Building Your Own Home – The Devil is in the Details

July 7, 2014

Home purchase - Real EstateOne of the most challenging things about building your own home, even for professional builders, is staying on top of the details. Each phase of construction brings its own issues, so watching everything closely is your best defense against losing control of the job. If one or two things are left undone before the next subcontractor comes to the jobsite, then you often end up with a bottle neck effect. The following are some of the more important things to stay on top of during each phase of construction.

Pre-construction.  First and foremost, get everything in writing! A good subcontractors agreement goes a long way towards buttoning down the details.  Even with your best efforts, there will still be things left unclear or unsaid, but having something to go by from the start is your best defense.  Further make certain you have all your permits in place and all your insurance purchased.  Post the building permit and any other required documentation on the jobsite in plain view. Neglecting to post the permit can hold you up when inspection time comes.

Site preparation, grading and foundations.  While you might think that there is not much detail to be concerned with here, there are a few things to make sure of before the grading contractor leaves the jobsite.  For one, make sure that the grader has made provisions for water drainage from around the site.  This does not have to be your permanent drainage plans, but you don’t want standing water around the building site during construction. Also, make sure that the grader has made it easy for material delivery trucks to access the jobsite and drop materials in a convenient place.

Framing.  This phase of construction is ripe for the occurrence of items being overlooked, left undone or done wrong.  The more complicated the job (such as framing) the greater the risk for problems. It is very frustrating to have paid the framer his final draw and then discover that a door opening was put in wrong or that no one planned for the HVAC duct work and consequently the trunk line did not get furred down. Of course your issues will depend on your situation.  If you’ve found a good, reliable subcontractor, he will come back to remedy the problem, but usually there will be a time delay (he may have started a new job and will have to fit you in) and sometimes there will be a question about whose fault it was and if you will have to pay extra for the change.

Siding and roofing.  While these jobs are not quite as complicated as framing, they can still pose problems. If a roof is poorly installed, the outcome could be a lifetime of leaks.  Further, water intrusion can create can start a snowball effect with potential rot, etc. Knowing what to look for with a roofer is critical. Same goes for siding.

Mechanical systems. Again, hiring quality, reliable contractors for these important elements of your home is a must. You are leaving important decisions in the hands of these people.  Your utility bills and comfort are at stake. So be sure to check these people out carefully.

Interior Trim. There’s sometimes a tendency to leave off a missing piece of trim if you run out of material.  In fact, it’s a very common occurrence.  The result is that the painter comes and goes without painting it.  then, if you can get the trim carpenter to come back for a couple small pieces, you’ll probably have to pay him for it although it would have been included if done the first time around. Then you still have the issue with getting the painter to come back.

The moral of the story is to make sure to stay on top of your construction job. It will save you time and money in the long run.

Bill Edwards

President, American Home Counsel

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Why Cost Per Square Foot Pricing for Building a Home is a Fallacy

July 6, 2014

floorplanThe number one question everyone asks about building a home is how much will it cost. Most folks want to know the cost per square foot to build a complete house or the foundation walls or the framing, etc. I NEVER quote costs per square foot for anything. There are just too many variables involved to state a “standard” price.

Why, you ask?

I’ve built homes that cost $100 per square foot and others that cost $200 per square foot. The difference is in the materials used and the finishes required.   You might ask, “What about a ‘standard’ basic house then?” Again, it’s all in how you define standard or basic. You might be able to build a 2,000 square foot home for $200,000 ($100 per square foot), but it will likely have a simple slab foundation with a modest kitchen and minimal baths and carpeting instead of hardwood floors…the list could go on and on.

The same 2,000 square foot home could cost double that if you select all upgraded materials and finishes and if you build on a basement foundation, etc.  For example, just consider the price differences between the various types of siding material used. Brick or stone can double the cost of siding costs over wood or other similar products.

The building site also is a big price variable. Grading and site costs can vary dramatically depending on the lot characteristics.  A steep lot with heavy vegetation will cost more to clear and grade and will require a more expensive foundation than a level lot with no trees.

Further, there are prices differences for materials and labor across the country and even in various areas of the same metropolitan area. So quoting a price in one area will not necessarily hold true for a different area.

