Let me tell you a little story about our conundrum with the financial wizards from Caja Rural del Sur, our bank. The story starts on the 4th of May when we sent an email to our beloved bank director. 48 hours later we hadn’t received an answer back so we called him. The powers that be had re-assigned him within the bank corporation and he was no longer our liason, nor was he allowed to communicate with his clients anymore. We were re-assigned to number 2 of the office. We asked number 2 if he had ever done a building loan. No, he hadn’t. Mmhh, fingers crossed and hope that he takes the initiative and can learn quickly along the way.
“A banker lends you his umbrella when it’s sunny and wants it back when it rains”
We are using a building loan to finance the construction of our house (“hipoteca autopromotor”).
The bank pays out the loan in stages as each stage of the construction process is completed .
We provided a number of documents to the bank when applying for the building loan, including a draft of the plans for the construction, as well as signed agreements between us and our chosen contractors.
Upon signing the building loan we confirmed the following;
- 27% of our loan we will use to pay off a small mortgage on our land
- The bank will withhold 10% of the total mortgage until the house is fully built
- Which means that 63% of the total loan will be used during the build.
We were up for our first progress payment during the construction period. And as it was the first time we made sure we had plenty of time to sort things out if, or better said, when they would occur.
In the other fruit basket, we have a finance plan and keep track of our spending of the total building project. If we look at the cost numbers we have spent 36% of our construction budget. We asked the bank to arrange a visit from an appraiser and awaited his decision with bathed breath.
Just like our architects, appraisers generally use the cost approach when considering values for new construction homes . The cost approach adds the estimated cost of the land on which a planned home will sit together with the current cost to replace or reproduce it. So the appraiser confirmed the build is 36% of the total estimated value of the building when built. And his estimation is higher than the actual cost. So all in all, great news. The land part is also higher than what we paid for it.
So let’s re-iterate, 36% is related to the money to build or re-build the house. Our pears!
Apple Pear crumble
Now here in “Caja Rural del Sur”, apparently you don’t have to understand numbers when working there. They might as well be pastry chefs as these “wizards” mixed the 36% related to the actual building costs and estimated value together with 63% of the loan. So not even looking at the actual amounts on the invoices that had to be paid to the builders.
I’ll put it in euros to make it more understandable.
- Let’s say we have a 260.000 euro building loan (100%)
- we used 70.000 euros to pay for an old mortgage on the land (27%)
- only when the house is completed we will get the last 26.000 euros (10%)
- which leaves us 164.000 euros = 63%, to receive according to the progress of the build.
We supplied invoices for 92.000 euros which is 36% of the construction build and value.
They took the 36% (of pears) and put it against 164.000 euros (63% of apples) thus giving us only 52.000 euros! So using their logic we would need to spend 223.040 euros to receive 164.000. All because they use a percentage related to pears and apply it to apples.
Solutions to our financial conundrum with Caja Rural
First we tried to make number 2 understand the illogical apples & pears mix-up. I was truly amazed he just didn’t get it. He didn’t understand the numbers nor the percentages.
After that I went to another branch and spoke with another number 2. It was then that I realized that … both are … customer service sales agents and not financial experts. They just follow the manual although they don’t seem able to find me a copy of the general conditions of this type of loan.
Now I don’t suffer fools gladly. I really don’t tolerate having to deal with stupid people or stupid decisions but I will not let it go either.
The morals of the story
- always avoid amateurs, go to profesionals and if the bank that you apply a loan to, has never done a “hipoteca autopromotor” and/or is not willing to actively learn BEFORE the process. Just go to another branch or another bank altogether
- never deal with a number 2 – and I’m not kidding, this f’in’ git, actually has his “title” -number 2- on his business card. “Hola, I’m number 2”. There are only 3 in the office and the 3rd one is the cleaning lady.
- although the people at the Caja Rural bank are very friendly that doesn’t mean they can solve financial conundrums. They might give you a good recipe for apple pear crumble though!