5 Key Terms to Understand in Custom Home Building

  • 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.
Custom home building in process_custom home building terms to understand

Construction in progress at Ridge Road , one of our custom built houses.

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 during the building process.

1. House Plan

The house plan is the guide book for constructing the house. Also referred to as the blueprint, the house plan contains the layout of everything, including the floor plan, foundation, and even the location of the electrical and plumbing systems. The house plan also specifies the materials needed for construction and is used to estimate the cost to build the house. For more information about choosing a house plan, read our blog post 10 Tips to Help You Choose the Best House Plan .

2. Custom vs Spec vs Tract Building

A custom home is one built specifically for you, from the house plan to the color scheme. Building a custom home allows you to participate fully in the design process, working together with the builder to balance budget and design. Our custom homes are built to meet your specific needs, whether you desire a gourmet cooking kitchen, dedicated theater room, or both! Another benefit to building a custom home is you control the lot purchase, ensuring your home is built in the ideal location for you.
Spec home is short for speculative home. These homes are designed and built in tune with what the majority of buyers are looking for in a house. They are well-built but they may not have everything you want in your own dream home. The amount of input a buyer can have in the design depends on what phase of the construction process the house is in. If you purchase the home early enough it may still be possible to select paint colors or even some fixtures such as countertops. However, one benefit to choosing a spec home is that it is often ready for move in quicker than a custom home because it is already fully or partially completed.
A tract home is similar in style and structure to all the other houses in the development. Every house on the street will have essentially the same floor plan with only a few option packages. Buyers have little to no input on the design of their home. Because these houses are built in volume, they are often offered at a lower cost per square foot. Tract homes are also built very quickly and often sacrifice the quality of materials, such as cabinets and carpet grade, in favor of saving time and money. However, these houses can meet the basic needs of some buyers, especially first-time homebuyers.

3. Contractor vs Subcontractor

Contractors coordinate the materials, equipment, and labor necessary for building the house. They oversee all aspects of the construction and are responsible for communicating with all parties, including the client and the subcontractors. Contractors also apply for permits, provide on-site utilities, secure the property, maintain accurate records, and also keep track of the budget.
Subcontractors are workers hired to help build the house. Most home builders hire specialized subcontractors to complete certain parts of the building process, such as pouring the foundation or installing the roof.  These subcontractors are hired using subcontractor agreements to protect all parties involved and outline what materials and services will be provided.

4. Covenants

Covenants limit the type of home you can build and some of the design choices. Most newer subdivisions have covenants regarding the size of your home (usually requiring a minimum square footage), and may also specify the type of roofing or fencing you can use, paint colors choices, whether you can build a two-story home, and if you can have a shed.  It may also contain other restrictions that could conflict with the type of custom home you desire. Covenants are often 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.

5. Fixed Price vs Cost Plus

With a fixed price contract, the builder gives a final price for the house before the house is built. Certain allowances are set up for the buyer to make selections on finishing touches, and the buyer is responsible for covering the difference if their selections go over the allowance. A benefit to fixed price is that the buyer knows ahead of time what the final cost for the house will be. However, there is a lack of transparency with this system between the builder and the buyer. Some builders are motivated to spend as little as possible on materials to increase their profit margin. It is important to choose a builder you can trust to create a quality home.
With cost plus contracts, the customer pays for the actual cost of the house plus a percentage of that cost as a “builder fee.” The builders are focused on giving the buyer exactly what they want without being tempted to cut corners. This adds an extra level of flexibility to designing the house, as the buyer and builder work together as a team to weigh design choices with the budget as the project evolves. However, the final price of the house is unknown until the project is complete.
At J. Thompson Builders we take great pride in working with our clients to bring their unique visions to life. With a creative eye for details, our team specializes in completely custom homes and other construction projects. Visit our Custom Home Gallery to see some of our finished projects.
Ready to see your dream home come to life?   Contact us to discuss your project.

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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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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