So how are you to figure out the cost of building a home? The only true way is to complete a cost estimate for each element of the project.  While this may sound like a daunting task, it’s not so bad if you break each step down into digestible bites.  Begin by completing a take-off of materials and then start gathering bids from subcontractors. Your best bet is to acquire a good estimating handbook or software.

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New Home Building Tips…

March 3, 2014

New house under constructionSo you’ve decided to build/contract your own home.  That’s GREAT!  It’s likely that you have made the decision because you want to be in charge of the important decisions about your new home AND because you want to save money.  In all the excitement, however, don’t loose sight of several fundamental aspects of keeping your investment — your new home — financially sound. Keep in mind the following home building tips when making your decisions:

  1. Don’t build the biggest/fanciest house in the neighborhood.  This is a deadly mistake to make…you will have a very difficult time selling it if need be.  No one wants to be a trail blazer for an entire neighborhood.  Your neighbors will love you, but you’ll be the one paying the price with your hard earned equity.
  2. Think about resale.  Even if you never plan to sell your home, things can — and often do — change.  So make sure the house you build appeals to a variety of home buyers. You may not need more than one bedroom, for example, but that doesn’t work for most people.
  3. Be careful choosing the exterior design.  This is where curb appeal starts. You can have your own unique style, but it needs to blend in with surrounding homes to some degree.  Don’t buy a lot in an all traditional neighborhood, for example, and then build a contemporary home because it appeals to you.  This will be a tough resale situation.
  4. Don’t believe square foot estimates.  You can not (repeat NOT) determine the price of a your own home, by applying a standard price per square foot quoted by someone else.  There are just too many variables that factor into custom homes.
  5. Choose a great location.  The old adage that the three most important things in real estate are “location, location, and location” still holds true today. This means not only the location of the neighborhood, but also the location of you property within the neighborhood. For example, many people think that lots located next to the community swimming pool or lighted tennis courts are less desirable.
  6. Choose a lot or land that is easy to build on.  Since this is your first building project, you don’t want to tackle a tough building site.  A difficult site almost alwasy drives up the cost of grading, foundations, site work, etc., and you may likely end up over budget right from the start.
  7. Get pre-qualifed before you begin.  Make sure how much you can afford BEFORE you start looking for land, selecting plans, etc.
  8. Have a contingency plan for the settlement date. A good schedule will provide you a general guideline for your home’s completion date. But delays often happen during construction and you should have a back-up plan for what you will do in case the house is not finished on time.
  9. Make your decisions in the planning stages.  Don’t wait until the last minute to decide on construction methods or the extras you want or the paint colors, etc. Doing so will negatively effect subcontractor pricing and the overall flow of the project.  You’ll be creating your own delays as well.
  10. Keep your overall goals in mind.  Remember that you are building your own house so that you have control over one of the most important investments of your life — your home! Applying the principles above will keep you on the track to building a solid financial investment as well as a wonderful home.

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Financing Your Construction Project

February 27, 2014

Young Couple Buying A New HouseIf you’re like most people, you’ll need to get a construction loan to build your home.  These loans are not the same as mortgage loans, and qualifying for one is a little different too. Following is an outline of the differences and what you’ll need to know to get a construction loan.

Get your “story” together. Unlike mortgage loans that are governed by standard guidelines, construction loans require a good “story,” meaning that the lender typically wants to know the details of the construction and how you plan to carry out the project.  You’ll fill out a specification form spelling out everything that will go into constructing the house.  You’ll submit architectural drawings. And you’ll have to explain how you plan to contract the home yourself.

Understand rates and terms.  Most construction loans are short term loans (usually for one year) that are interest only, variable rate, and are not amortized–spread out with equal payments over 15 or 30 years–like standard mortgage loans.  Further, your monthly payment will vary depending on the amount of money you have “drawn” to date each month.  Your lender will provide a draw schedule indicating a percentage of the loan amount that they will release upon completion of various stages of construction.  So the payment amount will increase as you get “draws” until final completion and the certificate of occupancy is issued.

