Thinking of Building a Home?
Thinking of Building a New Home?
Before you make the decision as to whether you build a new home or buy an existing home, you should first understand the building process. Knowing what to expect from your builder as well as having Laura Lahti as your Realtor can help you achieve your goal with the least amount of problems.
Do I build or buy an existing home?
Many people who build a new home do so for a variety of reasons:
- After looking at existing homes on the market, they realize that what they want is not available, so building becomes the logical choice. This allows the buyer to choose the style, size, colors and the specialty items they would like.
- Buyers today want little or no maintenance, energy efficient homes with modern amenities, such as master bedroom/ bathroom suites with whirlpool tubs & custom showers, fireplaces, theater rooms and custom kitchens with solid surface counter tops.
- Many people purchasing new construction do so because they feel it will be the best investment for their money.
When is the least expensive time to build?
The cost of construction continues to go up every year, so the phrase “there is no time like the present” certainly holds true. The cost of materials continues to rise every year.
In most areas property taxes can be a savings to you if you begin construction shortly after January 1st. For instance, if you start construction the first of the year and complete your home in April. You will pay taxes on your lot only for that year. That could save you several thousand dollars by not having to pay taxes on your existing home for 8 month
How long before my home is built?
After deciding on a house plan that meets your needs and price range, you will need to set up an appointment with the builder. Your first visit will involve answering any questions that you may have about construction, obtaining prices, and deciding on a lot that will fit your needs. Lots are not always for sale through the MLS (Multiple Listing Service) and many times Builders are aware of lots for sale or own lots you may not be aware of. When your lot is found, a floor plan is decided, and the cost of the building is agreed upon, a contract is signed between you and the Builder. This contract is needed to take to your lender to start financing while the Builder starts drawing your custom home.
Your contract may contain several contingencies that will need to be satisfied before beginning construction on your home, such as:
- The offer may be contingent upon obtaining financing.
- If your plans are not drawn yet, the offer maybe contingent upon you agreeing to the plans and specifications. Your final plans will list all the materials used to build your home, and the allowances that are given to you for things such as lighting fixtures, flooring and landscaping. You also may want to seek out a designer.
- Upon your final approval, your plans are signed by you and an appraisal is done by an independent appraiser from your lender.
- The offer may also be contingent upon the successful closing of the lot you have chosen. You would not want to close on the lot until you are sure that your plans and financing are satisfactory to you.
- If you are building in a subdivision, you will have to meet the requirements of the deed restrictions and architectural approval from the Developer.
These contingencies are to insure both you and the Builder will not build your home until both parties are satisfied with the cost and terms of the contract. It usually takes 4-6 weeks to remove the contingencies and close on your lot. Once the building permits are obtained construction should start.
After you have signed your plans and specifications, you will select things such as style and color of flooring, cabinets, counter tops, roofing, siding, windows and plumbing fixtures.
How long before my new home is complete?
Your custom home can usually be built in (120 days) 4-6 months, depending on the builder. There are a few variables that can change the length of time needed to build your home. The first is weather. Digging and pouring your basement needs to be done in favorable weather. If it rains or snows for several days in a row, this may hold up the digging process. If it is extremely cold and the frost is deep in the ground, construction may wait a few weeks before digging.
Once the actual basement is in, construction can continue year round. Your Builder/Realtor will keep you informed as to the progress of your home so you can plan your move accordingly.
Should I sell my home first?
There are 2 alternatives:
- I can put your home on the present market while you are having plans drawn and obtaining financing on your new home. Hopefully during this 4-6 week period you will obtain a satisfactory offer on your present home, and you can start building as soon as your buyers obtain financing and you have a cash offer on your home.
- If you can qualify for your new home mortgage without selling your present home. You could start construction and hopefully by the time you have completed construction, your present home will be sold. This is normally available to people who have a very small mortgage on their present home, and have 20% down (in savings) so they can afford to start construction
Which Comes First: The Lot or The Floor Plan?
