8 Key Steps To Know Before Building Your Dream Home
Whether or not you’ve bought a home in the past, making the decision to build a home is a different process. We’ve seen many homeowners make the choice to build because of the unique benefits it can bring, including customizing a floor plan and reflecting your specific style. When you decide to build your dream home, remember that you are starting from the ground up and the process is different. Timelines and financing are different, too.
Here’s our high-level overview of key steps (including some overlooked ones) to know when building a custom home:
- Do Your Homework
Your assignment is two parts: First is to find a style. Explore your style options—go to spec homes, watch video tours, check out websites, etc. When touring the possibilities, take note of the home build craftmanship or find a buddy who has an eye for details to look with you. Don’t be intimidated or put off by square footage when exploring. The style and size are two different things, and the more you know what you like the clearer you can be with your builder. Visited a home that you loved? Ask the owner who built it!
Which leads to the second part of your assignment: Find a builder. Depending on your situation and existing relationships, selecting your builder might be straightforward or take more investigation. Either way, our number one piece of advice is to work with a home builder that you trust. Seek referrals or customer testimonials from prior homeowners that the builder has worked with. Check with your Secretary of State to confirm your potential builder has appropriate business licensing. Or you can always ask your lending team for recommendations.
- Know Your Range
It is important to know what you ultimately want to pay for your home mortgage. We strongly encourage getting pre-approved at this early step in the overall process. Factor in taxes to get a more complete financial picture. It’s important to determine what you want to pay (versus what you can afford on paper). Don’t forget about other ongoing expenses and your desired lifestyle when outlining your budget. This information is going to be critical for your builder, as they will want to know what amount you are pre-approved for. Usually, the amount is for the lot plus the home build; if you have a different circumstance (like, for example, you already own the lot) it is important you share this with your builder as they determine your custom build budget.
- Beware Shortcuts
While your friend’s cousin’s coworker’s buddy might sound like a cheaper option for some work on your new home, be extra careful. We have seen many examples where a “shortcut” ends up costing much more than expected.
- Find Your Lot
Make sure not to overlook the process of shopping for and then securing the land for your new dream home. Is your desired lot part of an exclusive builder community or development? If so, does that work for you and your vision? Or do you need to look for another lot option? When you have a builder in mind before this step in the process, you can make sure your needs are met. If you are really customizing your new home, the builder can help you understand if the lot has any restrictions, covenants or homeowner association fees you should know before you purchase. Work with your lending team in order to align timing of closings, as you would ideally have the closing of your lot be the same as the time your construction loan closes.
- Finalize Your Plan
Working with your builder, this is when your home plan is finalized. Whether it’s a blueprint from an architect or your builder’s plan, getting this finalized will allow the builder to proceed with gathering bids and getting costs. You may need to make some adjustments or refine your selections based on your budget. Different materials or modifications to finishes are part of the conversation, too.
- Time of Contract
At this step, your timeline will be outlined and agreed on house details are noted. The determination of draw* scheduling is made, along with the financing approach. Your builder will need a non-refundable deposit, which often occurs at this step. The deposit could be anywhere from $5,000 or 10% of the final home cost, depending on your builder. We recommend the homeowner confirm a few key questions to be confident in the contract and when putting down their deposit. Does the building timeline make sense with the time of year and anticipated weather? What does the builder schedule look like? Are you using a cost-plus financing approach or a fixed price? When all parties are on the same page at this step, the overall build experience tends to go smoother for everyone.
*A draw is an amount of money, based on schedule and loan financing, that is used to fund materials and labor for the home. A draw is taken periodically for work performed and materials needed as home building progress is made.
- Start The Loan
Your lender has all the information in order to get involved, which means a disclosure is completed and an appraisal is ordered based on your plans. This ensures that the homeowner knows the value of what you are building. This likely will take more than a month to complete and must be done before digging can begin (weather permitting) on your new home build.
- Building Starts
The digging begins! Following the appraisal and construction loan closing, actual building is set to get underway. Again, timing is based on the prior discussion with your builder in order to factor in weather, other projects or anything else that would impact the project. Draws are taken based on budget and the previously determined schedule. If you do have changes along the way in costs or details prior to them occurring, change orders should be issued during the build to document all adjustments that are made so that all parties are aware financing is still approved.
At trim stage, pricing should be finalized and the end loan started. Work with your loan officer to determine the loan structure, rates and terms in addition to the final closing date. Funding from your loan may be needed to pay out the builder, so it is important to be clear how your money is being allocated. Once your builder has an occupancy certificate, final payment will be expected.
If you need additional help or are interested in working with us for your lending needs, contact one of our loan officers to get started.
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