Tuesday, March 22, 2016

Money & Plans

I'm having so many firsts in this process. ALREADY! We haven't broken ground yet and I already feel like I've experienced a lifetime worth of financial learnings.

Spoiler alert - we're not independently wealthy. Also, this is our first home so we don't have much to speak of in the way of savings. So in order to renovate and build, we knew we'd have to borrow the money. While online research and subsequent horror story findings nearly deterred me, my love for our neighborhood kept me going.

We have a mortgage broker we love to the moon and back who saved our home when we lost funding in the middle of the escrow process when we bought the place. That's a LONG story for another day. She's a superhero and a dream to work with. Write this down for the next time you buy a house: Karin Hammer KHammer@mtgxps.com 503-330-3155 tell her I sent you. If you're even thinking about buying a house, call her. Seriously. There is no one better.

So, I called her to ask about construction loans. Because she's the most caring, honest person in the world - she shared that she doesn't have a product she loves for construction loans and mentioned Umpqua bank. Our architect and a neighbor had also recommended Umpqua unsolicited, so I gave them a call. Sure enough, after much research, they have BY FAR the best product for this type of loan. They're local which I love, so underwriting happens here in town by real people who get that we are also real people. We were partnered with Osha Roller who has been awesome to work with.

Let me back up - the order of things is important. Before we could get the loan, we needed building plans and a builder.

Here's my advice on this: If you're borrowing money to build, trust me, use an architect! Before you even know how much you can borrow, the bank sends an appraiser out. They appraise the current home value and the anticipated home value post-build based on the architect's plans. They send that same appraiser out when you're done to make sure you build what you planned to build with the same quality of materials etc. A builder alone may change his mind along the way. If there isn't a solid plan in place, you risk losing your loan/home/shirt.

I interviewed architects all last summer before finding Keith Abel. He got this look in his eyes when he came to see the house and I could just tell he was excited about it. Knowing what we're undertaking here, I really wanted this to be a passion project for whoever worked with us. He's done countless projects like ours and loves revamping older homes. We spent a couple of months together in the design phase getting it just right. The kitchen reno and the 700 sq/ft addition. Once the plans were complete, they were sent off to the engineer. The engineer takes the plans to an astonishing level of detail - from the size, weight, and circumference of the beams in the ceiling to mapping the electrical.

Meanwhile, we chose a builder. Eric and I really vacillated here. We "know a guy" who is fantastic and we felt that loyalty obligation to give him the work... but at the end of the day, we went another route. I think it's better not to work with friends on something so complex. Also, I felt that the relationship between architect and builder was far more important than the relationship between us and the builder. So, we chose a builder who has done 2-3 builds per year with our architect for over 20 years. Tried and true.

Now back to the money.

So, when we bought the house, we had an FHA loan. People feel strongly in support of and against this type of loan. For me, I wanted FHA because they inspect a home and an agreement a million different ways. As a first-time buyer, I was painfully aware that there were a lot of things I didn't know. I felt the the FHA process kept me from making bad decisions. If I could go back in time, I'd do the same thing.

With that said, with an FHA loan you have to carry mortgage insurance for the life of the loan. In a conventional loan, you only have to carry it until you pay your loan down 20%. If you owe 80% or less to value, you get to drop it. For us, that mortgage insurance was a couple hundred dollars a month, so it was significant. With Umpqua, we were able to refinance the house into a conventional loan and take out a construction loan in addition. Based on our post-build appraisal, this allows us to never pay mortgage insurance on this loan (because the ending value will be worth more than 20% above what we'll owe including the money to build) and we can keep it all in one process instead of refinancing with one bank and borrowing construction money from another. It's a win/win.

It's complicated. We were in "escrow" for sixty days. It involved appraisals - and us crossing our fingers and praying our design plans equated to the end value we needed to not pay mortgage insurance. It involved the builder breaking down the plans into a line itemized budget estimate to make sure we can build all that we've designed for the amount we're approved to borrow. There have been so many moving parts.

Now that the loan is closed, we can request draws. To get the money, we have to submit several different forms stating what we're using it for - and then all parties must sign. So me, builder, plus whoever he contracts for said work - all around the kitchen table each time we request money. We had a conference call yesterday to learn how to do this. I feel like I need to go back to school and major in finance to not screw this up.

Luckily, the bank and the builder have been very patient with me so far. Again, I cannot recommend Umpqua bank enough. I love them so much I have now moved all my checking/savings/line of credit to them. If you're in the Northwest, check them out.

I keep telling myself it will all be worth it... it will all be worth it... it will all be worth it... and in the end, we'll have the same amount of equity in the house as we have now. That's pretty cool. So, it's a good deal no matter how we slice it. It's just a little scary. There are so many factors. So many details that need to pan out in order to achieve the end result within the budget. Prayers and good vibes appreciated.

We'll go from a 1291 square foot 3 bed (but really 2, because one has no closet)/ 2 bath to a 2000 sq/ft 4 (real) bedroom/3 bath. I'm attaching the drawings before and after. I'll tell you more about it in future posts.

Next, we break ground!