This is a question that varies depending on your needs. If you have a specific style of home or floor plan you want to build, then you need to find a lot that will allow you to build that type of home on it. If you are looking for a certain area to build in and lots may be limited, then we will help you determine what style or styles of homes that will best suit your lot. It’s best to look at lots and floor plans.
When looking for a lot for sale, it is in your best interest to have your Designer or Builder look at the lot before you write an offer. The lot that you have chosen may need fill or even removal of dirt that would be additional cost to you. Having your Builder inspect the lot will help you in determining the true cost of your lot. If you would like to write an offer on the property and your Builder has not had an opportunity to see it, you should write the offer contingent upon the Builders inspection.
What should I look for when looking at lots?
The most important thing to look for when looking for a lot is the location. Prices of homes vary depending on the location, and it is important to keep the resale value in mind. When choosing a floor plan it is also important to think of the resale value on the used home market, always think of your home as an investment, and you want to make a wise one.
When choosing a lot in a certain subdivision, it is important to ask for the deed restrictions that will affect the property. Look for the minimum square footage requirements. This will tell you the size of the smallest ranch, 2-story or multi-level home that can be built in that subdivision.
The deed restrictions for a subdivision will almost always require architectural approval. This is to insure that the house you are building will not affect the subdivision. The developer wants to insure that there are not several of the same houses built in a row which can lower everyone’s property value. This is for the benefit of everyone in the subdivision.
When you are looking for lots, wooded lots generally attract buyers first. Unfortunately they are difficult to find and are generally more expensive. So keep in mind that by buying a less expensive unwooded lot, you can afford to have your yard professionally landscaped with fairly good sized trees and have them planted where you want them.
How do prices vary from builder to builder?
It is fortunate that we have so many competent Builders in our area that can build in a variety of subdivisions. So you not only have the choice of the floor plan that you want, but the Builder to build it.
The saying “You get what you pay for”… holds very true in new construction. The more you customize your home, the higher the price. Changes cost money because it costs the Builder more to make them. Your Builder knows floor plans that are livable and resalable. You should rely on your Builder to help you when choosing a floor plan.
Receiving bids from several different Builders is sometimes confusing and consuming. Each Builder has their own way of pricing their models or giving bids and this can confuse you when receiving prices that seem to differ from Builder to Builder. When comparing base price with different Builders, you may receive 2 bids several thousand dollars apart from the same exact house. The difference in price can usually be found in 2 areas:
- The first area is the base price. One Builder may give a price for just the house itself and not include such things as carpeting, landscaping, driveway, fireplace, cost of drafting plans or even the construction cost a Builder might have to pay. When meeting with a Builder, always ask what is included in the base price and what things you will be required to pay.
- The second area is the materials used and allowances given to you. One Builder may use oak trim throughout while the other does not. There can be a price difference in cabinets, flooring, insulation or even workmanship in your home. It is important you meet with the Builder to discuss these issues. When talking to a reputable Builder you should feel more comfortable about the prices given and the workmanship. These Builders have worked hard to maintain good standing in the business and this should be important to you when choosing a Builder.
How does a construction mortgage work?
A construction mortgage may seem complicated to those of you who are not familiar with financing, and fortunately your lender will be doing most of the work for you, but here is an explanation of the process.
A construction mortgage is a short term load obtained to finance the construction of our home. It is almost always required where the buyer owns a lot or is purchasing the lot himself. In these cases the buyer need to obtain his end-loan mortgage as well as his construction mortgage. This is usually done at the same time he applies for his end-loan mortgage. Most lenders will take care of both loans. You in fact are hiring the Builder to build your home. You own your home during construction vs. the Builder owning the home. You, with the help of your lender, will pay the Builder for the work done as the house is being built. This is done in the form of a draw.
