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Page 1 of 5 Financing Your DomeCreative Financing For Your Dome:SECOND EDITION© American IngenuityYOUR GUIDE TO THE CONTENTS
FINANCING:
THE MORTGAGE ROUTE:
APPRAISALS 14 YOUR MORTGAGE & THE U.S.GOVERNMENT 15 FINDING THE RIGHT MORTGAGE LENDER 16 BEGIN THE ELIMINATION PROCESS 17 PRESENTATION 18 UNDERSTANDING THE JARGON 19 A STARTING NOTE...You are an individual - a creative individual. You feel it is time to invest in your own home - one of the best investments to be made. But you've been looking at the new homes currently being built and you feel they're missing something. You are not impressed. That's because the one-size-fits-all house just doesn't fit you and your family. You want more from a house. A home that will work for you. Increase your investment. One that will express your individuality. The established construction industry is set up to turn out mundane little boxes that are all alike. They just can't deliver what you demand. You've decided a dome is for you. You've let your mind wander ahead and imagined all kinds of wonderful things about your new dome: Your family snugly gathered about the great room fireplace as you orchestrate a feast from your efficient new kitchen. A huge Christmas tree soaring up in the cathedral ceiling. Gazing at the stars through a skylight as you drift off to sleep. Even the thought of designing and building your dome is enticing. It's like the ultimate model airplane kit, compelling crossword puzzle, intriguing science project, and magnificent sculpture all rolled into one. But now, what about the where-with-all to build this spectacular new dream home? Where will it come from? Considering sources for financing your new home can be overwhelming. But don't let all the ins and outs, odd language, and intimidation of the financing dragon put you off. You're determined. You're creative. You're special. You're going to be a dome owner. Let's talk money. PLAN THE COST OF YOUR DOMEIf you are likely to need financial assistance to build your dome, think about the Lender's point of view while you are selecting a floor plan. Stay close to the 3 bedroom, 2 bath concept which has the highest demand on the resale market. Although you may never sell your dream home and may not care about the resale value, the Lender and the Appraiser consider it very important. The more money the Lender contributes, the more they will want to see money spent on a resalable design. Omit the custom designs until you are sure there is money for the basics. Once you have a floor plan in mind, it's time to figure what it will cost you to build your dome. Remember that the price of a dome kit represents only a part of the total cost of your new home. You must also take into consideration the cost of:
Using cost estimator's guides from your library, bookstore, or kit supplier, price out the cost to build your dream home. In order to do that, you will need to know what you would like to have in your home. The most direct route is to make two lists: a Wish List and a Need List. Wish List: The Wish List is everything you'd really like to see in your home (built-in cabinets, stone exterior, Italian tile floors, etc.). A scrapbook or file folder to collect all your notes, pictures, and articles will be helpful. Not all will survive but for now consider them. It might be more practical to add them after you've moved in. Need List: The Need List is made up of all those needs that are vital to your new dome. Check both lists to see if items might be moved from one to the other. Put the most important items at the top and the real extras at the bottom. Price out the items on your lists and see just how much fits into your budget. Items from the bottom of your Wish List will be cut or compromised first. If your Need List exceeds your budget, then see what can be changed:
To keep everything realistic throughout the planning of your new dome, list what finances are available to you:
THE MANY ROUTES TO YOUR DOMEYour dome can be built with cash, loans, sweat equity, lots of creativity, and most likely, a combination of them all. Different sources of financing have varying costs, but keep in mind that even the most expensive route to your new dome will save you money in the long run. You'll be investing in your own home rather than your landlord's. Don't ever be afraid to ask questions, to educate yourself, to take time to discover just the right source of funds. Patience has its rewards. Explore every avenue. Don't rely solely on your current banker, horoscope, or your "good old Uncle Charlie" to find financing. Consult the experts: books, builders, lenders, and yourself. Information on home financing is easy to obtain, financing is not. Like a race, the better prepared you are, the easier it will be. This booklet will get you off to a good start in the right direction. If some of the terms in our discussions are baffling, flip to the back section "Understanding the Jargon" for a definition. HOME EQUITY LOANYou may be sitting in one of the best sources of funds - your current home. If you have a small mortgage on a home in a neighborhood where property values have risen over the years, you already have easily accessible mortgage money. It is easier to get financing on an existing house than new construction since the lender's risk is less. Sources for home equity loans are banks, savings and loans, credit unions, home loan companies, and mortgage brokers. You will follow all the same procedures for obtaining a loan, with one exception. You will not need a construction loan, so you can eliminate all the paperwork having to do with it. Credit Line Banks, savings and loan, or other loan companies usually offer a credit line or personal loans secured by the equity in your current home. The larger the equity, the larger the loan. Credit lines are often advertised to be used for home improvements such as pools, additions, or remodeling, although they could be for your new dome, the lender may process a 2nd mortgage on your home. Refinancing You may be in the position to refinance your home with a larger mortgage. If your equity is large enough and your construction budget is small enough, you can pay off the current mortgage and have sufficient funds left over to pay for the construction of your dome. If your equity is smaller, you may still have enough to refinance or obtain a second mortgage for working capital to augment funds from other sources such as family or bootstrap