Building your new home can be an exciting and rewarding experience. However, all too often new home owners in their anxious and emotional state find themselves faced with problems or challenges that they may have otherwise been avoided with proper guidance and research.
It is our intention to eliminate, or at least reduce, the potential pitfalls associated with building a new home. By thoroughly investigating all of your options and becoming educated in regards to the construction process, you will help protect yourself from both financial and emotional complications.
MISTAKE #1: IMPROPER LOT EVALUATION
Most people are familiar with customary lot evaluations, such as soil evaluations and surveys. However, more often mistakes are made when selecting a lot based on other issues such as:
Deed restrictions
Improper Drainage
Steep Elevations or Variable Grades
Local Setback Requirements A qualified builder can help guide you through these items as well as make suggestions as to proper excavation of your lot resulting in a more aesthetically appealing home.
MISTAKE #2: WATCHING YOUR PAYMENT JUMP $500 AFTER THE CONSTRUCTIONOF YOUR NEW HOME As construction begins on your home, your taxes will most often be based on unimproved land resulting in a lower taxable value. After your home is completed however, your home will soon be fully assessed. When this happens, your taxable value increases, thus resulting in a higher tax bill. If you're financing your new home and your lender has established an escrow account to pay property taxes, you may be unpleasantly surprised by a dramatic increase in your payment. More than likely your initial payment will include a dollar amount for tax escrow that will have been based upon the unimproved land. After your taxes increase due to the full assessment of the property with a completed home, your lender will be required to raise payment to ensure enough funds are available to pay future tax bills. The problem can be more severe if a full assessed tax bill is paid out of escrow prior to an increase in your payments. This will cause an immediate shortage in your escrow account, forcing your lender to raise your payment to not only cover future tax payments, but additionally to recoup the dollar amount paid for the prior bills.
MISTAKE #3: NOT REQUESTING ACCURATE CHANGE ORDERS
After signing your contract with your builder, it is important to maintain an open line of communication. In the event you decide to make changes, of any sort, to your new home, it is suggested that you request a CHANGE ORDER from your builder. Your CHANGE ORDER should provide a description of the work or material to be altered and the increase or decrease in cost associated with the change. This simple process protects both you and the builder from discrepancies throughout construction.
MISTAKE #4: NOT INVESTIGATING YOUR BUILDER
Rather than selecting a builder based upon their cost per square foot or verbal promises, it is suggested that you perform a thorough background check to avoid unnecessary problems during construction. The background check should include but not be limited to:
Interview of prior customers
A list of subcontractors to be used during construction of your new home
Contact suppliers to verify timely payments of material, avoiding mechanical liens
Verify proper licenses and insurances are intact
MISTAKE #5: UNREALISTIC ALLOWANCES It is important to determine in any quote/estimate/contract the accuracy of the allowances allotted for construction. Allowances are best reviewed by confirming that they will be applied to and reflect an accompanying specification sheet that is acceptable to you.
MISTAKE #6: INFERIOR SPECIFICATION SHEET (SPECS)
When comparing builder quotes or estimates, it is important to compare apples to apples. It would be easy for one builder to provide you with a lower bid than another on the same house by using inferior material. It is suggested to have a specification sheet, or a list of the material and products to be utilized in constructing your new home, in addition to any quote, estimate, or contract. The specification sheet can also be referred to during construction to clarify discrepancies as to the type, style, quality, or size of material/products being used.
MISTAKE #7: THE SELF-BUILD DECEPTION While acting as your own General Contractor has become a popular option, there are issues related to self-building that should be carefully examined prior to concluding that this option is best for you. Some of these items are:
Loyalty of subcontractors to General Contractors, thus resulting in a lack of qualified subs available to do work when necessary, or even at premium prices.
Loss of builder discounts
Higher financing costs/limited financing options
Extended time frames
MISTAKE #8: UNREASONABLE TIME FRAMES
Often, complaints will surface from homeowners that a builder has taken longer than necessary to construct their home. The most effective way to overcome this common problem is to address potential items up front that may cause delays. Also it is important to realize that many circumstances during construction are not within the builder's control. Some of these items are listed below:
Weather-related issues that prevent subcontractors form completing work in a timely manner
Frost laws
Lumber/supply shortages
Local ordinance/restrictions/codes
Homeowner selection of custom ordered materials that are on backlog
Unknown occurrences (i.e. discovering the vein of an artesian well while digging a basement)
MISTAKE #9: SELECTINGTHEWRONGMORTGAGEPROGRAM In today's construction lending universe, there are hundreds of programs to choose from. Unfortunately, when it comes to construction loans, most lenders are limited in their options. Some of the most common financing mistakes are as follows:
Rate locks that are too short or non-existent
Being told that 20% down is required
Inadequate or non-existent lot financing
Forced to sell your current home prior to the start of construction
Land having to be owned, free & clear
Selecting a lender that is not familiar with the construction process
With 25 years of experience in mortgage banking, Jon Mykala has helped thousands of clients acquire their homes. His team's objective is to incorporate mortgage planning into clients' overall financial objectives and give them the information and tools to either relieve themselves of a large obligation or to use their mortgage cautiously as a financial tool that builds wealth.
Jon works hard to make your mortgage experience with Mykala Mortgage Planning at Dart Bank an enjoyable one.
Contact Jon directly: E: jmykala@dartbank.com P: 734-223-8555 NMLS# 728191
Apply Now at: https://www.mykalamortgage.com/apply-now