6 Key Facts to Understand About Building a Custom Home

  • By Jeremy Thompson
  • 01 Apr, 2017
Few understand the custom home building process until they’ve experienced it themselves, and even those who have often don’t understand the aspects they haven’t experienced (e.g. if you haven’t built a custom home in a subdivision you may not understand how lot covenants work). Six key facts are important to understand when building a custom […] The post 6 Key Facts to Understand About Building a Custom Home appeared first on J. Thompson Builders.
facts about home building_J. Thompson Builder custom home

This impressive custom home is what we call a Colorado chalet. It has a rustic design both inside and out.

Few understand the custom home building process until they’ve experienced it themselves, and even those who have often don’t understand the aspects they haven’t experienced (e.g. if you haven’t built a custom home in a subdivision you may not understand how lot covenants work). Six key facts are important to understand when building a custom home, and as part of the process to prepare to build a custom home.

Just the Facts!

  1. When building a new custom home, you need a construction loan. Unlike a conventional home loan that is usually written for 30 years at a fixed rate, the construction loan is written only to finance the building of your custom home, and you may only pay the interest while the home is in the building process. After the home is built, you will need a conventional mortgage loan, which will, in turn, pay off the construction loan. This isn’t necessarily a problem for most home buyers, but because some lenders may consider construction loans riskier, not all lenders will approve you (so shop around!) and you may not get approval until all building permits are secured, or you may need more money available upfront. Read more about financing a custom home in our blog Home Building and Remodeling: Finding the Right Lender .
  2. A contingency budget is an important and almost always necessary part of a custom home building plan. The contingency budget includes money set aside to cover unexpected costs during the construction process. These can include weather issues resulting in offsets to the timeline, material changes, design modifications or changes in the cost of materials. A commonly suggested contingency budget is 5%-10% of the total budget. The good news is if you come in under budget, you get the money back! Read about staying on budget when building a custom home in our blog 6 Ways to Stay on Budget When Building or Remodeling a House .
  3. 61% of homeowners 55+ plan to stay in their homes indefinitely, yet 78% of homeowners haven’t done anything to prepare their homes to allow them to age in place (Source: Remodeling ). What is “aging in place”? It’s simply building or remodeling a home to fit you and your family at all life stages and circumstances. It includes such features as a zero step entry from the outdoors, the washer and dryer on the main level and curbless showers. Those building a custom home have a distinct advantage in that they don’t have to remodel later but instead can address these issues from the get-go in planning their home’s layout and features. Read more about how to make your custom home livable for many years to come in our blog Study Says Remodeling Prevents Falls; Preparation an Even Better Solution .
  4. Often you should choose the land before the house plan. The orientation of the land and how you position the home on it is one of the most important aspects of creating a house. Understand how the sun moves across your lot and design the home in relation to this to create a more energy efficient home that takes advantage of natural light, the heat of the sun and the cool of the night, to keep the house cooler during the summer and warmer during the winter.  Additionally orientating the house well on the land allows you to maximize outdoor views and take any privacy concerns into consideration. For more useful tips about choosing a home plan, read our blog Building Your Custom Home: 10 Tips to Help You Choose the Best House Plan .
  5. Lot covenants are enforceable and limit the type of home you can build. Most newer subdivisions have covenants limiting the size of your home (usually requiring a minimum square footage), and may also spell out what type of roofing or fencing you can use, the paint colors you use, if you can build a two-story home, if you can have a shed or a host of other issues that could conflict with the type of custom home you desire. Covenants are developed by the subdivision developer to protect property values, give the development a uniform appearance and control what occurs within the confines of the area.
  6. Building a custom home might prove the cheaper option over buying an existing home. In December 2016 the median sale price of a new home in the U.S. was $322,500 (Source: U.S. Department of Housing and Urban Development ) and the median sale price of an existing home was $232,200 (Source: National Association of Realtors ). Yet these numbers don’t paint the entire picture.  Moving into an existing property comes with hidden costs, often unseen until after you move into the house. Simple remodeling projects cost thousands — the average cost of a major kitchen remodel in 2016 was $59,999 and an average bathroom remodel was $17,908 (Source: Remodeling ). Even if you don’t undergo a major remodel you’ll most likely need to invest money in simple changes and repairs such as painting, or installing new flooring and even the costs associated with those improvements add up quickly.

