Here are the highlights of the many steps that go into building a custom new home with a brief summary of each step.
- Get pre-qualified
It is important to know how much of a budget you can qualify for when beginning the building process. By getting pre-qualified, we will review your overall financial position to help you establish a budget you are comfortable with. This will help you to guide your builder as you work through the details on your new home.
- Interview builders
Picking the right builder to work with is the key to a successful building process. You will want to interview builders to make sure you found the right builder for your project. You should take your time and research all of your options as you want your new home project to be a successful one. Keep in mind, that builders cost may vary from one builder to another but you will want to review the details of all quotes to insure you are comparing apples to apples.
- Search for a building site
Your builder and/or a competent Realtor should work with you to identify the ideal building location if you don’t already own a piece of land to build on. It is important to make sure that your builder is part of this process as they will understand what you are hoping to build and how the building site may or may not work for your project.
- Select a plan and home options
By getting pre-qualified you would have already established a budget that you are able to afford that you are comfortable with. You can share that budget with your builder in order to determine what your budget will allow you to build and with what options. Keep in mind, as with all things in life, you get what you pay for.
- Complete the bid process
Once you have identified a final plan and home specifications, your builder should bid the house out. The bid process allows the builder to get actual cost quotes from material providers (lumber companies, etc) and subcontractors. They will then compile all of these costs to give you a final actual bid (price) to complete your home. This is an important step and should not be over looked. It is not uncommon for your builder to work with you to fine tune your bid in order to maximize the amount of home you are able to build within your budget.
- Complete the contract
Once you have completed the bid process with your builder you will want to execute your final contract with your builder. If you are not comfortable with all of the terms of contract you may want to have a competent real estate attorney review your contract prior to signing your contract.
- Complete financing
Once you have signed the contract on your new home home with your builder we will want to complete the financing process. We will take your contract, final plans and home specifications and get the process of financing completed as quickly as possible. Once you have closed on your construction loan you can begin the process of starting your new home.
- Start construction
Don’t start construction prior to closing on your new home as this can create a number of problems. Once your loan has closed you should start construction as quickly as possible and make sure you complete your home on time and on budget as best you can.
- Builder draw process
As the home is being built, your builder will take draws toward completion of the home. Draws are payments to the builder for the work that has been completed on the home. Builders typically take draws in increments as the home is being completed. Prior to any disbursement to the builder we require your written authorization and we verify that the work the builder is requesting funds for has been completed.
- Making payments on your loan
Your payments on your construction loan are interest only payments. The amount of these payments are based on the balance that has been drawn by the builder toward the completion of the home. Because your balance initially will start low and gradually rise as the home is being completed, your monthly payments will do the same. They will start lower and rise as the builder takes draws toward completion of your new home.
- Property taxes
During the course of construction, you will have property taxes that are likely to come due on your new home. Those taxes are required to be paid by you by the due date. Please keep in mind that we do not collect any escrows for property taxes and/or homeowners insurance during the construction of your new home.
- Completion of your home
It is important to complete your new home within the construction term of your loan. Failure to do so will result in possible extension fees and other cost. Completion of your home is defined by a certificate of occupancy from the government as well as a final inspection that verifies the home has been completed according to the plans and specifications you disclosed when you started this process.
- Modification of your loan and making full payments
During the course of construction, your payments are lower and are based on just the interest that was due on your outstanding balance. Upon completion of your home, your payment will be a full payment of principal and interest (including any escrows for taxes and insurance)
Do you still have questions about construction loans? If so, click here for answers to common questions about construction loans. If your answer is not found in either of these sections, we will be happy to answer any questions you may have. Please contact us for more information.