Construction Loan Update: The Facts (it sucks)

Well, I wish I had good news to share about the construction loan, but I don’t. Remember this really long list of work that needed to be done?

Yea, that one. Well most of that work isn’t going to happen. At least not right of the bat.

For the sake of transparency and honesty, let’s get real with the numbers. If talking about money makes you squeamish, skip this post because things are about to get REAL. We are real people with real money, real budgets, and sadly, a real bank.

We purchased the home this past Spring for $64,000. We put down 10% when we purchased the home and then another 10% after we sold our other house. We now have $51,000 left on the mortgage note.

The contractor’s estimate for ALL of the work (demo included, which we have already completed) came to a kind-of-shocking-fell-out-of-my-bed $214,000. Knowing we needed the estimate to be 20% above our budget, we took that to the bank without a lot of fear. We were very confident we would qualify for the loan. This is not me bragging or boasting about our budget, just being real.

A week or so later we heard from the bank and we qualified for 80% of the contractor estimate, $171,200 plus the remaining mortgage bringing our approved total to $222,000.

Now, Ryan and I really wanted to stay under $200,000 from the get go. While we were waiting on the contractor estimate, we also collected estimates for EVERYTHING. It took close to two months to do, but it confirmed we could renovate the entire house for right at $200,000. All of our estimates for labor and materials came in at $152,000.

Then came the appraisal: aka the downfall of this entire project. We had a second appraiser out this past Friday and got the news today that the post-work value of the home was appraised at $148,000. *Insert cursing, jaw hitting the floor, blank stares, and verge of tears*

Based on that appraisal, here is how the math works out.

$148,000 x 80% = $118,400 – our existing mortgage of $51,000 = $67,400 in construction loan

So that’s where we are. We are going to talk to another bank tomorrow to see if we get a higher loan to value ratio (the 80% part). That’s the real facts. This picture best describes how I feel.

Image adapted from the Blog Hyperbole and a Half

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8 thoughts on “Construction Loan Update: The Facts (it sucks)

  1. Wow, this was disappointing news for you, I’m sure. I feel really bad when things don’t work as planned especially with the home of your dreams and making it so. I wish you good luck with the next bank (bank=frustration) but if it doesn’t happen I have to say that $67,000 can definitely get some major stuff done… and then maybe you guys could do the rest little by little out of pocket. I’m sure you’ve thought of all that already but I know you can do it. Fingers Crossed and GOOD LUCK!

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