Tag Archives: Cost

Number Crunch

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Posted on April 15, 2014 by

Embarrassed about the numbers

I am actually still waiting on the appraisal (should know early next week).  This is a quiet time to crunch numbers and prep for the closing on the loan.

I wanted to blog about bank loan numbers and how I made my decisions (in case it is helpful to others), but I am a little embarrassed about how much I plan to spend and about how the new house will be double the size of my current one.

We live well within our means.  We buy used cars and my current one is 14 years old, we don’t own any fancy electronics (we don’t have an i-anything), my wife has a 3 year old laptop and a free flip phone with a minimal plan.  My computer and cell phone actually belong to my work, etc.  We do not try to “keep up with the Joneses.”  On the other hand, I do have a good job with a good salary and regular bonuses.  And the house needs to be large enough to have an office (because I work from home), school room (since we plan to home school) and room for visitors (since our guests come from far away and usually need to spend the night)…

Anyway, my solution is to pretend that I am going for a $100,000 loan so you can see the relative amounts without thinking too badly of me.

Here is the mortgage situation…

In the aftermath of the housing bubble, a lot of banks were severely burned.  The first thing they stopped doing was making construction loans to crazy people who wanted to build earth sheltered homes, especially if they wanted to be their own GC.  There may be a few more doing it now, but back when I was shopping in 2009, there was only one company willing to do it,  GreenStone Farm Credit Services.  They had not played the games and were in very good shape after the crash. We used them to buy our land and now we are just a few days from hearing back on the house appraisal to see if we will get our construction loan.

The Construction loan starts with a 4.25% variable interest rate.   That is normally not something I would risk, but it is only for a year and it has been 4.25% for a very long time.   I would get a line of credit and monthly payments would be interest only (no principle) on the money I already spent.  In June of 2015, the loan would automatically convert over to a 30 year mortgage at a fixed rate without any additional closing fees (they are built into the upfront fees).

There are two problems.

1) Green Stone charges higher interest than anyone else I can find.  At the time of writing, the average mortgage rate for a 30 year fixed, 0 point mortgage is 4.44%.  Greenstone’s rate for the same mortgage would be 5.15%  That makes a big difference in terms of your monthly payment and total interested paid.   When I called them up and asked them why I should pay such a high rate for their loan, they said they offer better service (which is true), and that they wouldn’t be selling my loan to anyone else (which doesn’t bother me).  They also mentioned the patronage program, which has paid about 0.5% back over the past few years, which made their rate half a percent better than it appeared.  They didn’t say it, but I guess they know I am not going anywhere right now anyway.

2) The second problem is uncertainty because we don’t yet know what the interest rate will be 1 year from now when it kicks in.  My insurance guy is pretty sure it will go up, but that is because he wants to sell me something called a “Rate Commitment Fee”.  This fee is 0.75% of the total loan amount and would allow me to fix the rate where it currently is.  We are talking thousands of dollars betting that the interest rate will go up…  I had to crunch the numbers.

Using my fictitious $100,000 loan amount, the “Rate Commitment Fee” would be $750.  So I looked at what the 30 year mortgage would be at the current 5.15%.  I put in a column for monthly payment and one for total interest paid (if I paid for the 30 years).

Of course, I also ran tables for how much quicker it could be paid off if I tossed in an extra few bucks a month (I did a full table with a row for each additional amount).  I totally plan to do that, so I hopefully wouldn’t get hit with the total interest numbers shown here…  I also compared with the lower rate for the 15 year loan which would save even more money, but we decided that while that was doable now, it could make things more difficult if I lost my job (its not flexible enough)…

 

Then I considered what could go wrong…  I created rows where I increased the interest rate to 5.5%, 6% and 6.6%.  I looked at how that affected the monthly payment and the total interest paid. Then I calculated how long (in months) it would take me to pay off the “Rate Commitment Fee” as well as the total savings for each scenario…   The chart looked like this (rough no formatting ;^)

Rate_CommitmentFeeTable

So, what this is saying is that if I pay the 0.75% “Rate Commitment Fee” and the rate only goes up by less than half a percent, I would still end up better off in less than 3 years and I save a considerable amount of interest (nearly 10 times the fee) in the long run.    If it goes up by almost a percent (which is the most that I really think is possible without a major world shift), the fee would be paid off in 14 months and I would save more than 20 times my investment in interest…   In other words, if I think there is any chance that the interest rate will go up, the good bet is to pay the Rate Commitment fee…

So, is there a chance that the interest rate will go up?   I don’t think so.  Obama is working to raise the minimum wage. The natural effect of that would be inflation which would automatically lead to higher interest rates…  But there is nothing natural about an election year.  Obama and the Democratic party will be working hard this year to make sure that the Republicans don’t get to say, “I told you so.” about an inflation until after the election.  Eventually, I expect the interest rate will go up based on market forces driven by a decent economy and increased minimum wage.

