Building Your New Home
Tuesday, July 2nd, 2013 | Uncategorized | No Comments
Working with banks, title companies, and builders
By Michael Jamison
Let’s start with choosing and working with a custom homebuilder. Of course, this starts with choosing or developing your floor plan, but you also need to have a general idea of what you want the exterior and interior finishes to be in your new home. This means deciding the finishes of the floors in each room, the amount of tile (floors, walls, showers), and the type of cabinets and countertops you prefer. What will the exterior look like? Brick, stone, siding, or a combination of finishes? Roofing? Understanding your budget when selecting finishes will help keep the cost in line and, when comparing builders, help you understand what each builder’s price includes. Make sure all costs, including permits, utility hookup fees, and site development costs, are included in the contract amount. Some builders separate these soft costs so it initially appears that they have the best pricing.
Investigate the builder. Is he licensed, and what is his license limit? In Tennessee, builders have a monetary limit for the homes they are qualified to build. If the builder doesn’t have a monetary limit high enough for the home you are considering building, you will leave yourself unprotected. Don’t work with someone offering “construction management services” and are not licensed builders. In Tennessee, anyone offering construction management services must be licensed. Who is the contract with – the builder on the license or someone else saying he’s working with the builder as a supervisor? Make sure the builder is properly insured. Beware of builders asking you to carry the insurance for the project. You will still need a rider on your current homeowner’s insurance policy, but make sure the builder has both liability and workman’s compensation insurance. Look at the homes the builder has built, and look closely at the details or quality of construction. Ask the builder for references from previous clients, and contact them to see how they liked working with the builder.
Communication is key. Does the builder communicate well with your questions and concerns? Will the builder give progress reports of the construction, provide photos, and answer questions in a timely manner? This is especially important if you are located in another state and building remotely.
The bank or loan company will need a signed contract from the builder, a sworn contractor’s statement outlining all costs of construction and the details of the lot you are building on (location, cost, owned outright or financed). This information, along with an appraisal ordered by the bank of the home you are building and its location, will determine the value of the completed project. Once the value is determined, you will decide the amount of the loan you want, determined by your pre-approval and the amount of equity you will be contributing.
The title company will work closely with your lender and builder during the construction process to ensure that all contractors and material suppliers are paid in exchange for a legal waiver of lien rights. Payments are paid out to the builder and sub-contractors in periodic payments called draws as the building progresses. You should inspect the home and contractor’s statement at each draw to make sure it is being built to your satisfaction. The bank will order an inspection at the time of each draw to make sure the construction and materials are in place for the amount requested. Once that is done, the title company, along with the lenders and your signed approval, will release the funds to the contractors. The title insurance company will also conduct a title search and issue title insurance to show there are no liens, or defects on the property and that there are no other people that have an interest in the property.
Have fun designing and selecting the finishes of your new home, and leave the details to the professionals that you’ve selected. The lender, title company, and your builder, working together with you, will ensure that your new home is built to your specifications and all labor and material suppliers are paid.
Next month we’ll discuss construction techniques.
Jamison Custom Homes
(865) 884-3886
www.jamisonhomestn.com
