Try to pay cash as much as you can and if financing is a necessity, find a loan officer who will fight for you. If you can’t find bank to do owner builder financing, think outside the box to find way to make it happen.
In my next blog post, I will share how we were physically able to build our own home, with no home building experience!