During the custom home building process it’s almost a guarantee that you will run into some stuck-in-the-middle problems, and is very important to know how to handle them. You are presented here with the most common of them and certain ways to deal with them.
List of the Most Common Stuck-in-the-Middle Problems:
My Home Is Behind Schedule
If your project is encountering a significant delay, that holdup can often affect the availability of the subs. Discuss the situation with your contractor. Communicate your concerns and financial risks. Talk about workable solutions, such as the option of using alternative subs. If the contractor is being negligent per the contract’s terms, you may need to discuss changing contractors. However, taking this step should be a last-resort issue at best. As long as you keep in mind the cost of any lender penalties, a couple of extra months isn’t worth cutting corners on a house that will last lifetimes.
My Construction Loan Is Expiring and the House Isn’t Complete
In such a situation, you need to remain calm and resolute. Most construction loans carry some sort of penalty for going over the allotted time limit. Although these penalties can be steep, they often can be negotiable. Discuss with your lender the minimum work required to roll the construction loan into a permanent loan so you can finish as soon as possible. Often you may be able to put some work off until after the construction loan is rolled into permanent financing.
My Contractor Wants More Money in a Fixed-Price Contract
When a fixed-price custom home project goes over budget, it’s either because the contractor’s estimate was too low or because the consumer keeps making changes to the original plans. If your contractor underestimated the project, sit down with him to renegotiate. Your requests for changes in the original plans are called change orders and they are your issue. Discuss the time and cost of each change before the contractor begins the process. If the contractor has already made the changes and you find yourself looking at the bill you didn’t expect, you’re probably on the hook, and you’ll need to cover these changes out of your own pocket.
Everything Costs More Than My Budget in a Time-and-Materials Contract
A time-and-materials contract exists when you’re responsible for all the material and labor expenses, and the contractor makes his money as an additional percentage of the total cost. When costs are your financial responsibility, the best way to deal with cost overruns is to keep a close watch on them. Weekly communication with your contractor can keep the overruns from getting out of hand.
The Bank Won’t Fund the Draws
Usually you encounter the problem of the bank not funding the draws, or requests for money, when the percentage of your house that has been completed isn’t relative to the percentage of funds you have taken from the bank. The bank will ultimately fund you all of any section, such as foundation or framing, when complete, but you have to get the sections complete first. If you can’t pry any money loose from the bank, make arrangements with your contractor to get to the next payment stage.
I’m Out of Cash
This usually stems from a combination of poor planning and putting too much cash into the project upfront. If you do run out of cash, try the following possible resources for cash.
- Credit cards: You can reimburse yourself after the project pays off, so don’t be shy, charge it!
- Friends and family: You’re borrowing a short-term loan, and who are you going to be entertaining in your new home? Let them share in all the joys of custom home ownership.
- Home equity loans: If you haven’t already tapped the equity in your current personal residence, now is the time. You’ll likely sell the house when finished anyway.
- Retirement accounts: Borrow if you can, liquidate only if you have to as a last resort. Margin accounts are credit lines secured against stock accounts. Liquidation of any retirement accounts could result in penalties and taxes, so be sure to consult your accountant and financial adviser before taking action.
The House Is Having Some Engineering Problems
If you have a major issue, such as a foundation that won’t support the weight or a structural wall that needs to be moved, you need to immediately communicate with the architect, contractor, and lender to determine a plan to resolve it. Often the solution requires some form of redesign and new approval of the changed plans with the building department. Most often a minor engineering issue will simply create a delay or expense.
My Contractor and I Can’t Get Along
When you selected a contractor, you picked someone with whom you thought you could trust your life’s savings and who exhibited good craftsmanship and excellent management skills. Finding someone who met all those requirements was a big challenge. Work hard to put personal emotions aside. Be willing to sacrifice personal ego and correctness for getting to the objective.
My Contractor Walked Off the Job
This problem can translate to time and money if you don’t act quickly. Unless your contractor left for reasons unrelated to your project, don’t attempt to reengage him. Depending upon your lender, you may be able to take over the helm and act as your own general contractor. If that option isn’t possible, then you need to work with the lender to find a contractor soon.
This Project Is Breaking Up My Marriage
Building a custom home can take its toll on family and relationships. If things do get tough, focus more attention on your relationships and let your contractor take over more of the day-to-day operations and worry on your custom home project.
These stuck-in-the-middle problems can be very annoying if you’re not expecting them, so you need to be prepared to face them and choose the most appropriate way in fixing them.