So, I do NOT plan to pay the Rate Commitment fee.  But I will want to lock in to a fixed rate before the economic forces to kick in in 2016.

Hedge my bet?

After my construction loan is complete, I will have a normal mortgage on an existing house. There will be lots more banks that would be happy to talk to me.  The “Rate Commitment Fee” is close to the amount I would spend on refinancing my mortgage if I decided to go with another bank…  Other banks are more than 1/2 a percent lower than Green Stone.  So…

If rates go up in a year, I can use the money I didn’t spend on the “Rate Commitment Fee” to pay closing costs to another bank to get a mortgage at a lower rate…  Even if they don’t go up, I may still want to do that…  I’ll do that math when the time comes.

Budget

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Posted on February 28, 2014 by

 

I have been quite busy since the last update, but lets talk about my biggest stress…  The budget!

I will try to follow with an eye candy post later in the weekend.

Budget

If I had a million dollars, this whole thing would be a lot easier.  But as it is, I will need to borrow to make this home a reality, and that means carefully counting the cost.  I finally got in enough quotes that I could complete my budget and get a pretty good total estimate.  It was pretty high, at least relative to my early hopes.   I got a bit depressed about it, but we crunched the numbers with the 4.25% interest rate that my loan officer says is likely, and it is still affordable on my salary, so we press on…  But I will be looking to save money any way that I can.

Some people are really against having a mortgage…  I don’t mind it too much as long as it is my only long term debt (credit cards and other bills are paid off each month) and the mortgage payments are better than rent would have been.  It probably helps that my job (and income) is relatively stable.

Possible Budget cuts?

Windows?

The fancy eyebrow windows came back as about half my window cost.  I could reduce that dramatically if I was willing to replace them with hand cut poly-carbonate (Lexan).   1/4 inch thick poly-carbonate sheets have a decent R value (considering they are transparent) and I can buy a 4×8 sheet for less than 100$, cut and install it my self…  I have had this idea for a while, but seeing how everything has added up has really convinced me that it may be a good idea.

Poly-carbonate is fairly flexible, so I could actually curve the windows to match the curve of the walls.  My only concern at the moment is that they are more than 8′ wide, so I will either need to find someone selling larger sheets or break each window up into segments, which will mean more difficult installation.

Basement?

Could I get rid of the unfinished basement?  I have been tossing this idea around in my head for a while.

While it is true that a basement is a relatively inexpensive way to gain square footage, mostly because it is square footage that doesn’t need an additional roof, it does still need its own walls, floor, and ceiling.  Even an unfinished basement needs electrical and plumbing and that also adds up.   The suspended floor over the basement costs considerably more than the slab-on-grade floor that would be needed without the basement.

A basement also complicates the construction process with a much more difficult excavation, deeper drainage pipes, a more dangerous construction site, etc.

My specific design only called for a partial basement.  I thought that would contain the extra cost to just the area of the basement, but because I have a sandy site, the engineer specified a slope of 1/2.  This means that my 10 ft deep basement will effect the construction for 20 ft around.  I will need much more expensive “step footings”, taller stem walls, two levels of french drains, and probably other things that I have not thought of yet.

Retaining_WallsThe egress window on the North side of the house is causing difficulty with earth sheltering because I need to be a lot more careful about retaining the earth.   It looked good in 2D, but now that I am looking at it in 3D, I am a bit more concerned about the scale and cost of the retaining walls  that will be required to keep earth from spilling into the basement.

My wife was mostly wanting the basement for storage, but I could more cheaply add a few feet to the length of my garage to make up for that.   I wanted the basement for the placement of the mechanical room.  If we got rid of the basement, we could use the location of the basement stairs as a main floor mechanical room, but the central location under the rotunda was important for my passive HVAC design.  And after many years without a basement, Sherri and I both liked the idea of extra “unfinished” space down there to grow into…

You can’t come back and decide to add a basement later.  You need to make that decision from the start of the building process.   On the other hand, as Sherri pointed out, the storm room at the top of the tower is pretty superfluous and we could just decide to leave it off if we ran out of money.  We could also come back and add it later if money became available, so maybe that is the best place to cut?

For now, I think we are going to wait to hear what the banker says about how much they will loan us and then decide what to do.

Sweat Equity

It seems like a number of the tasks are coming in with only ridiculous quotes…  Some, like the precast ribs, the garage Quonset hut and the insulating “umbrella”, I always planned to do myself.  But as I get quotes back, I am picking up more and more of the other tasks.  I now expect to do much of the steel work myself (hopefully with a little help from my friends and family), along with a number of finishing tasks.  Sherri is very concerned that I am taking on too much and that this could stretch out the build and wear me out…  It could also be a great exercise program (I spend too long sitting and typing at my “computer job”).  I also feel a bit like a kid who is getting a new giant sand box, I can’t wait to get out there and play…  But it could get old after a few months, and I am not as young as I used to be…  Something to keep in mind.

