Purchasing a home can seem overwhelming and understanding the process for building a new home, especially for first time home buyers, can appear even more daunting.
I recently had a friend share that his daughter was getting married soon and while their preference was to purchase a new home, she and her fiancé did not know the steps to take to have a house constructed. We discussed the need for a simple ‘101’ course on building a new home.
That prompted me to share the following:
1. Visit a Few Lenders
It would be advantageous to start by visiting a few lenders to discuss their construction program, interest rates and to learn the amount of mortgage you would be pre-approved for. That amount coupled with your savings available for a down payment would reveal the price range to consider.
This would include the lot, site development cost such as excavation, driveway, utilities and the house to be constructed on the lot.
2. Select a Lot
Once you determine where you want to live, you should select a lot. Considerations on location may include the school district, property taxes and proximity to work and shopping.
It is important to know the restrictions before purchasing the land. This will address such things as the minimum size of the home required and what you can and cannot do once you live there. Zoning should also be checked to confirm permitted uses.
3. Select a Builder
Now that you have a lot in mind, it is time to select a builder unless there is a requirement to use a certain builder based on the lot. Builders typically offer communities where they are the exclusive builder insuring similar styles and quality of construction throughout the development.
The experience and reputation of the builder is important. You do not want to trust what may be the largest purchase you will make in your lifetime to a company without a proven track record.
4. Select a Home Design
After choosing your builder, the fun begins in selecting a home design that meets your needs, fits your budget and will satisfy the deed restrictions of your lot.
There are companies that sell home plans but the most affordable solution may be to make changes to one of the tried and proven home designs offered by the builder. You can typically personalize the plan to your desires.
5. Apply for Financing
Once you have finalized a Purchase Agreement for the home you want to build, the next step is to apply for financing. You can purchase the land if you have savings to cover that or include the lot cost in the mortgage amount. You will need a Purchase Agreement from the builder listing the cost to build the home. If you want to include the site development cost in the loan, an estimated budget amount can be included on the Purchase Agreement.
A construction loan will advance funds to the builder in stages as the house is constructed so you do not make a full payment on the interest until towards the end of construction.
6. Obtain Permits
While the mortgage process is underway, you can begin obtaining permits that are required before construction can begin. Permits include zoning, building, and utilities.
7. Hold a Pre-Building Conference
Once the mortgage is approved and the closing occurs, a Prebuilding Conference is held with the builder to review the house plans, material color selections and permits. You will need to have insurance in place and a stipulation against liens recorded in the courthouse before construction begins. The stipulation against liens protects you from a subcontractor filing against the property should they not be paid by the general contractor for work done on your home.
8. Meet with the Foreman
The final step is meeting the foreman on your lot to discuss the location of the house, location of utilities and site conditions. Watching the build process as your home becomes a reality is truly exciting.