How to Finance Your Custom Home Build
Congratulations! If you are reading this post you are most likely ready to build a custom home. For some of you this will be your forever home. While others are tired of relying on a production builder’s taste to determine how they live and how much it will cost. NO THANKS! Most likely you have at least financed one or two homes. The process of financing a custom home tends to be slightly different.
EDUCATION
Congratulations! If you are reading this post you are most likely ready to build a custom home. For some of you this will be your forever home. While others are tired of relying on a production builder’s taste to determine how they live and how much it will cost. NO THANKS! Most likely you have at least financed one or two homes. The process of financing a custom home tends to be slightly different. I want to get this out before we go any further. When you purchase a home from a builder that he has designed and built..you are paying for his interest payments and overhead. I have sold 1000s of new homes for various builders over the last 17 years. At a minimum 6 months of carrying cost is adding to your purchase price after the home is complete. This alone could be 10’s of thousands of dollars. What am I saying? If you purchase a home from a spec or production builder, they most always plan that it will take 6 months for the house to sell from the time it’s completed. If you buy this home? You reimburse him for all this money.
We will discuss 3 main areas in the custom home building process;
Land Aquisistation
Construction Financing
Permanent Financing
Land
Most often you will have to purchase land to build your new custom home. Some people have inherited land from family and this will certainly save money. For the rest of use, we will need to purchase and or finance land. There are many local or regional banks that have loan financing products. Most often banks are more likely to finance land that is already developed. In this I mean some grading and utilities are in place at least. This can happen in a custom home neighborhood where the developer is selling the lots to both builders and end users. This doesn’t mean that you cannot finance raw land. In my professional experience, most people purchase their land at least 1 year prior to beginning the construction process. Why? A quality custom home doesn’t happen overnight. Most likely it can take a year to hire your builder, architect, interior designer and to assemble the rest of your team. It takes time to draw plans, create budgets, make selections, apply for permits and obtain your construction and permanent financing. In many cases if you pay cash for your land and hold for the land for 1 year prior to taking out a construction loan--most banks will offer a 25% equity credit for the value of the land that you own free and clear.
If you opt to finance your land most banks will require a 20%-25% down payment, 1 year financing term that can be extended, and rate as much as 2% higher than prime. Once you close on the land, you will be responsible for the taxes and insurance for the parcel.
Construction
When you purchase a home from a production or spec builder the risk is much lower for the bank. Typically said builder has a long running relationship with his preferred lender. Sometimes they function off (1) line of credit while others will obtain a loan for each home they build. Due to the complexity, many banks don’t offer construction financing. Don’t worry there are many options that are available. When you opt to build a house on your own as an owner builder or using a custom home builder--the banks have to consider a few things. Does the builder have a proven track record? Does he/she have the resources to complete the project on time and on budget? Will the homeowner abandon the project and leave them with a half finished house in a market they don’t really know? How specialized is the homeowner going and can we sell this house as the bank if needed? Considering these factors, in most cases you will be faced with tighter lending guidelines versus purchasing a resale home.
In most cases be prepared with a 720 or better middle credit score.
20-25% down payment
12 month extendable build period
Interest Only Payments monthly during your build time
Rates slightly higher than prime
Prior to obtaining financing the bank will review your plans, builder’s background, drawings, anticipated appraisals, specifications, budgets and more. This is totally about protecting the interest of the bank. It is ultimately your responsibility to ensure that you are comfortable in the skill set and communication that your builder may possess. Rarely, will the bank intervene if you have a dispute with your builder...choose wisely.
If you have a balance on your land the bank will always want to be in first lien position. Any money owed on the land will be paid first. Typically, you do not have to pay off your land prior to building your custom home. It is important to keep in mind that during the construction process you will need to make monthly interest payments to cover the money your builder has “spent”.
Lenders have a formal “draw” process by which you or your builder can request funds for the project as it progresses, rather than giving a lump sum at the beginning. Most lenders operate on a monthly draw request schedule. When the builder submits a draw request, they will request a certain amount based on what is specified in your construction contract (usually either based on percent of completion or actual costs). The bank will then typically send out an inspector to verify that the work (for which the payment has been requested) has been completed. After verification, the bank will release the funds. The bank provides checks and balances to ensure that the funds are disbursed only for work that has been completed and that all material vendors and trade partners are paid. Lastly, most banks require and verify that progress lien releases are signed for each payment to minimize the chance that a vendor or subcontractor could file a lien for nonpayment.
Permanent
Once the house is completed, you will need financing in place to repay the bank long term for the house itself. There are a couple of major options.
