Everybody Wants Some

Our lack of experience with construction and home renovations coupled with a dearth of information on Accessory Dwelling Units made budgeting excruciatingly difficult.

We solicited opinions from just about anyone who’d give one, but there was nothing resembling a consensus. The information we received from one person about whether we needed to meet certain requirements and what they would cost was often at odds with what we heard from others.

Over time, we settled on approximately $50,000–65,000, which seemed to cover the entire range. We had also watched enough HGTV home renovation shows to know that we should budget at least 10–25% beyond our estimated cost, so we figured we were safe at around $65-70k.

It wasn’t long before we realized that that number — the low end of it, at least — rested on some faulty assumptions. First (and dumbest), just about everyone we were talking to were talking about what we’d pay a contractor. We hadn’t thought about the cost of an architect or furnishing the place. More important, we had no idea how expensive the non-contractor fees would turn out to be.

Here’s a partial list:

• Architect: A couple thousand (thanks to Pegah for the friend discount!)
• Structural Engineer: About $1000
• Planning: $900 for Plan Submission
• Planning: $2000 for a “Certificate of Compliance”
• Planning: $900 County Library fee
• Planning: $900 Sewer Connection fee (ultimately waived for us thanks to a combination of sheer dumb luck and changing regulations)
• Planning: $350 initial building permit
• Planning: $400 (combined) for additional electrical, mechanical, and plumbing permits

We weren’t completely naive; we knew there would be some fees associated with the project, but to see the number approach $10,000 so rapidly was alarming.

Worse still, as we were paying the fees out of pocket, we were also starting to look at the costs of furniture, fixtures and appliances. With a lot of money already gone, we were forced to start thinking about getting a loan much earlier than originally anticipated. We had always planned on using the increased equity in our house to cover our costs, but we faced some unexpectedly hard choices when considering loan options.

While most people we spoke to suggested that we should get a Home Equity Line of Credit (HELOC) to use as a “credit card,” Dan is financially conservative and wary of adjustable rate mortgages (ARMs) as a rule. With a turbulent political climate and interest rates on the rise, he was adamant about an old-school fixed-rate Home Equity Loan.

Unfortunately, it turns out that not a lot of lenders offer traditional loans anymore. A lot of research led us to Philadelphi’s Spring EQ, who gave us a 5.99% that, while far higher than an ARM, was the lowest fixed rate we could find. We did some basic math and decided the monthly payments would be manageable. We had a lender.

Our next problem, however, was that we didn’t want to pay interest on a loan while we were still in any kind of holding pattern. We wanted to be making payments while work was underway, not while the County was reviewing plans, waiting to issue permits (the Certificate of Compliance, which has nothing to do with the ADU itself, took more than three months) or while we were looking for a contractor (Theresa’s cousin had suffered a serious injury that left him temporarily unable to take on new projects).

We were fortunate to receive some generous temporary assistance from our families, who saved the day by fronting some interest-free cash to be repaid later. It wasn’t until the loan was actually funded in January that we realized this had been unnecessary. Our first payment isn’t due until March, so if we had operated more efficiently we could have gotten the loan and possibly only made one or two superfluous payments.

While we had originally wanted a $65,000 loan, we ended up getting $80,000 to remove almost $1000 in loan origination fees and have cash left over to cover contingencies, buy appliances, furniture and fixtures and, of course, to pay back our families.

As the loan process worked its way to completion, we met with a handful of contractors and found someone by referral who had done a number of other garage conversions. We liked his attitude, his ideas and his price, which was a solid $10,000 lower than the competition. The pieces were all in place. We were a few signatures and cashed checks away from getting started.