Mortgage Specialist

Last week I scheduled a meeting with a mortgage specialist from RBC.  Although I am not ready or committed, I needed to know if my calculations were correct so I can start saving.  I also wanted to see their reaction to funding a sustainable home project.

Once again, if you aren't financing your build, save yourself the trouble of reading this.

I have a rather sophisticated spreadsheet I've been working on, which adds up all of my estimates and also takes into consideration family income, taxes, budgets, amortization and other things.  I showed her what I had done, and I didn't actually tell her that it was an Earthship.  I used the term "net zero" home, since this is the buzzword right now.  (In fact, I wouldn't recommend using the word Earthship when talking to mortgage or construction specialists because they have no idea what that is, and they may not take you seriously at first.)

She seemed very interested and of all people in the world, actually knew what an Earthship was.  She totally called me out on it.  Her concern was the "higher ups" who have no idea what it is, how it works or that it's completely safe and functional.  Therefore, she gave me some contingency options.

The first and in her opinion not the best, is the construction mortgage.  My estimates on the draws and the amount of capital and downpayment required was quite accurate.  I was only $10,000 short on my estimate, due to faulty numbers I received from a leaflet.  Yes, for a $400,000 project you do require $120,000 in capital.   Not very appealing.

She also indicated that the higher ups would be very nervous about the home owner doing the contracting, and they probably wouldn't like the idea of them doing some of the work (You know, pounding tires.) Considering how we build earthships, this would be very counter productive and I doubt you'd find a construction contractor familiar with tires and pop cans!   Even so, if we'd like to see these houses become more mainstream, we have to consider that there will be people out there with bottomless wallets who simply don't want to do the work or the contracting.

I inquired at how much a contractor would cost.  She said that normally they run about 3% of building costs.  That's about $12,000 for a $400,000 home (this doesn't include the land prices, just the structure.)  To be honest, knowing how stressful building an Earthship can be, it's almost appealing.   On the other hand, you'd have to find a willing general contractor, and if they aren't too keen, they could end up charging you a "pain in the @$$" fee.  So 6% or more.  That crosses the line for me, I'd rather do it myself.

The second option was to purchase the land.  I always thought that this was kind of a bad option, since you had to put 50% down.  She said it's only 40% down with RBC.  Woopdido with my land prices at $200,000.  But it comes to $80,000 down.  At this point she said that the home owner could complete some of the construction, and THEN apply for a construction mortgage.  For an Earthship, you could do the grading and get done the tire walls.  At this point it might be less intimidating to the bank, since there is more commitment showing.

Unfortunately it doesn't look like this would spare you from having to save $120,000. Funding the first part of the build isn't exactly chump change.  (Water drilling, geological evaluation, gas/electric setup, grading and surveying comes to about $24,500).  After that point, the draws still work the same.  They still give you 60% of the land price for the first draw, even though you aren't buying the land.  So if that doesn't cover your first set of contractor bills, you'd need to save up for the shortfall.  You'd also *STILL* need the 10% contingency fees, plus insurance fees and draw holdbacks.  Other things would change as well, so I hope you like math.  But this is definitely a feasable method, if the bank refuses to lend you money from the beginning.

The third option is to find land with a trailer on it.  Here you are buying land AND a home, so miraculously the mortgage rules go back to normal and all you need is 5% down.  Granted, you'd still save up a huge chunk of change, knowing that the structure will cost $200,000.  But at least if you had a place to live on the property, all of it could be done at your own speed and you might be able to bring the structure price down by doing more of it on your own.  Depending on the country, your deadlines might not be so restrictive.  But I know that here, if you have a trailer and are building a house, the county may want some sort of contract stating that you will remove the trailer after the house is complete, plus all the permits you'd still require.  The bank might finance some of the build as well, but I'm not sure how that one would work.

This whole thing is definitely a gong show and it's understandable why people would want to skip the bank with all these rules and restrictions.  I'm doing this because I'd like to pave the way for average people to own Earthships.  Convincing banks is a huge part of that and someone has to pioneer it or at least prove beyond a doubt that it's impossible.  As previously stated, not everyone is going to quit their job and move out to the boonies to build an Earthship.  That is certainly respectable, but not feasible if we want to mainstream them! I will continue to keep everyone posted on "financing" bits.

Oh and trust me, even if I don't get financed, I will still build one.  But when the construction inevitably gains media attention, I will be VERY LOUD about how useless the banks were.