The Longbine Group (our family as a company)

Before delving into something known to destroy marriages, bring on bouts of depression and anxiety, and cause financial hardship - we knew we needed to circle our wagons, proverbially. Eric and I planned a date night and sat down over dinner at one of our favorite restaurants (Meriwether's) for some quality time. I confessed to him that I was feeling overwhelmed. As a classic type-A personality, I love having ownership over our household details under normal circumstances. Even in the preliminary phases of this endeavor - appliance shopping, starting the loan process (more on that in my next post), and hiring the architect and builder, I felt the stress surpassing optimal levels. The thing is, it's not like life just stops so we can do this. Meanwhile, I was planning an epic birthday bash for the twins, trading in our two cars for one new car, going through some major transition at work, and winning the John Lennon Songwriting Contest (more on that later). 

"Normally I like being the CFO" I told my handsome husband over my pear martini. "but right now, it feels like a lot. I'm CFO, HR, merchandising, childcare, cleaning and maintenance... and now project manager." 
"Hmm" he said thoughtfully. "I like that. Let's think of our household like a business. So if you're CFO, what am I?" 
"You're COO- Chief Operations Officer" I offered.
"I like that" he smiled. 

And just like that, we had a plan. He would be COO and step up his game on all things facilities and household management. We named our kitten Steve CEO (obviously) - you know, the nepotistic twenty something playboy type who just wants to ruffle some feathers. Older kitty Ella would be head of security as she can most commonly be found guarding a door somewhere and hissing at passersby. The chinchilla would be customer relations as the most social being in our home. Easton we named CTO - Chief Technology Officer since he's clearly the most tech savvy Longbine. Xander will run R&D. 

We had a family meeting and talked through how we'll all be more mindful of this family unit and our respective roles. I'm pretty sure it sunk in. Easton put a finger in his nose, which I am pretty sure means "I'm in" - and Xander stripped down to his undies. 

All joking aside though, I think before any family enters into something like this, it's important to put love and respect first. Keep the family focus. Hold hands more. Hug more. Take more road trips. Laugh as much as possible. That way, the bumps ahead won't feel so bumpy. 

Also, we couldn't do any of it without our "village". Nanny Kamina, Babu, Grandma Sparkle... and everyone who loves this little family.

Wish us luck? 

CFO - The Longbine Group 

PS - Special shout out to Josh and Jessie for naming our company... 

Why? (It's a long story)

I know what you're thinking. Yes, we're of sound mind and yes, we have internet access. So with more horror stories than we could ever possibly read in a lifetime at the ready, why would we decide to renovate + add an addition + live through it all? 

Before I answer, let me take you back to the beginning. Like way back. 

When I was a child, we moved around a lot. With songwriting parents and an adventure seeking Mama, we didn't stay anywhere longer than a year or so. While I wouldn't change a thing about my upbringing, I sometimes wished I wasn't the "new kid" all the time. I always figured whenever I had kids of my own, I'd give them a home they could grow up in... in a neighborhood where they'd have the same friends from pre-k through to college.  However, as an adult my wanderlust came naturally. I moved all the time - finding a job I love with a global company who shared my desire to stay flexible and follow the work. I moved up and down the west coast well into my early 30s - never buying a home because I was afraid to be tied down. I knew someday I'd want to be back in Portland... but when someday came, I was afraid to commit. 

When we moved back to Portland in 2010 pregnant with the twins, I knew we were home. Still, renting seemed like a fine plan. That way, we had options, right? After the boys were born, I wanted to be involved in community service but didn't have time to organize activities - so I joined the Junior League of Portland. They're a community service organization committed to promoting voluntarism and developing leadership skills in women. One night, early in 2013 I attended a JLP training on finances. The expert who facilitated the training had some tough words for me. 

"You're in your 30s and you're not a homeowner?" he asked, shocked and appalled. 
"Uh. Well... I um... I like to move. What if I want to move? Seems like a big commitment... (additional unintelligible yammering)..." 
 "Well, let me give it to you straight" he said, abruptly. "You are never going to retire." 
 "Never?" I asked, in barely a whisper.

He went on to make great points about longterm investments and the importance of real estate. 

That night served as a wakeup call. I realized I had to start acting like a grown-up, at least from a financial standpoint. So a few weeks later, Eric and I set out to find our house. We targeted SW Portland for it's proximity to everything, good schools, and it's low-key and wooded vibe. We stumbled into the Maplewood neighborhood - neither of us ever having known it existed. We found a house we loved and didn't hesitate to make an offer. An adorable little 1300 square-foot bungalow with a detached garage on a big, fenced, grassy corner lot. Was it small? Sure - but it would make a great starter-home. We figured we'd stay a few years and then buy our "real house". Get to know the neighbors, get that pre-market intel when someone was going to sell a bigger home... and voila. We'd move! 

What we didn't anticipate was how quickly home values would rise here - nor how scarce the inventory would be. We were quickly priced-out of the idea of buying a large home in this neighborhood - and by the time we realized it, we were attached. So, we had three options:

1 - Stay in a too-small house in a neighborhood we adore. 
2 - Move out of Portland into the burbs into a big house. 
3 - Turn this little house into our "real house". 

So, here we are. Firm believers in the ideal that location is everything. We're a two-block walk to the twins' fantastic school. Near friends, a cute coffee shop, and multiple parks. We're a quick drive, bike or bus ride from downtown - and an easy 30 minutes from the airport (which for my job, is a must). We have a big lot (over 1/4 acre) in the city and room to build, so what the heck. 

Join us on this wild ride as we live through our renovation and addition project with twin little boys, two cats, and a chinchilla.