There are usually 3 draws made by the Builder through your lender during construction. The first draw is disbursed when your home is framed and the roof is on. The Sub-contractors who did the work and supplied the materials used to do the work need to be paid. The Builder would notify you and your lender that a draw is needed and upon inspection of the premises to insure that the work was in fact completed, the Builder is paid for that portion of the construction. The Builder would then furnish lien waivers to your lender showing that the sub-contractors had been paid. A draw is the money which has been paid out of your construction mortgage that has been set aside for the construction of your home. As money is taken out the pay the Builder, you are billed interest monthly for that portion of money used. You only pay interest on the amount that has been paid out. This interest paid during the term of the construction can range (ask your lender, this amount is generally around $600-$900).
The second draw is made when your home is dry walled and the third is upon completion of your home. When the Builder is done and is paid the last amount of money due to him, then your construction loan comes to an end. At this point you start your normal mortgage.
If your builder is the owner of the lot you have chosen to build on then the Builder obtains the construction financing. This is called turn-key construction. In this case you purchase the home from the Builder when the home is completed. The Builder owns the house and lot during construction and is building it to your specifications based upon the contract you have signed with the builder.
Step 1: Weigh the Pros and Cons
Nothing beats the feeling of being the first person to live in a newly-built home. Everything is shiny and untouched.
You can buy a brand-new home in one of three ways: buying a house already built on spec; having a semicustom home built as part of a development (you can choose from a set palette of finishes and upgrades); or having a purely custom home designed and built to your specifications.
But before you get caught up in the sparkling new paint and granite countertops, evaluate your situation and see if new construction fits your lifestyle. Here are some questions to ask yourself, particularly if you fall within the first two methods of new-home buying:
· New homes are typically far from the city center; will you mind the commute?
· Are you willing to coax a new lawn into existence, and can you wait 20 years for sapling trees to mature?
· Will the cookie-cutter nature of new subdivisions drive you bonkers?
· New houses tend to be built right on top of each other. Do you mind the closeness and potential lack of privacy?
Step 2: Research Neighborhoods and Builders
When buying in a new subdivision, consider working with a buyer's agent who knows the area well, can set up home tours and walk you through the closing process. When researching real estate agents:
· Remember, the listing agent works for the builder, not for you. They're trying to hit a quota, not help you make the right decision for you and your family.
· Many states regulate how agents deal with new subdivisions. If you have your own agent, tell him up front that you're interested in looking at new homes. He must accompany you on your first visit to any new subdivision; if he doesn't, the builder's sales rep will get the full commission if you buy a home there.
When researching neighborhoods:
· Look online for listings for new home construction.
· Drive around the neighborhood and check out the amenities and the quality of the homes.
· Walk the community. Ask homeowners about their experience.
· Go to model open houses, keep a journal and take photographs. Don't try to cover every model house in the area in one day.
· Check with the developer about potential homeowners' association (HOA) fees and rules; some are incredibly expensive -- and strict. They may not allow storage sheds, certain paint colors or finish materials, solar panels or even vegetable gardens. Be sure to find out if the HOA can assess penalties for infractions.
· Ask whether cable and Internet are readily available and from what companies; your new house will be wired for cable but that does not mean the cable company offers service to your neighborhood.
· If the development is still under construction, you'll be dodging giant contractor trucks and facing jack hammering at 7 a.m. for a while.
· Research the zoning laws for the neighborhood, as they can change quickly.
· Visit the city planner's office to see what's in store for a particular location.
· Ask your agent about plans for the area and to see if they're apart of MABA
Whether you're buying a new home that's being built or building a new home from the ground up, you can choose the builder you work with (as long, as the lot isn’t specified tied in with a specific builder). To make certain you choose a financially-sound builder, to verify, go to the courthouse to see if a lien's been filed against the builder, then go to the construction site. Talk to subcontractors to see if they're being paid." Laura also, has a list of builders that you can choose from that are a part of the Madison Area Builders Association. Everyone who becomes a member of MABA, has a background check done on them.
When researching builders:
· Make sure there are no Better Business Bureau complaints on file against your builder's company.
· Ask local real estate agents if the builder has a good reputation in the community.
· Visit your builder's previously constructed homes; ask the occupants whether the craftsmanship has stood up to time, use and weather.
Laura Lahti, Realtor, ABR, GRI, SRS, PMN, E-Pro