Your bank may require that you refinance your total debt. There will be a new loan application and loan to value determination. Most often you can decide between adjustable and fixed 15 or 30 year financing. This by far is the more expensive option. I almost always suggest what we call a 1 time close. With this product there is 1 loan application, 1 appraisal, 12 month term with predetermined monthly payments to begin at the beginning of month 13. At this point your loan automatically converts to permanent financing.
Nothing is perfect but I tend to prefer a one time close product because your interest rate is fixed, the final appraisal is done speculative prior to building your home, and there is no added cost of a second closing.
This is by no means the answer or explanation for all the ins and outs of financing a custom home. I do hope that you have a better understanding of how to begin the process of building your custom home.
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I am overwhelmed: Shedding Light on Light Plans—A 4 Step Plan to Illuminate your Custom Home
Lighting: it’s one of the most important and often the most overlooked elements of home design.
Lighting is jewelry to a room. When well done—it pops. Quality lighting can set you at ease, lend a unique character to a room, and give you a sense of the person who inhabits the space.
EDUCATION
Lighting: it’s one of the most important and often the most overlooked elements of home design.
Lighting is jewelry to a room. When well done—it pops. Quality lighting can set you at ease, lend a unique character to a room, and give you a sense of the person who inhabits the space.
Quality lighting happens when we manipulate light sources to compensate for the lack of natural light. Simple.
But, how do you get there? How do you create a functional and stylish lighting decor in your home’s interior or exterior space and make every purchase count?
A plan. Your lighting plan will become as important as any flush mount or chandelier.
The Plan
What’s your objective?
The first and most critical part of the plan is to ask yourself: why do I want to change the lighting in a particular space?
There’s no right or wrong answer here. Are you bored with the old look? Perhaps you need extra light to apply your makeup so want to improve the illumination in the master bathroom.
Maybe the seasons are changing and the natural light is shifting, so your lighting needs to as well.
This is a fun, DISCOVERY phase to understand your motivation for change, and to understand why you’re investing time and resources into this residential decor project. This step will provide a baseline to know the direction of your new lighting arrangement.
Set Boundaries.
Decide where you want to change the lighting, and don’t.
Most home projects become difficult and laborious because we say we want to change the living room lighting, but half way through the project we realize those changes affect the kitchen lighting. So take spaces into consideration, not just rooms. This lets you light your side of the bed that allows you to work while your partner sleeps.
And don’t worry, this doesn’t mean you have to double your budget, you just have to know the lighting boundaries.
The opposite is also true. If your boundary is the kitchen countertop, sticking to that space will prevent you from rewiring your entire kitchen.
Trust me. Be real about your objectives and boundaries during the planning stage to save time, energy, and money in the long run.
A sketch of your plan is also imperative at this point. You don’t have to be an artist, but it’s necessary to visualize precisely where you want that task light to hit because this will affect where you wire.
Take stock!
What natural and sourced light do you already have? Make a list of light sources, including natural, that you have within your set boundaries. Where and when does natural light enter into the space? What permanent and moveable light fixtures exist within your boundary?
Knowing this, you can limit your purchases to what you need and leave the rest on the store shelves.
Theme
A lighting theme is crucial to your design plan. It simply means you’ve chosen a consistent lighting style where pieces relate to one another, but don’t necessarily match perfectly. Rest assured, the style of your home doesn’t have to limit the lighting theme.
How to develop a theme—select a statement piece, a lighting centerpiece. Is there a chandelier or pendant that you just can’t get off your mind? Use this as a starting point to select other complementary pieces that are both stylish and functional.
How do you know it’s functional? It helps you to viably achieve your lighting goal.
So, if the objective is to add more light to the master bathroom in order to better apply makeup, I suggest a mirror with builtin led light strips. These lit mirrors can act as the centerpiece, an anchor to your bathroom light scheme.
These come in lots of price points and options, including vertical or horizontal lighting stripes that can be adjusted between cool and warm color temperatures. This mirror is designed specifically for bathrooms and illuminates specifically for better makeup application and shaving.
Another option is the LED bathroom bar light. These versatile and high-power lights can be placed above or along existing mirrors, and adjusted to shed light where you need it most.
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Timothy’s Finds: Mirrors
Mirrors are the perfect accessory and art piece! They come in various sizes and material compositions. No matter what your budget maybe, with a little effort you can find a mirror that is both useful and creative.
