Start building with Highlander Construction in Radford, Virginia. Beginning a new construction project can seem daunting, but it doesn’t have to be. The following
list of simple steps will help you decide if building is right for you and how to get started. Read about satisfied home owners with Highlander Construction homes.
Before you decide to build consider the pros and cons
Pros of Building:
|Pros of Buying:
|Cons of Building:
|Cons of Buying:
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Initial Steps for Building a New Home
The first, and most important, step is to get pre-qualified or pre-approved for financing so you that know definitely what you can borrow and spend. Too often people start with buying a lot or picking a plan and interviewing contractors without truly knowing what they can afford. Getting pre-qualified or pre-approved will arm you with the financial information you need to purchase a lot, pick a plan, and select the level of specifications for which your house will be built.
Once you know the amount you can borrow and spend the next step is to determine what you want to borrow and spend. Where is your comfort level? Just because you can borrow $425,000.00 does not mean you want to spend that amount. Determine what you want your monthly mortgage payment to be then extrapolate your loan amount and set a construction budget. Be sure to do these things before you start looking for a lot or a house plan.
The order of the next two steps can be swapped depending on your preferences. Either you find a lot then pick a plan that works for that specific lot or you pick your plan and then go search for a lot that will work for your plan. Lots and house plans fit together like a puzzle. If you try to build a specific plan on the wrong lot you could end up spending a lot more money. An example of this might be building a house plan which has a full basement on a flat lot. You are going to spend a lot of extra money excavating the lot and building egress than would have if you had selected a lot that sloped from front to back.
Finding a lot is not difficult unless you are set on building in a specific place where lots may not be available. Otherwise most developers and land owners are eager to sell you one of their lots. I suggest you consider engaging a realtor. Commissions on the sale of property are paid by the seller and while this means you may pay a little more to cover the cost of buying a listed property, the experience and professionalism that a realtor can bring to the process can be invaluable. A realtor can help provide you with a list of available lots and they will accompany you to preview those lots. A realtor can research and provide you with lots of information about the lots like whether they are served by public utilities, what school district the property is in, and the local property tax rate. If and when you decide to make an offer, your realtor will prepare the contract documents and manage the process all the way through closing. Whether you choose to engage a realtor or not there are many factors to be considered when selecting the right lot.
The next step is to select or design a house plan (unless you already have a plan and need to find the right lot). Books and magazines of stock house plans can be found in many places. Traditionally you can find them at the check out lines of grocery stores and home improvement centers as well as bookstores and magazine stands. Stock house plans can also be found on line. Many national designers have impressive search engines on their websites that make searching for plans very easy. Three popular on line plan sources are Design Basics, Frank Betz Associates, and Donald A Gardner Architects. Once you find a plan you like you can order the actual set of building plans on line for a cost. Most residential plan sets available through a magazine or on line are going to range in cost from $750.00 up to $5,000.00 (or more) depending on what options you choose and whether you require any alterations to the base plan.
Another option is to hire an architect, residential designer, or design-builder to custom design your house plan. The cost for design services will vary greatly with an architect usually being the most expensive option; however to be fair an architect will usually include a bid package to accompany your house plans which can help you shop to get the best construction price. Some residential designers may also be able to provide a bid package.
The difference between an architect and a residential designer comes down to education level, licensing, and insurance. In Virginia, a house plan is not required to be designed and “stamped” by an architect in order to be permitted for construction so you are not required to use an architect. Residential designers are generally less expensive than an architect because they do not have the same educational background, they are not licensed by the State, and they are not required to carry any type of insurance. Architects must meet all of the above standards and that is why they have to charge more for their services. While we are not prepared to say whether you should choose an architect or a residential designer to design your home, we do caution you that if you choose to work with a residential designer be sure they are registered with the State and, at minimum, have Errors & Omissions insurance coverage in case they make a mistake in the design. Architects must carry this type of insurance to be licensed.
The final option for design services is to contract a design-builder. A design-builder is a contractor who has internal design services and can offer you a one stop shop for the design and construction of your new home. There are advantages and disadvantages to the Design-build process which we explore in greater detail in another article, but as a design-builder ourselves we highly recommend this process (big surprise).
The next step after you settle on your lot and your plan is to select a builder/contractor (unless you are working with a Design-builder or choose to act as your own contractor). We explore both of these options in greater detail in other articles, but suffice to say this is a critical decision that should be taken very seriously. Do your homework and don’t be afraid to spend more money on a quality builder. For most people their home is the most expensive and important thing they buy in their life, yet they let price alone dictate their choice of contractor. Think of hiring a contractor like selecting a doctor to perform surgery. Do you real want to pick the doctor who offers you the lowest price or do you want the doctor who will do the best job? At Highlander Construction & Development we strive to provide our customers with value which we define as a balance between price and quality to meet our client’s budget.
Once you have selected a contractor it is time to negotiate and execute a contract that includes detailed specifications. We explore in greater detail different types of contracts and the vital parts of a contract in other articles, but be sure you engage an attorney to assist you in this process. It pays to spend a little money to have your attorney review your contract documents to make sure you are protected. That’s not to say the contractor will agree with every recommendation your attorney advises, but it is important to have a second set of eyes look over the contract before you sign it. Remember that a good contract is fair to all parties.
The next step in the process is to obtain financing and close. This is the time where you have to settle on a lender, select a specific loan program, fill out an actual application, provide the required documentation so the lender can verify the information on your application, select an attorney, and pay some amount of up front fees. The lender is going to also need copies of the following:
- The executed contract with your contractor
- Your house plans and specifications
- A plat of your lot
With this information the bank will order an independent appraisal. An appraisal is the process where your plans and specifications are evaluated by an independent licensed professional for the purposes of assigning a value to your home so the bank can be sure they have proper collateral on the loan they are making to you. A lender will not make a loan if the appraisal does not support more than 110% to 120% of the loan amount. This calculation is called Loan to Value (LTV) and it is critical in determining how much equity you are putting up and how much collateral the bank has on the loan they make.
During the time when the appraisal is being conducted the bank will configure a Schedule of Values which will determine how funds are to be disbursed during construction. Basically the process if construction is broken down into stages and each stage is assigned a percentage value totaling 100%. As work on site is completed and draws are requested the lender will perform an inspection to verify how much work has been completed and they will release a percentage of the construction loan funds equal to the percentage of completion. If your construction loan is $300,000.00 and the contractor requests a draw the lender will perform an inspection then disburse funds according. Let’s say the contractor has completed 20% of the work based on the Schedule of Values the draw amount would be $60,000.00. Before the funds are disbursed the lender will generally also order a title search to be sure no liens have been filed on the property.
Once your financial information is verified, the appraisal is returned and meets the bank’s requirements, the Schedule of Values is set, you are ready to close and begin construction. Now the fun really starts.