Learning from my mistakes…Costly, but valuable!
By David Woldman
I would like to say that I know two things in life. One is how to try not to tick off my wife, and the other is how to manage money. Trial and error is the method that I prefer to use. I guess my wife may disagree but after 13 years of marriage, I think I may have that part mastered. However, just recently in business, I learned a hard lesson.
Let me back up for a second and give you a little background on myself. I just completed my fifth year at SunTrust which is the seventh largest commercial bank in the United States. We have approximately 1,780 loan officer. Last year, I was the Number One Loan Officer Company Wide in terms of dollars originated. I closed over $153 million in Loans and of that, $120 million were construction perm loans.
Now, just so that you understand, this is what I do. This job is my baby. I am an “expert” at it–One of the Top 40 in the country. So when it came time for me and my wife to build our second home, I thought I had all of my bases covered. Boy, was I wrong!
It turns out that I made the same, if not more, mistakes that everyone else makes. This just goes to show that even those of us who think we know everything, don’t.
Thank goodness I used the product that I stand behind everyday. I believe in the product that SunTrust has to offer my clients and I am living proof that they work. I was able to work through my issues without penalty or problem. I didn’t lose any sleep worrying about things that couldn’t be fixed because I knew that SunTrust would take care of me, unlike a lot of other lenders. I’ve been boasting about the benefits of my Construction / Perm loan packages for a long time. For years I’ve been telling my clients that they’re flexible and can overcome any obstacle, but now, I can tell them this through first hand experience.
Generally, the construction process is somewhat unpredictable. No two loans are alike. The contractors that we work with strongly dictate how consistent and smoothly the process will be. 90 % of the time, even when everything is going well, it doesn’t flow quite like we had suspected it would. Here are some reasons why.
Mistake #1: Knowing what you want and being able to articulate it: Not only must you know what you want, you must be able to express that vision to others. A lot of people, including myself, can not visualize a home on paper. Because of this, you may spend a lot of time designing your home and then find out, once it is under construction that your concept of space was wrong. My wife and I spent years discussing the type of Lake House we wanted. We met with Jim Phelps of Carolina Design and had out vision drawn out. Because we wanted every room in the house to look out at the water, the house came out very wide and not too deep. After the foundation was poured and the basement was framed, I realized that the rooms were not deep enough. I had to put the construction on hold, re-design and engineer the home so that I could get five feet more depth, OUCH that hurt emotionally and financially.
Mistake #2: Not spending enough time with the home builder you chose. You want to make sure that the builder understands exactly what you are looking for in the end. You need to work with a builder who understands that vision and will say: “Here is what you’re asking me to do for you. Here is what I can do. This is why the plan is good or bad, and this is what I would do if it were my own home”. Taking advantage of the professional and personal experience of others is ultimately what will help you choose what features mean the most to you and will get you more bang for your buck in the end. Having a builder who understands your allowance limits will save you heartache.
Mistake #3: Jumping in too fast. Always take your time making decisions before your financial clock starts to tick. Make sure you know exactly, well at least 95%, what you want before you start. Be realistic with your expectations and do a little more research. Like checking the price of the appliances you are looking to use, the tile, wood, etc. We blew through all of our allowances because we did not understand the actual costs of the level of detail we wanted. This will help you get through the process more smoothly and with less stress!
Mistake #4: Choosing the wrong loan. You want to work with someone that is in a similar financial situation as you are. You want someone that will clearly review contingencies and alternatives, and by this I mean someone who can address any issues that may arise and tell you everything you’ll need to know to deal with them. Including being able to increase the loan if more money is needed, extend the build time if a delay occurs and be flexible enough to see you through the process. My loan helped me through my process and even though I am going over the 12 month build time, I am not being penalized and/or losing my locked in rate!
How many of these mistakes did I make? Luckily, only 3, unfortunately 3 too many!
For starters, I knew how much I didn’t want to spend and I knew how much my wife and I were willing to spend, so we worked very hard with our residential designer to get our plan down from 5000 to 3700 square feet. When we first bid the job out, it came back 25 percent higher than what I had hoped for and when our builder said we could get the price down, I believed it. The problem is that the cost of items like lumber, concrete and rock are fixed, so to get the price down, you have to cut the frilly things. These were the things that originally enticed us into taking the plunge and building a new home. I mean, really, what is a custom built home without the frills?
For example, in order to cut cost, our tile allowance was cut in half. Then, my wife spent our total tile allowance in the master bath shower. Granted, this shower is fit for a king, and anyone who knows me knows that I sometimes like to call myself one! But what do you do? Cut back or pay for what you want?
My wife wasn’t the only one to “over-do-it” though. Our flooring allowance was about $8 dollars per square foot. However, I fell in love with the most amazing wood floor! I found Antique Wormy Chestnut, it is to die for! As a matter of fact, the price almost killed me, almost three times the allowance.; but it’s mine. Again, there goes the allowance! This, as you can see, can be a problem. Not to mention I completely forgot to budget for the full house media and security system we wanted. Now, in the end, I will have a home any body would kill for, even if I have to work a few additional years to pay it off.
Keep in mind that my wife and I are very happy and we are building our dream home. Even though I am in the industry and know the process well, I made common mistakes. The cost overruns were all self inflicted and I must say that we were warned that some of the things we cut up-front might come back to haunt us. I cut the price back initially knowing that we would go over.
Plus, because of the way my Construction-Perm loan works and the flexibility SunTrust provides, I was able to make it through the process pretty much un-scathed. As I advise my customers, I set the loan up for more than I believed I needed; for a few pennies extra in costs. When I started to go over budget I had the money in the bank to pay for them (due to the fact that I put very little down at the construction close). As I made additional changes, the bank allowed me to increase my construction loan at the same rate! I did one mortgage for the build with NO PMI even though I was at 90% loan to value based on appraised value (100% of cost) during construction. My rate during construction was the same as my permanent rate. My build time went to 15 months and I did NOT lose my rate or pay a fee! And because SunTrust allows their customers to change loan programs or float the rate down for FREE at completion, it appears that I will be obtaining a lower rate!
With out a doubt, I am finding myself a much better lender because of my personal experience. It’s very humbling to know that anyone can make mistakes if uninformed, even when you’re doing something you thought your were an expert at. It’s really comforting to know first hand that if you align yourself with the right person and the right financial product, even the toughest jobs like building your own home, can be a smooth and successful process.
So in the beginning you’ll remember me saying that “this is my baby, I’m an expert”. Now I can say it with certainty. You’re in the right hands letting me guide you because I would never want you to have to learn the way I did…The hard way. The expensive way!
By David Woldman
Mortgage Professional
Blog offered by Craig R. LePage Realty Group Inc.
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