Smart little improvements to the plan

There are a number of smart little ways I could improve the plan to save money.  For instance, The people who bend my steel arches charge by the bend, not by the length of the material.   Instead of ordering a number of 90 degree bends for my apses, I plan to switch to ordering half as many 180 degree bends that I will cut in half.

I also noticed that there are a few spots where I can make a small layout adjustment and save a lot of structure.  I will talk about that more next time I show pics from my virtual build.

Water isn’t very expensive

I had liked the idea of buying a 1000 gallon water cistern and installing it between the house and the garage.  It could catch the roof run off and be used for watering the garden.  The problem with many “green” ideas is that they don’t actually make financial sense.  As I have mentioned before, I live in the Great Lakes basin where water is always plentiful (we have more than 20% of the worlds fresh water in our basin).  At current electric rates, it only costs me about 25 cents to pump a thousand gallons from my well.  See the calculation here.   The thousand gallon tank costs nearly $800, but it would be double that by the time it was installed.  There is also the risk that it would break down or become polluted…  I would hate to look at my investment and know that, even full, it was only worth 25 cents, so lets skip it.

I also liked the idea of solar hot water.  But I checked my current bills and I only pay about 20$ a month to heat my hot water.  A decent vacuum tube solar array with the storage tank, pumping station and other odds and ends easily comes to $6000, plus installation.   At 20$ a month, it would take 25 years to pay off that investment.   Plus, it is not exactly attractive on my green roof.

I will set things up to install a solar hot water system some day, but not as part of the construction cost.  Perhaps I will eventually be able to build my own for a lower cost.

As for the urinal in the boys bathroom…  It may not have a rapid payback due to our cheap well water, but the total cost is not high, so I think I will keep that one ;^)

HVAC is expensive

My HVAC quotes came in.  I knew that Geothermal was expensive, from the buried heat exchange tubes to the unit that goes in your house, they are expensive.  But I had a nice back up plan to use the electric (in demand) mini boiler instead.  With its much lower cost and much easier install (no loop field required), I thought it would save enough money to justify the higher operating costs.   Due to the Federal Tax Rebate for Geothermal, it didn’t turn out that way. I put some info about my HVAC sourcing here.

However, the quotes are still very high, so I may take on the easy parts of the job myself.  For instance, I may be able to save money if I install the radiant floor tubes myself.  I am still thinking about it.

 

Arch Forms

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Posted on November 25, 2013 by

Rib_01As you may recall, my design features pre-cast concrete arches to support the heavy earth loads and let me have open spaces without requiring large spans.  I had some old posts about how these will be built, and even my own experiment to build quarter scale models.

I did get quotes on having these ribs done by professional concrete pre-casting companies. One even sent me nice faux stone concrete samples, but when the cost estimates came back, they ranged from $40K+shipping to $80K (with shipping) for the 10 ribs…  I thought that was ridiculous considering that each rib only used about 130$ worth of concrete and less than 200$ worth of rebar.  I asked the companies how many forms they would make and what they would make the forms out of… All three said that 10 was a small order, so they would just make 1 form out of wood…

Obviously, they were charging way too much and I was going to have to take this into my own hands…  I had designed the ribs to be cast easily in a 1ft deep form.  I could do this.

But first, I wanted to make a computer model to figure it all out.

My model revealed that the cost of reusable parts, assuming I went with a rather expensive Melamine base and 2 layers of 1/4 inch smooth plywood for the side walls, would be about $575.  I would probably make 2 in order to cut down on crane visits (the crane will have to come at least 5 times with 2 forms).   Then each rib would require about $350 worth of rebar, concrete, etc.  I also decided that I would need to buy a concrete polisher (wet) ($200) and a sawsall concrete vibrator attachment ($50).

Rib_00_PartsList

All told, that would mean about $1150 for the 2 forms, plus $3600 for the rib materials, plus $250 for tools, which gives less than $5000.  If I add 20% to cover misc, it comes to $6000.   I plan to work out a deal with the concrete company to rent their crane for a reasonable cost.  They currently use it to place pre-cast septic tanks which are about the same weight (35 cuft at 130 lbs each is 4550 lbs, plus the weight of the rebar).

Along the way, I thought about things like layout, materials, form removal, etc.  For instance, I plan to build these on the front half of the garage slab.  I will build the back half of the quonset for use as a shop, and then cover the front half with a large tarp to keep the rain out.  I can then remove the tarp so the crane can pick up the ribs more easily.  I plan to use some #4 rebar to create hooks on the top of the casting.  In order to remove the form later, I will need a slot in the form that I will plug with pieces of scrap insulation during the pour.  For a base, I plan to use melamine sheets that will provide a non-stick surface.  I will then need to polish both sides of the form to get a similar finish on the trowel finished side of the concrete.  I plan to build two forms, one left handed and one right handed…  There are a few different configurations to lay these out next to each other to minimize the space needed, I think I will go with a 24×24 layout that will require 5 sheets in the top layer, 6 in the middle layer and 1 in the bottom.

Here are some pics with a few more details…