Get inspired for your custom home building project! Visit our Custom Home Gallery for a peek at some of our finished projects.

J. Thompson Builders Blog

By 7052540976 15 Nov, 2017
Some of these considerations may not be in the forefront of your mind, but there is a long list of aspects you need to consider when building a new home. These should help to get you started thinking about some of the most important pieces of the home building process.
By 7052540976 15 Oct, 2017
This home is being built with our client’s specific wants and needs in mind. The homeowner
requested a single family home with a modern contemporary house design. Previously, he lived
in a townhome and desired a more private, spacious residence. A main floor living with a large
space to entertain and big volume ceilings were a must on the client’s list.

The client decided building as opposed to finding a pre-existing home was a better solution for
him because he wants something specific to his needs. He already had the perfect location in
mind and it was time for him to own his dream home.

The area is ideal for this client because it allows him to live in close proximity to his hobbies and
interests and it also allows him the ability to walk to nearby restaurants or bike to the
surrounding shops. This homeowner will be close to everything. He truly loves the location!
The design concept picked is pictured below. In sticking with a contemporary influence, the
design has clean, simple lines that will result in an extraordinary modern home. We combined
elements of residential and commercial materials and design to bring our client’s unique requests to life.
By 7052540976 15 Sep, 2017

You decide that you are ready to build a custom home for you and your family. Now it is time to figure out how to finance your dreams!

Let’s start with the basics. As with any loan process, do your research. Talk to several mortgage companies that specialize or have a strong understanding/history of working with construction loans. Ask questions and voice your concerns. Companies of course want your business, but they also want to make sure they are a good fit for you and what you are wanting to accomplish. Reviews and referrals are strongly regarded these days. They want to make sure you have the best experience possible.

There are several main differences between a construction loan and a regular existing home loan. An individual construction loan may require a longer credit history  or a higher credit score as well as more money down and along the way. It is more of a process, but it is most certainly worth it. With the right builder, the more involved process becomes a piece of cake; but, that is an article for another time.

Home loans can have a 30 year term whereas a construction loan typically has a max of 1 year. “The rates on this type of loan are higher than rates on permanent mortgage loans. To gain approval, the lender will need to see a construction timetable, detailed plans and a realistic budget, sometimes called the “story” behind the loan,” as reported by  bankrate . While your home is being built, it is typical to make interest-only payments. 

If you are thinking, “I don’t have enough money to pay off a newly built home in 1 year!” Don’t panic.

A popular option is the construction-to- permanent financing sometimes called “one-time close,” a “single close,” or an "all-in-one" loan. Upon completion of construction, the remaining loan balance is converted into a permanent mortgage with terms up to 30 years. Like most loans, “the rate and other terms of the permanent mortgage are set up-front when the entire loan package is closed” according to the  National Association of Home Builders .  Construction/permanent loans are offered by many different lenders, including banks and mortgage companies and are a great option for those of us wanting to finance their home purchase over an extended period of time.

Another option is a stand-alone construction loan. This type of loan can be beneficial if you currently own your home and want a smaller down payment option.   Read more about stand alone construction loans.

There are many different loan options. What makes sense for one person doesn’t make sense for everyone. Make sure you find the right product for you and your particular project. If you want to talk over some options, contact us! We would love to hear your ideas and figure out how we can build your dream home.

View our work , read our reviews on Houzz.com , and visit our Facebook page to get inspired!
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By Jeremy Thompson 15 Jun, 2017
We’ve offered you lots of advice over the years about building a custom home. Here is a condensed version of some of the most important tips to follow. Get on the fast track to planning your new custom home! 7 Tips for Building a Custom Home Pay attention to your subdivision covenants. Yes, these are […] The post Building a Custom Home: 7 Quick Tips appeared first on J. Thompson Builders.
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By Jeremy Thompson 15 May, 2017
Building a new home is an exciting time, filled with anticipation and satisfaction as you watch your vision come to life. However, it can also be a little overwhelming when you’re unfamiliar with some of the technical terms. To help remedy this we’ve defined a few of the custom home building terms you may hear […] The post 5 Key Terms to Understand in Custom Home Building appeared first on J. Thompson Builders.
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