financing. A definite advantage is that having a large, assumable mortgage on your home may actually help to sell it once you have moved into your new dome. Potential buyers will have lower closing costs and less processing time than with a new mortgage. FAMILY FINANCINGIf you are in a special family with a strong relationship, you might approach them as a source. You'd much rather have someone you love receiving the interest from your mortgage. Remember in all your discussions to be just as professional as with an institution. Treat Aunt Martha and Uncle Henry with as much (or more) respect as the First National Bank. Make your presentation to them providing many of the same documents like you would other lenders. Suggest they look it over and take time to make their decision on the investment. When terms are agreed upon, put all the agreements into an enforceable written contract that can be referred to in the future. You never know when Uncle Henry might die and Aunt Martha's memory may fade. Protect yourself and your benevolent relative. You might approach your family for just a short-term loan, which combined with some bootstrap financing, could see you through construction. Once your dome is completed you will have an appraisable property, rather than just plans, for a lender to consider. Then use the proceeds from the permanent mortgage to pay off your loans to your relatives. Be sure to be conservative and accurate in your cost estimates. You want to avoid any possibility of getting in so deep to the relatives that a permanent mortgage can't get you out. With any family financing - whether it's a large permanent mortgage, or a small short-term loan - keep everything in a business perspective. STAGE FINANCINGSome families build a complex of domes, one at a time, spreading the construction and the costs over several years. With stage financing you finance each dome's construction separately as it is completed. You can use family financing, a home equity loan, bootstrap financing, a construction loan, or a combination of financing methods over the years to complete your dream dome complex. For a lender considering you for a construction loan, stage financing has the advantage of building confidence in your construction abilities and loan payment history. The combinations and time frame are uniquely flexible with domes. Since each structure is self-supporting and stands alone, a main dome can be built, then additional domes can be built at any time and simply linked to each other. For example, start by building a single dome with a great room, kitchen, bedroom, bath, and an upstairs sleeping or guest loft. Then, as your family size increases, enlarge your home to include a second dome with a laundry room and additional bedrooms or a grand master suite. Also, as savings increase, add a screen dome and a garage dome with an office or family room loft. As your needs and finances grow with time, you can build additional domes to adjoin the main dome. Stage financing is a great way to spread costs over a period of time while using it as a weekend retreat. Build a small cabin-sized dome at first, then add to it during vacations. It's a satisfying way to spend your time away from home and office, especially if you are the creative owner-builder type. Financing As an owner-builder, you could even manage to pay for the construction of your new dome out of pocket as you go. Impossible you say? Think again. Hundreds of families finance their domes this way, and you can, too. You just build more with your brains than your billfold. It is not the easiest or quickest route to a new dome, but it just might be the most satisfying. Build up a sizable nest egg through frugality and put yourself on a strict budget both in living expenses and building costs. If you don't absolutely have to have it, forget it - and spend the savings on building materials. Put all you can into a building fund. Give up habits like eating lunch out - brown bag it instead. Time is your biggest ally, since the more time you take, the more opportunity you have to save. Patience is needed, but don't take so long that your dream fades. Short Term Loan Don't overlook the opportunity to ease cash flow over a short term during construction by granting you a short-term loan using credit cards, a credit line, or a home equity loan. The extra expense of their higher interest rates may be justifiable because you eliminate many costs associated with a lower interest mortgage. If you can also save the time and money associated with renting inefficient housing and looking for contractors and lenders, the higher interest loan may cost less. However, their justification can be lost with large amounts that take too long to pay off.
If you have not yet purchased your building site, look for properties where the seller will finance all or part of your land purchase. Offer to make payments to the seller. Having an attorney who represents both of you prepare the papers will put the seller at ease and be a worthwhile investment. You may have several offers on different properties rejected before you find a willing seller, but you'll have your financing. Sweat Equity Put as much sweat equity into your home as possible by doing as much of the labor as you can. The more you and your family can learn to do, the more you can save. Visit the library or a bookstore for a full range of understandable books on all phases of construction. Also, much instructional material is now available on videocassette. Time is your biggest friend. With no lender to please, you can take as much time as you can afford to give to the project. Building Materials Your construction dollar can go a lot further than you ever imagined if you just put your creativity to work. Search and scavenge classified ads, garage sales, and lumberyard back lots. Look for:
There are lots of bargains out there. You'll really be surprised at the special touches you can add without busting your budget. You can also save a great deal on materials that are just as serviceable, but lack the decorator touch. You may scoff at this, saying you don't want to live in a home with $10 porcelain light fixtures instead of $100 brass ones, but think about it. Mortgage Free Home If you and your family build your dome using bootstrap financing, you will give yourselves a rare gift to be proud of - living in a mortgage-free home. Instead of making payments, you can make improvements.
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