Continued from here…
$300,000. That’s the amount that Alaska Pacific Bank was willing to sign over to us at the drop of a hat. During the AHFC homeowner’s class, we were told a simple formula to guesstimate how high our mortgage could reach and our combined incomes topped it out at only $210,000. You can imagine the shock we had when we realized how wrong we were.
We spent that Friday evening going over the large amounts of practically incomprehensible paperwork. The $300,000 loan would be good at 5.5% interest, only 5% down, and the closing costs would be about $10,000. It would have stretched our finances to the limit, but conceivably, we could have taken that loan out on Monday!
The part that gave me the most pause, though, was the schedule of payments. The magnitude of a 30-year loan doesn’t quite sink in until you see the date of the final payment: April 1st, 2036. 2036! I’m picturing the end of fossil fuels, world-changing contact with extra-terrestrials, or at the very least, flying cars! Are we really ready for such a protracted commitment?
We had plenty of time over the weekend to reevaluate our financial lives. Could we afford a waterfront, sunlit house? Would it be possible to build our own home? Should we even consider pushing our limit, or should we look into something we could pay off in a lot more time?
We also started to talk more seriously with other homeowners, and of course, the suggestions started to come in fast and furious. Spend your limit on waterfront – it’s an investment! Get a place with an apartment so that you can rent it out and let someone else pay most of your mortgage! Spend as little as possible so that you have some remaining cash flow for emergencies!
Monday eventually rolled around and we still had loads of enthusiasm. Wanting to capitalize on it, I called our loan officer early and set up a lunchtime appointment so that Oksana and I could ask him a few questions. It was a long wait until 2pm.
Our first question, in its most simple form, was: “Are you serious?” Could we actually afford a loan of that size? Apparently, yes. In fact, $300,000 was simply the amount with which the bank was comfortable – they were prepared to negotiate a higher amount if we found a place slightly over that limit. “How much over?” I asked, then prodded. I was expecting, maybe, $305k. No, $325k.
Wow. I guess all those years of high-balance credit card balances did wonders for my credit.
That afternoon, we also learned that the loan would be good for lot and construction costs if we decided to build instead of buy. We got a discouraging printout of our amortization tables, learned that 5.5% actually translates into 6.1% interest (with the possibility of knocking off a few more tenths of a point for things like energy efficiency), and learned that this offer was good for at least 90 days.
We left the bank, amazed, but with even more questions. What next?
We decided that we should probably go through the process with another bank just to see if they would compete amongst themselves for our business. Who knows? Maybe we could get an even better interest rate. In the meantime, we thought we might look into an option that had never occurred to us – building our own house.
Working at the University of Alaska has its benefits. In the past I’ve helped other employees with their web pages and I hoped that, in exchange for some past web development help, a certain Construction Technology professor might be willing to sit down and talk numbers with us. I got him on the phone and offered to treat him to lunch if he would answer some questions about the Juneau homebuilding market.
He was happy to oblige and, that Wednesday, he joined Oksana and I at the Canton House for an hour or so of chitchat. We learned a lot – most of it bad news for our newfound hopes of building our own home. Highlights included:
• Besides the cost of the house construction and the purchase of the land, there would likely be site preparation fees totaling anywhere from $10k to $75k.
• Small houses are < 1200 sqft; medium are 1200 – 2500 sqft; large are > 2500 sqft
• Savings touted by books such as “The Owner-Builder Book; How You Can Save More than $100,000 in the Construction of Your Custom Home” are overblown. Instead of 25% or more, expect, maybe, 10-15% savings.
• It would take 6 to 9 months to build a house – ideally laying the foundation in the fall, building the next spring/summer.
• Juneau’s typical cost per square foot is somewhere between $125 – $175 (very spendy!)
• Building an apartment over a separate garage would be a good idea, but we shouldn’t exceed 600sqft before coming in conflict with some local, renting regulations.
• There’s a need to be careful with local contractors – especially in relation to a home’s energy rating and durability.
• Cold Climate Construction, Basic Construction Technologies, and other classes will be taught in the fall (and I get free tuition!)
• Basements in Juneau are generally too expensive to construct correctly.
• Decks are not typically included in the price of building a house. Nor are some appliances (such as washers and dryers), nor landscaping.
We wrapped up lunch and thanked the instructor for his time. He promised to send me a binder full of information about building a house in Southeast Alaska and also recommended that I check out a couple books by Sarah Susanka.
Despite the dawning realization that we probably wouldn’t be able to build our own home (yet!), by the end of the week we were still hyped about switching from renters to owners. I got a massive packet via intercampus mail that Friday that did indeed contain some Southeast Alaska homebuilding info: “The Energy & Environmental Building Association Builder’s Guide for Cold Climates.” Receiving it was also a good reminder to look into the Susanka books. I found a brand new twin-pack of The Not So Big House and Creating the Not So Big House on Half.com for a reasonable $35 and ordered them that same day. Finally, I got on the phone and called up Wells Fargo to inquire about getting prequalified all over again. Instead of me trying to get there after work on a Friday, they offered to either fax or e-mail the necessary forms. I opted, as I almost always do when presented with those options, for e-mail, and gave her my address over the phone. Mistake. By the time 5 o’clock rolled around, I realized that I hadn’t received anything in my inbox from them.