The real world usually isn’t perfect and people working on custom home projects always face a series of custom home mistakes, some of them common and others particular to a certain case. When these problems occur, it is important to stay focused and not to panic, as this would result in a series of mistakes.
We list here the ten most common custom home mistakes and some ideas on how to avoid them:
1. Designing a House Unlike Others in the Neighborhood
The first common mistake is that some people assume that they can build anything they want anywhere they want. This is simply not true. Building a house significantly larger or smaller than the other houses in the neighborhood can make your house undesirable and harder to sell in the future. You can avoid this problem by asking your real estate agent to show you houses that are selling in the neighborhood, and you can also ask for information on houses that have sold within the last three to six months. Check with the homeowners’ association (HOA) to find out what other homes are being built. Talk with the other landowners if you can to find out their plans.
2. Attempting to Build outside the Design Review Guidelines
Review the design guidelines before you buy the property. Design review committees are under no obligation to make exceptions. If you’re going to buy in a development of custom homes, then accept the fact that you’ll need to conform to the neighborhood. The more you design within the guidelines, the faster and easier your approval will be.
3. Thinking the House Will Be Worth What It Costs
Your house will never be worth the money you spent on it, it will worth the price that someone will be willing to pay for it. If you like something, it doesn’t mean that the potential buyer will like it too. As soon as you understand the value of the neighborhood, you can create a budget that fits your situation. If you’re going to finance your project, you’re going to be dependent on a budget that fits in line with the appraised value.
4. Paying Off the Lot Before Starting to Build
Banks are concerned with your liquidity, or how much ready cash you have available. After good credit, money in the bank is the next most important criteria for loan approval. Putting your money in your land ties up your money where you can’t get to it and the bank can’t verify it. The best way to avoid this mistake is to finance your land with a low down payment and hoard your cash until your construction loan is finished. Cash in your hand can save you from a variety of trials and tribulations along the path to your dream home.
5. Waiting for Permits to Investigate Construction Financing
Even though the construction loan doesn’t take place until you’re ready to build, you need to keep in mind several considerations in the design process — such as the compatibility of the house in the neighborhood and making the budget fit a lender’s guidelines — that can impact your ability to get financed. Even the wrong approach to land financing can delay your project for years. By the time you have submitted your permits, making significant changes to appease lending guidelines may be too difficult.
6. Applying for the Construction Loan Too Early
Applying for a construction loan too early may sound strange considering we tell you not to take too much time in the previous section. The key difference is the issue of applying for the construction loan. The safest general rule is to wait until your final plans are ready to be submitted to the building department. Applying at this time generally puts you within 60 days of breaking ground. Try and get as close as you can to the 60-day mark and communicate openly with your loan officer on your timing.
7. Applying to Too Many Lenders
Make sure your loan officer tells you who will be funding your loan. Loyalty goes a long way with good construction loan officers, so do your shopping first and then start the application process. After you start, make sure you keep aware of how the loan process is moving along. If you know of or anticipate any hitches, try to resolve them with your loan officer.
8. Borrowing the Minimum to Get By
The only way to know exactly what a custom home project will cost is to finish it. Therefore, the only time you can know your minimum loan needs is after completion. There is nothing worse than running out of money in a custom home project. You can always reconcile the proper loan amount after you have moved in and paid for everything in the project.
9. Spending Your Own Money First
The banks need to see cash reserves in your bank accounts and won’t count any of the money you have already put into the project toward the funds. If you’ve been using credit cards to fund construction, your credit scores decrease, causing even bigger problems for qualification. Your project can come to a grinding halt in the middle if you run into any financing difficulties, which can cost you even more money and may force you to take a more expensive loan to bail out the project. Have your financing all set to go when you’re ready to break ground. You can apply for a loan after you’ve started, but try to avoid those unnecessary risks if at all possible.
10. Selling Your Existing Home Before Building the New One
This is not a very good idea, since you might need to keep the old home during the build for a few reasons. Many lenders don’t factor your old house in their calculations for qualifying. You can take the necessary cash with a refinance or credit line at favorable rates and payments. Doing so gets you the cash today without having to sell the house. You can also avoid the cost and hassle of moving twice.
Remember that knowing these common custom home mistakes beforehand can save you the trouble of dealing with them, and you should really try to avoid such mistakes.