What to Expect When Building a Custom Home
The process of building a new custom home is an exciting one. But it is not something that you can rush into. Before you can even stick a shovel in the ground to dig the foundation, there are many steps in the pre-construction processes that need to take place.
Today we’ll go over some of the most important pre-construction steps to help you understand the process. Some of these steps you will be responsible for, others will be (hopefully) handled by your custom home builder.
By understanding this process you can develop a realistic timeframe for the overall construction process.
Finalize Floor Plans
Naturally before you can begin building you want to finalize your home plans with your architect. If you haven’t hired an architect yet we have some ideas to help you with the process.
Your floor plans should be at least 95% complete before you begin construction. According to the American Institute of architects, change orders during construction are an inevitable. Change orders are caused by changes in design or product selection that delays the agreed upon timeframe, or alters the original conttruction plan. If you have worked with a reputable architect who understands your needs and has put together a design that meets your needs, and if you have negotiated a fair and reasonable price with a reputable builder – you should have very few changes orders during construction. Read more about change orders from architect Don Leighton-Burwell of DLB Architects.
Co-author Kevin Daum of the book Building your Own Home For Dummies has this advice:
“Spend three more months with the architect, spend $5,000 more with the architect and spec out every single detail — every hinge, every doorknob, every cabinet knob,”
Financing a new custom home is very different from financing a new home that you are ready to move into. And it can be a long and complicated process to find the right loan program. In most cases you not only need to get a mortgage for the home after construction, you need a construction loan and a loan to purchase the property. You probably won’t be able to get an “all-for-one” loan.
When considering your mortgage options there are three priorities – as the homeowner you want to find the best program to meet your needs; the bank wants to protect their investment; the builder wants to ensure the funds will be there when he needs them during construction. Your financing partner will not only review your credit information, but also the reputation of your builder including the license, and references. This protects your investment, and theirs, by ensuring the contractor is legally authorized to build and has the smallest risk of budget mismanagement, or leaving the project incomplete.
When you are building a new home you want to look for custom home construction loans, like those available from Wells-Fargo. This gives you up to 12 months of construction financing, and when the home is complete you can convert the loan into a permanent mortgage. Some things to be aware of, and understand, before finalizing your financing plan are interest rates. Some loans may allow for interest only payments during construction, which can be a benefit but naturally will not give you any equity at the end of the construction process. You also want to be mindful of interest rate changes during construction – some loans have variable interest rates which can significantly impact your regular payment amount.
You also want to understand the down payment requirements for your custom home. When purchasing land most loans require 20% down payment according to Stephen Roulac of the Roulac Group in San Francisco. When financing the construction process, some lenders claim you can enroll in programs will only 3-5% down payment, but a common rule of them is to expect to put down about 20%, according to Shelle Neupert of PNC Mortgage.
When financing a custom home you also want to understand how payments get authorized during construction. Construction loans are never paid out in a lump sum. As steps in the construction process are completed you, or your builder, will request “draws” from the loan to pay for these expenses. Banks need to approve these draws, a process typically done by sending out a bank authorized representative to review and approve the work. With careful project management you and your builder can ensure work is completed on time, the bank approves it in a timely manner, so you can collect funds to continue construction. Be sure to collect receipts for draws and payments made to ensure your construction loan funds are being management properly.
Are you buying a new piece of property or tearing down an old home to make way for the new? If you are building in a development does your builder have land for sale already? Whether you have chosen a 2-acre lot in your favorite suburban neighborhood or a sprawling 100-acre horse farm the lot you choose will have a big impact on your construction timeline.
There are several steps to finding the right land. First, like the process of designing your home, you want to understand how you will use the land once the home is complete. This will help you develop the right footprint and location for your home. Will you want to build a garage, install an in-ground pool, build gardens or set up a playground for children. See some tips from Todd Vendituoli of www.thebuildingblox.com on site design to help with this process.
In the book Building your Own Home for Dummies, writers Daum, Brewster and Economy, also point out that you want to build a home that matches the property that you are building it on. Try to match the size and scale of the home with other homes in the neighborhood. This is the best way to protect your investment to ensure you don’t pay too much, or lose money on property and home value, over the life of the home.
When it comes to buying land you also want to understand zoning. Although it not very exciting spending a day at the planning and zoning department it will help you understand what property is available for building a custom home, and what restrictions may impact the home you want to build. During this process you can understand the boundaries of the property and what you will be responsible for after construction – for example plowing, road maintenance and the like. You also want to understand the accessibility of the property – will you have to build a road, will utility companies be able to access your site to install services. Read more about lot selection here.
Building permit requirements vary from state to state. But they are an important, and necessary, step in the construction process.
Building permits are meant to protect the homeowner, by creating a checks-and-balances process that ensures a home is being build according to local and state regulations. Each city, township, borough has its own building department. It is important to note that even if your builder is handling the building permits for you, the homeowner is responsible for it.
It can take several days to get an approved building permit so don’t wait until the last minute to apply for one. During the approval process the building department is going to review home plans and specifications and system design – electrical, plumbing, and the like – to ensure the overall quality of the plans is adequate. The person(s) responsible for building permits are not approving the overall design, architects remains responsible for that process. Fees for building permits can vary from city to city
When securing a building permit keep in mind most of them are only valid for a specific time period, so you and your builder should make sure that the home is complete within that time period. Building permits may also need to be amended during construction if you have made significant changes to the design and construction work. Local inspectors will perform intermittent job site inspections to ensure the building process is following the design plans. They are not responsible for inspecting the quality of the work being performed. The builder is remains responsible for approving construction work.
Read more about building permits at Helium.