Everyone wants to own a new home, but many people are not familiar with the process of buying one. If a person is not familiar with the way that the home-buying process works, they might think that only the super-rich can afford to have a custom-built home. Thankfully, it’s not nearly as hard as it might seem. Once you get over that initial sticker shock, a little research will reveal many ways in which you can finance the construction of a new home. But what do you do next? In this article, we will attempt to give you the knowledge to avoid such a quandary.
Step 1: Get The Money
This will be the most difficult part of the process, as no one wants to part with that kind of money without a lot of hassle. Your lender will certainly want you to jump through a few hoops as they evaluate your potential ability to pay them back. This process alone could take a couple of months.
Once you’ve made it past the initial checks, you need to choose a type of construction loan. There are two types that are commonly offered, and they are called “construction-only” loans and “construction-to-permanent” loans. It works like this: A construction loan tends to expire as soon as the construction is complete, so you will immediately be liable for the whole sum. Of course, most people can’t pay that much money at one time, so you will have to take out another loan to finance the existing one.
If you get both of these loans bundled together from one lender, it is called a “construction-to-permanent” loan. If not, you get a “construction-only” loan, which only covers the cost of construction and is due upon completion. There are pros and cons to both methods, so choose the one that suits your needs.
Using two different lenders will make things more complicated, but it also gives you a chance to compare prices and choose different terms for the two loans. Also, make sure you take a look at the current federal interest rate before you agree to a fixed or variable rate! If the current rate is low, they will probably try to push a variable rate. If the current rate is high, they will probably try to push a fixed interest rate. Don’t listen to the sales pitch: Just look at the current state of the market and decide accordingly.
Step 2: Find A Builder
The next step is to find the right building contractor. Here is where you get into the most potentially dangerous phase of the project. There probably isn’t any threat to your physical safety, but there are plenty of unscrupulous construction companies out there. One wrong choice in this regard can ruin the entire project.
The first thing to do is look at a list of the local construction companies in your area. You can get such a list by doing a quick search on this website. Identify those that interest you for one reason or another, and do some further research. In particular, you need to look them up on the website of the Better Business Bureau, and read as many reviews of their work as you can find. All of this will help to ensure that you avoid those who don’t deserve your business.
When possible, you should ask your family and friends for recommendations on this subject. The best indicator of future work is past work, so it’s a safer bet to choose a home builder that has already been employed by someone you trust. At the very least, this will usually rule out the majority of scam artists. Also, if a certain builder has already built a house for your friend/family member, you can probably get the opportunity to look at their previous work in close detail.
Step 3: Work Out The Design
This part of the design is very important because it represents the main point of a custom home. By having your home built instead of buying an existing one, you are giving yourself the chance to make a living space that is specifically tailored to your lifestyle. You don’t really get that from pre-existing homes, and you never get that from a rental property.
We recommend that you make a floor plan that is based on your daily activities. Of course, every resident will need a bedroom, and you will need enough bathrooms to ensure that people don’t have to run from one end of the house to the other when nature calls. Also, people with large families will certainly want 2-3 bathrooms or more.
Having worked out those essentials, you can now think about custom-purpose rooms. For instance, let’s say you work from home. You might design one particular room to serve as your workshop/office. If you’re thinking more in terms of recreational activities, you might want to add a pool table to one room. People with a lot of pets might also want to make a home design that considers their needs. The possibilities are nearly endless, so don’t be afraid to get creative. At the same time, understand that weird and creative projects do tend to be more expensive. Luxury home builders are accustomed to special projects, but nothing extra comes for free.
Step 4: Work Out A Building/Draw Schedule
As we already mentioned, most people have to finance the construction of a new home, as very few have the money to do it outright. What you may not know is that lenders don’t like to give out all the money at once. To be fair to the lenders, we should acknowledge that there are many shady people who will use loan programs like this as a scam. Sometimes, such people will even go so far as to use fake identities. Because of the large sums of money involved in the home loan industry, it is particularly likely to be targeted.
Your lender will want to space the financing out to coincide with the various phases of construction. For instance, you might get 40% for the foundation-building phase, 20% for the next phase, and so on. While this is more convenient and secure for the lender, it isn’t so convenient for you. You will need to be careful at this stage in the process, as you will have to coordinate the activities of your builder and your lender.
This part of the process is referred to as “draw scheduling,” and the name is self-explanatory. We recommend that you take a quick look at this sample schedule to get a better idea of how this will work.
You need to get good estimates from your builder about how much every phase of the construction process will cost. You should understand that such numbers will be estimates, and could very well be wrong, but you have to start somewhere. We recommend that you add just a little bit of extra money on top of the amount recommended by your builder. There is nothing dishonest about this, as it’s just a little extra padding to make sure you don’t run short.
Step 5: Lots Of Inspections
We have listed this step at the end, but it’s actually going to be necessary throughout the process. Anytime work is done upon your new home, you will need to have that work inspected. You might be tempted to take your builder’s word for certain things, especially if the builder has shown themselves to be trustworthy in the past. However, you cannot afford to take that kind of risk with this kind of money on the line.
But how many inspections do you need? According to most authorities on the matter, you need at least two. The first inspection should be done when the frame of the house is finished. This is a great time to bring in the inspector because the entire structure of the house will be visible. With no walls or ceilings to get in the way, the inspector can better ensure that your home is structurally sound. Without the floors, they will also be able to get a better look at the foundation.
The second inspection is normally done after the home is fully completed. This inspection needs to be a lot more extensive than the first, as there are many more components to check. It is of particular importance to get your electric and water lines certified. Faults in either of these areas can quickly cause massive damage. Faulty electrical installation is one of the biggest fire hazards you could imagine, so don’t overlook any flaws here.
In this article, we have tried to give you a brief but complete introduction to the world of home buying. It’s a world in which you run the risk of losing huge amounts of money, so it is wise to tread carefully. It should also be mentioned that you don’t necessarily have to buy a custom-built home if you can find an existing home that fits your style. When you ask yourself, “Are there any nice new construction homes near me?” Chances are, the answer will be “yes.”
We hope that our work has been helpful to you and that you will be able to use our advice to purchase the best home that you’ve ever had. If you are satisfied that we have done this, please fill out the contact form below. We are always offering new content for our faithful subscribers, so you don’t want to miss out.