What You Need To Know When Building A Custom Home

There are few things as exciting as building your own home. You get to decide every aspect of your home, from room placement to material choices. However, there are a few key differences between building a home and purchasing a existing one—financing and time. Here's what you need to know before you custom build a home. 

Financing your new home construction

If you were to buy a pre-existing home, you would need to get a mortgage if you are unable to pay for the home entirely with cash. The bank that mortgages the home would already have collateral. When building a home, the contractors and subcontractors need to be paid and building materials and supplies need to be purchased.

Obviously, your home cannot be built unless the workers are paid and the materials are purchased. Fortunately, there are construction loans available. In these types of loans, the lender controls the money and releases it directly to the contractors and suppliers. There are two basic ways this is handled. 

  • One way is to get a construction line of credit which will pay the workers and pay for the supplies during the construction phase. After construction is completed and you close on the construction, you'll need to get a mortgage to pay off the construction line of credit. This means you'll also close on the mortgage. Due to two closings, you won't be able to lock in an interest rate at the time that you get the construction line of credit. 
  • The other way is a construction loan, which means the lender will advance money that is needed to pay the workers and purchase the supplies. The same lender will roll the balance of the construction loan into a traditional mortgage. In this type of loan, there is only one closing. Since this loan rolls over into a mortgage, a mortgage rate will already be locked in.

One important thing to consider when choosing which type of construction loan will work best for your particular situation is whether or not your financial situation could change during the construction of your home, such as a severe reduction in hours at work. For this reason, it's important to overestimate your budget rather than underestimate it. You don't want to run out of money before your house is built.

Timeline for the completion of your custom built home 

After you select the building plans and materials, your home builder, someone like Cristo Homes, will give you a rough idea of when the project may be completed as well as a timeline for each stage of construction, such as when the foundation will be built and the interior walls will be installed. It is important to not have your heart set on the exact dates due to various situations that can cause a delay, especially in regard to weather.

Due to such unforeseen circumstances, your custom home may take longer to be built. For example, if the foundation is scheduled to be poured on a certain day, pouring rain may cause a delay. When discussing the timeline with your home builder, specifically ask the project manager if the estimated date of completion includes contingency plans for things like weather delays which obviously are out of the construction manager's control.

The final inspection process differs from buying an existing home. When buying a home, a home inspector checks the home for structural damage and mechanical functionality.  When building a home, you'll need to do a final walk-through with the construction manager at the end of the construction. This is called substantial completion and is the final process before moving forward with closing so you can move into the home.

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