Contractual arrangements

Today we signed a contract with our builder. A big step. After all, we are now depending on Warren and his crew to construct the addition that we, with the help of our architect, have envisioned. Furthermore, we really hope that by the time the construction debris is hauled away we will have spent no more than what the estimated costs are. Ya, Right! you say. Do you have a sister named Dorothy? The process of choosing a builder was challenging to say the least. You really put your (financial) life in their hands, given the ‘cost plus’ nature of the contract. Sure, a fixed fee arrangement is possible, however, with renovations the uncertainty of what surprises are hiding behind existing walls is apparently daunting enough that the hedging of bets makes this option significantly more expensive.



In any event a deposit has been paid and as of June 6th, our building permit has been issued and we are ready to go! Well not quite ready as our (new) line of credit will not be available to us until June 24th. What? This project has been in the works for months and you still don’t have financing in place? To answer this question we must step back in time a year or more. As a long time employee and now pensioner of TD Bank I naturally asked ‘my bank’ to arrange the necessary financing. At the beginning, 18 months or so ago, our plan was (and still is) to borrow the funds to build and then essentially have Blake repay the resulting loan over time. In retrospect it seems I overestimated my creditworthiness when it comes to current bank lending practices. After all, I am just a poor pensioner with very little income. No wonder no bank is keen on lending me much money. BMO, not TD eventually agreed to lend the amount we thought we needed and so we happily carried on borrowing little bits from them here and there as the various professionals – architects, surveyors, engineers, municipalities, submitted their invoices. As the total project costs started to come more into focus during the contractor bid process last month, we realized we needed a higher ceiling on our loan arrangements – just in case. However, BMO was not interested in increasing the existing line of credit as my income was deficient to justify any increase. They were ‘as far as they could go’ without setting up some form of construction financing. Blake suggested we talk to his bank, Vancity Credit Union, to see if they could offer a suitable alternative. Sure enough, a higher mortgage secured line of credit has been arranged. However, it wasn’t the value of the security that allowed for a higher limit, it was Blake’s co-signature on the loan. Without it, we are just a couple of house-rich pensioners. With it, we are still a couple of house rich pensioners, but ones with a line of credit sufficient to make the changes we want. How ironic that it is the son co-signing for the parents and not the other way around. Regardless, it seems a fitting borrowing arrangement given our plan all along has been for Blake and Lauren to take responsibility for the loan. And so a happy ending for financing.

This entry was posted on Monday, June 13th, 2016 at 2:34 pm and is filed under House Renovation 2016. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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