There really is nothing like moving into a brand new home where nothing has been used and there is no redecorating that needs to be done. A home that is one hundred percent, truly and only yours, brings about a feeling like no other. However, there is much more to building a home than some might think. Below are a few key things to keep in mind when building your dream home.
Consider very carefully where the home is going to be built. Check to make sure that any lots that you are considering building on are actually zoned for building. Although the real estate agent or the seller may tell you that this is not a building lot, this is not their responsibility so if you don’t check it out for yourself, you could end up with a lot that you can’t do anything with. If the home is close to many vacant lots, there could be a commercial site or a school going in. Not only will this be messy during construction but it will also make the area one of high-traffic once you are settled in your new home.
Building codes are extremely important when new construction of any kind takes place. Again, it is the new homeowner’s responsibility to ensure that any codes are met and even go above and beyond the requirements. Such codes could include floods and hurricanes. Make sure that you understand the costs of insurance and property taxes. Don’t rely on real estate agents and construction workers to give you proper estimate to how much these costs will be. Property taxes on a vacant lot will be much less than that of the actual taxes after construction has taken place. To find out these costs for yourself, talk to the local tax collector’s office and they will be able to give you a better estimate. Also make sure to contact an insurance agent to make sure that you will have all the coverage you need for flooding, hurricanes, earthquakes, or any other factors that you may not have considered.
One of the most important aspects of building a new home is selecting the builder. This will probably be one of the most important decisions you make as you will be interacting with the builder often, and they are responsible for getting the project done on time and within budget. The builder is also responsible for hiring any sub-contractors that will be working on the project and if the builder doesn’t pay them, the onus is on the owner. When selecting a builder, ask for many references and contact all of them to make sure you know what working with that particular builder entails. Also ask to see some of the homes that they have constructed.
Any time one works with a sub-contractor, there is risk involved. This is because they will place liens on the property to make sure that they get their payment. If the sub-contractor does not get paid by the builder, you will be responsible for paying them, even if you have already paid the builder. Make sure that any time a sub-contractor is paid, the release the lien on the property. Don’t only choose a lender carefully but know your options when entering into any financial arrangement. When lenders grant a construction loan, they pay the builder directly with a number of “draws” at set times. This means that the homeowner has no control over when the builder gets their money and payment cannot be withheld if the owner is unsatisfied with the work. Here again it’s very important to choose a lender carefully and ask lots of questions and for references before settling on one.
If the homeowner decides that they would like the option of withholding payment, finding another way to pay may be an option. This could include a home equity loan or a line of credit. If the owner decides to go this route, it’s very important that they be aware that this involves a much more hands-on approach to all aspects of building.
A very attractive option may be an end loan which are sometimes offered by larger building companies. In this instance, a homeowner does not pay anything until construction has been completed. The customer is then paying only for the home without having to worry about paying for construction along the way. Another advantage to these loans is that the interest rates are very often lower than those of regular construction loans. One disadvantage is that an arbitrator or mediator is sometimes needed if the homeowner is dissatisfied with the finished work.
Flexibility in a lender is also very important. If the loan documents state that the project must be finished within twelve months, this will mean that the loan will be interest only for the first twelve months and will then convert to a regular mortgage. If there is a delay the homeowner could end up paying more than they need to. Before entering into any agreement, you should ask what the options are for extending the construction loan should the project take a little longer than expected and what fees there are attached with that. If the fees are too high, it’s worthwhile to switch to another lender. Also be sure to watch for any hidden fees that the lender may be charging. Quite often, the lender will want to inspect the site before handing out another draw. There are a few ways to manage these fees. One way is to carefully inspect the draw and inspection schedules and make sure that there are not more inspections than there are draws. Another way is to try and get a couple of visits consolidated into one.
Also look at the structure of the loan. After the house is built, the construction loan will convert to a regular mortgage. However, the mortgage structure needs to be decided on before the house is built. This can raise many other concerns, which will need to be discussed with the lender.
You may also want to consider buying a spec home that is already built. This can save a lot of headache during the construction process as you will not be a part of it. There are many newly built homes that are sitting empty and waiting to be sold. Finding one of these can give you your dream home without any nightmares.
Additional Information: Central Florida New Homes
Jeffrey G. Funk, P.A.
Realty Executives Central Florida
7932 West Sand Lake Road • Suite 302
Orlando, FL 32819