INSPIRATION
Mirrors are the perfect accessory and art piece! They come in various sizes and material compositions. No matter what your budget may be, with a little effort you can find a mirror that is both useful and creative. My tip—always go bigger than you than is needed. Also, if it going on the wall, please follow the installation instructions. If needed, hire a handyman to install. Do you really want 7 years of bad luck?
Here are just a few of my favorite mirrors!
MIRRORS
Timothy Rivers Interiors
I hope you found this article interesting and helpful. Wanna keep in touch? Consider joining my weekly newsletter. A weekly newsletter keeping you up to date on the latest of all things real estate, interiors, renovations, and custom home building.
Join our community of over 5000 readers and receive a well curated mix of inspiration, education, and resources on all things related to curating the home of your dreams.
Custom Homebuilding: Upgrade now…not later.
When deciding to building a custom home there are many decisions to be made. Whether you are building totally custom or from a production builder that offers a high degree of specialization there are some things that are better to do just as you want them the first time around
Custom Home Building
When deciding to building a custom home there are many decisions to be made. Whether you are building totally custom or from a production builder that offers a high degree of specialization there are some things that are better to do just as you want them the first time around. Yes, its true builder’s do make money off options and upgrades. Do you really want the hassle of redoing what could have been done properly the first time?
“If will require a major tear out, demolition and hauling of debris….spend the money up front.”
While there are many options and upgrades available when building a custom home, we will focus on options that are more interior specific. What windows work best? Upgraded driveway materials? Luxury roof materials? These are very important options to consider—we will discuss at a later date.
Hardwood flooring-Hardwood flooring is the benchmark for quality flooring in residential usage. Don’t believe me? Visit your favorite floor showroom or big box storage and look at the number of products designed to look like wood without the cost. It is no secret that water is not a a friend to hardwood flooring. I do not recommend using wood in areas that are susceptible to moisture and potential leaks. When it comes to appeal for resale and things that home buyers tend to seek when purchasing…you will always find renovated kitchens, bathrooms, and hardwood flooring at the top of the list. I highly recommend studying the characterics of the species of woods that are available before making a decision. Materials that may be ideal for South Florida may not work well in Scottsdale. If you decide that wood is right for you project, I suggest keeping the flooring consistent throughout the project. You don’t want 3 different hardwoods of varying thickness, stain, and width in the home. This is going to come across as amateur and not well planned.
Ceiling Height- This is not to be overlooked. If you know the basics of construction you can imagine how difficult and expensive it would be change the ceiling height after the house is built. Today, the minimum ceiling height I would suggest is 9’ on the 1st and 2nd floor. If its in the budget consider 11’ on the 1st floor. To step things up a few notches….add 8’ door. Talk about luxury! Taller ceilings can give your home a grander, more spacious appearance and feeling, Finally in the planning stages look at adding coffered, trey, cathedral, and vaulted ceilings. These features add luxury, volume, value, and architectural detail to any new home build.
Cabinetry-When building a custom home, one of the largest line items you can see in the budget will be for the cabinetry. There are millions of possible combinations of material and craftmenship standards. This is an area that you don’t want to skimp.
Cabinetry can be found in the kitchen, bathroom, closets, pantry, mudroom, and laundry area.
I highly suggest splurging on high quality cabinetry when it is possible. To the touch you want a heavy weight on the doors when you open and close them. Don’t wanna hear the doors and drawers slam all day? Consider soft close glides. .I highly suggest taller upper cabinets, glass/cane front doors, full overlay doors, and simple fresh non-traditional door fronts. Far too often, people select elaborate cabinets and default to busy counter tops—-they are never happy and the space looks dated quickly.
Master Bathroom-We all know that kitchens and bathrooms sell homes. I am not going into materials and size here. It is important to think about how you want to live. Will you share the space with your partner? Will guest have access to your master bathroom? Do you want long vanity that is share with your partner or 2 smaller units opposite walls? What about shower? What works best for you—separate tub and shower or a combo? Have you dreamed of a free standing ceramic tub…but you think its too expensive? What about 1 or 2 water closets? It is important to spend enough time working on your space plan for the master bathroom. If you build your home thinking you don’t need a tub because you think its cool…it will cost a fortune to rework the plumbing, tile work, flooring electrical to add it after the fact. Take your time. A quality master bathroom is not just pretty finishes and fixtures. the space plan is equally as important.
I hope you found this article interesting and helpful. Wanna keep in touch? Consider joining my weekly newsletter. A weekly newsletter keeping you up to date on the latest of all things real estate, interiors, renovations, and custom home building.
Join our community of over 5000 readers and receive a well curated mix of inspiration, education, and resources on all things related to curating the home of your dreams.