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Let the New Year Begin

January 3, 2012

Happy New Year! We took an unofficial break from working on the house for the last two weeks or so, and I feel like the break was much needed. We weren’t making a lot of progress, the weather was awful, and sometimes you just need a break. At any rate, we’re back now, and I have several update posts for this week to catch you all up.

The biggest news (to us) is also the wordiest news: we got a loan from the bank that will allow us to finish the house! I’ve been keeping mum on this issue since Mr. B didn’t want to talk about the loan until we got it,  but we signed the documents while we were on vacation, and it is 100% official.

This construction loan is a big deal for us because for a long time it seemed like we wouldn’t be able to get one. Here is the whole story in condensed form:

When we first started planning and budgeting for the house, we knew we would be short of money to finish the house, and we also knew that we wouldn’t be able to get a construction loan because we didn’t want to hire a contractor. Thanks to our family, we were able to get a land loan for the property and a large portion of the money we would need to build the house. Although we would be short, it seemed worth it to go forward and figure out how to deal with the shortfall later. Fast forward not too many months (about October), and we were running short on money and not nearly as far as we had hoped to be on the house. Because the house is still not a livable house (no bathroom, appliances, or bedroom), we weren’t eligible for a home equity loan. Our two options were to either go forward putting very little money into the house each month, or try to get the house appraised and take out a construction loan.

Since we now had a house to show banks, we were able to find two local banks willing to consider a construction loan with Mr. B as the contractor (they were previously unwilling since Mr. B doesn’t have a contractors licences or a history in construction). The next roadblock was getting the house appraised. Since we are building a straw bale house, this was actually a major issue. Our house doesn’t fit neatly onto the forms commonly used in appraisals, and the first bank’s appraiser was unwilling to commit to a value for our house. Another problem with straw bale houses and appraisals is that usually a comparison needs to be made between your house and three other similar houses that have sold in the area recently. Many people we contacted suggested asking them to compare our house to non-traditional homes (log, SIP, etc.), but (a) the appraiser didn’t consider log homes to be non-traditional (it is Montana), and (b) it is pretty much impossible to search real estate listings by insulation type (straw, SIP), making past sales difficult to find. We talked with a banker in Oregon who had financed straw bale in the past, and he told us that banks and appraisers just aren’t willing to go out on a limb right now after the financial crisis.

We ended up contacting a private appraiser in the area who has experience doing written (rather than form) appraisals. He told us that this type of appraisal is better when you have non-traditional building methods or when the materials being used are unusually expensive, like high end commercial spaces or high efficiency homes. Although he didn’t know about straw, he was willing to spend the time learning about the material, and was also willing to try several methods of comparing our home to other recent sales. This type of appraisal is more expensive than a standard appraisal, but I feel certain that he could have gotten us the loan from the bank.

Then, out of the blue, we got a call from the second bank telling us that our appraisal had happened and they were happy to give us a loan. This was surprising since we had never heard from the appraiser (they usually call when they come out to your property), and the bank and appraiser didn’t have an issue with straw bales. I suppose that is an anti-climactic end to the story, but we’re happy with the outcome.

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