Consider a construction-to-permanent loan.  Some lenders offer construction-to-permanent financing options.  This means that the construction loan will be converted to a mortgage loan after the certificate of occupancy is issued. Often this means that you only have one closing and only pay closing costs once.  However, there’s not as much flexibility in the interest rate charged for the permanent mortgage loan. You should talk to you lender about all these issues before making a decision.

Review your loan qualifications.  It goes without saying that you will need a respectable credit score to get a construction loan.  If your credit is marginal, it’s probably not the time to apply for construction financing.  Why?  Lenders are taking a risk with your project and they are not willing to bet on you if you’ve never contracted a house before AND you have credit issues.  You essentially become partners with your construction lender.  They want to feel confident that your project will be successful on all fronts.

Have some cash on hand.  Unlike a standard mortgage where you can borrow upwards of 100% of the price of the home (this is rapidly becoming a thing of the past though), you’ll have to have some downpayment and/or equity in the project.  Construction lenders want you to be invested in the project.  If you already own the land you plan to build on, then getting a construction loan will be much easier.  Your land will be considered the “equity” in the project and a security for the lender.  If you don’t, then you will have to work harder to demonstrate that you are capable to complete the project.  It’s not impossible though.

Calculate the amount you can borrow.  Before you purchase a lot, choose floor plans and determine the amount of money to borrow for construction costs, you’ll need to have an idea of what size mortgage you can afford.

In general, there are three basic considerations:

The monthly mortgage payments you qualify for (or are comfortable with),

The amount of money you have to invest as a down payment,

The type of loan you choose.

As a general guideline, most people will qualify for monthly mortgage payments—which include principal, interest, taxes and insurance—equal to approximately one-third to one-fourth of their total monthly income.

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Building Your Own Home FAQs

February 25, 2014

Man and woman with blueprints.What does it really mean to be a builder?

When you become your own builder, you essentially become a project manager.  Consequently, think of your job as a builder—project manager—in terms of making things happen through the talents and resources of other people. As the builder, your major function will be recruiting, organizing, motivating, and managing a diverse group of people, ranging from bankers to carpenters to laborers. Builders select plans, do cost estimates, obtain financing, hire subcontractors, order materials, and oversee work in progress—processes you will learn to do by studying this course.  Most builders don’t do any of the actual “hammer and nails” work, but, of course, you can if you want and save even more money.

How much time will it take on a daily basis to build/contract my own house?

Even with a full time job elsewhere, you can contract your own home successfully!  The key is being organized.  Once the construction gets underway, you’ll need to spend about an hour a day doing things such as ordering materials , inspecting work in progress, calling subcontractors (subs), charting and revising your schedule, and keeping up with your bookkeeping. Most of these tasks can be accomplished in the evening, on the weekends, or early in the morning.  In fact, before and after normal working hours are likely the best times to reach many subcontractors.

How long does it take to build a house?

 Plan four to eight months—depending on your pace, weather conditions, and the complexity of your home—to complete the entire process.  Be aware that delays caused by weather and material shortages, etc. can and do occur.   Therefore, it’s advisable to make certain your current living arrangements are flexible enough to allow for some delays.

What do I need to know to be a builder?

You don’t have to be an engineer or architect to build a house. But it helps to know some basic construction terminology and be familiar with standard building concepts, particularly when you are talking to suppliers and subs and inspecting work in progress. You’ll also need to know how to complete a cost estimate.

A little business savvy is also important.  When you buy property, obtain financing, and contract for materials and labor, you enter into formal agreements—essentially forming business alliances with realtors, bankers, subcontractors, and suppliers.  You need to know the right questions to ask, understand the fine print, know what’s standard and what’s extra, and always put things in writing.

Do I have to have a special license to build my own home?

Probably not. More and more states are now requiring builders—those who plan to construct homes for other people—to obtain a builder’s license. But in most states, you do not have to have a license to build your own home.  Check with your local building authorities to be certain.

As outlined above, building your own home takes some time, patience and perseverance.  But the benefits gained are definitely worth it.  Enjoy browsing our website.   Buy our e-book, The Ultimate Guide to Contracting Your Own Home: Save 30% to 40% on the Cost of Your New Home  for an in-depth look at the entire process including many insider tricks and secrets!

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