merlin3942
Recycles dryer sheets
- Joined
- Jun 9, 2014
- Messages
- 67
Need some "perspective" from the collected wisdom of this board in making a decision of how/whether to proceed with a new home-building project. We contracted with a builder for our "Florida dream home" last year in August. We've purchased a lot, designed the home, and went through the "color selection" process (flooring, countertops, lighting, etc, etc) and received a grand total price. Secured a mortgage (construction loan that will automatically convert to a 30-year fixed once the home is completed) at just under 3%.
Last week, our builder notified us that, due to the unprecedented rise in material and labor costs, the base price of our home has risen by nearly 12%, and of course they want us to pay that difference upfront (construction has not started yet - delays in permitting, engineering, truss design, etc). We were told upfront by the builder this might happen, but we only budgeted for about a 5% increase, which seemed pretty safe at the time.
If we were to cancel the contract and walk away now, we would get back about 60% of our initial deposit from the builder, and the downpayment from the mortgage company (less their processing costs). Lot prices in the area have also risen dramatically over the past year, so we think we could probably sell the empty lot and come close to "breaking even".
We could come up with the extra money, but I'm nervous about having to sell more of our investments right now with the market at its current level. (The additional amount represents about 4.5% of our total retirement portfolio, but we've never come close to withdrawing that much in a single year before - more like 2%). We do have sufficient funds to cover this sitting in a Roth IRA, so at least we wouldn't be hit with additional income taxes on that amount if we pull it from there - just hadn't planned on tapping that account yet (or perhaps ever), and it's invested in about 80% equities.
Looking back now, I can't imagine a scenario where our timing for this project could have been any worse (except we did lock in a relatively low mortgage interest rate just in time). If this were a "normal" economic time, I think we'd probably proceed. I suppose if we do, and worse comes to worse, we could always turn around and sell the new home once it's completed (this is a "vacation home", and was never contingent on having to sell our primary home).
Thoughts?
Last week, our builder notified us that, due to the unprecedented rise in material and labor costs, the base price of our home has risen by nearly 12%, and of course they want us to pay that difference upfront (construction has not started yet - delays in permitting, engineering, truss design, etc). We were told upfront by the builder this might happen, but we only budgeted for about a 5% increase, which seemed pretty safe at the time.
If we were to cancel the contract and walk away now, we would get back about 60% of our initial deposit from the builder, and the downpayment from the mortgage company (less their processing costs). Lot prices in the area have also risen dramatically over the past year, so we think we could probably sell the empty lot and come close to "breaking even".
We could come up with the extra money, but I'm nervous about having to sell more of our investments right now with the market at its current level. (The additional amount represents about 4.5% of our total retirement portfolio, but we've never come close to withdrawing that much in a single year before - more like 2%). We do have sufficient funds to cover this sitting in a Roth IRA, so at least we wouldn't be hit with additional income taxes on that amount if we pull it from there - just hadn't planned on tapping that account yet (or perhaps ever), and it's invested in about 80% equities.
Looking back now, I can't imagine a scenario where our timing for this project could have been any worse (except we did lock in a relatively low mortgage interest rate just in time). If this were a "normal" economic time, I think we'd probably proceed. I suppose if we do, and worse comes to worse, we could always turn around and sell the new home once it's completed (this is a "vacation home", and was never contingent on having to sell our primary home).
Thoughts?