3 TYPES OF NEW CONSTRUCTION HOMES

1. Spec Home (Speculative Home):

• Builder's Vision: Spec homes are built by builders based on their vision and design preferences, without a specific buyer in mind.

• Limited Customization: Buyers usually have minimal input into the design and layout of the home. These houses are often completed or nearly completed before being offered for sale.

• Quick Move-In: Spec homes are typically built to sell quickly, so they are a good option for buyers who want a new home without the long construction process.

• Fixed Features: The features, finishes, and materials are pre-selected by the builder, and customization options are limited.

2. Semi-Custom Home:

• Personalization: Semi-custom homes offer a higher degree of customization compared to spec homes. Buyers can often choose from a selection of floor plans and have some control over interior finishes, fixtures, and layout modifications.

• Builder Templates: Builders provide a range of templates or pre-designed floor plans to choose from, and buyers can make certain alterations to these plans to meet their needs.

• Price Variability: The final price of a semi-custom home can vary depending on the level of customization and upgrades chosen by the buyer.

3.Custom Home:

• Tailored Design: Custom homes are built from the ground up to the buyer's specifications. Buyers have full control over the design, layout, materials, and finishes, allowing for a truly unique home.

• Architectural Freedom: Custom home buyers often work with architects and designers to create a one-of-a-kind residence that perfectly suits their lifestyle and preferences.

• Longer Construction Timeline: Building a custom home typically takes more time compared to spec or semi-custom homes because of the extensive planning and design involved.

• Higher Cost: Custom homes tend to be more expensive due to the unique design and premium materials used.

GUIDE TO THE LENDING PROCESS

1. Pre-Approval:

• Meet with Lender: The process typically begins with the potential homebuyer meeting with a lender or mortgage broker to get pre-approved for a construction loan.

• Credit Check: The lender will assess the borrower's creditworthiness, income, and financial history to determine the loan amount they qualify for.

2. Choose a Builder and Create Plans:

• Select a Builder: After pre-approval, the borrower selects a builder to work with on their custom home project.

• Architectural Plans: The borrower and builder collaborate on creating detailed architectural plans and specifications for the custom home, which are essential for obtaining financing.

3. Construction Loan Application:

• Submit Loan Application: The borrower submits a formal loan application to the lender, including the construction plans, cost estimates, and other relevant documentation.

• Appraisal: The lender may require an appraisal to determine the home's expected value upon completion.

4. Loan Approval and Closing:

• Loan Approval: Once the lender approves the loan application, they will issue a commitment letter outlining the terms and conditions of the construction loan.

• Closing: The borrower and the lender then close on the construction loan, and funds are disbursed as needed throughout the building process.

5. Construction Phase:

• Draws: During construction, the builder requests draws (disbursements) from the construction loan to cover the costs of labor and materials at various stages of the project.

• Inspections: Lenders may require periodic inspections to ensure that the work is progressing as planned and that funds are being used appropriately.

6. Conversion to Permanent Mortgage:

• Completion: Once the custom home is completed and passes final inspections, the construction loan is typically converted into a permanent mortgage, such as a fixed-rate or adjustable-rate mortgage (ARM).

• Repayment: The borrower begins making regular monthly mortgage payments, which may include property taxes and insurance, based on the terms of the permanent mortgage.

7. Enjoy Your Custom Home:

• Move-In: With the construction loan converted, the borrower can move into their custom-built home and enjoy their dream property.

HOW TO SELECT A CUSTOM HOME BUILDING SITE.

Location, Location, Location:

• Neighborhood: Consider the neighborhood's character, amenities, and proximity to schools, shopping, healthcare facilities, and your workplace.

• Commute: Evaluate the daily commute to work and other essential destinations, and factor in traffic patterns and public transportation options.

1. Zoning and Regulations:

• Zoning Laws: Understand local zoning regulations and neighborhood restrictions that may affect your home's size, style, setbacks, and use.

• Permits: Research the permit process and associated costs for your chosen lot.

1. Topography and Land Features:

• Slope: Determine if the lot is flat, sloped, or hilly. Sloped lots may require additional site work and excavation, impacting construction costs.

• Soil Quality: Soil testing is essential to assess its bearing capacity, drainage, and suitability for a foundation.

1. Utilities and Infrastructure:

• Access to Utilities: Check if the lot has access to essential utilities such as water, sewer, electricity, gas, and internet.

• Road Access: Ensure that the lot has legal and practical access to a public road or a private road with maintenance agreements.

1. Environmental Considerations:

• Environmental Impact: Assess potential environmental concerns like wetlands, protected species, or flood zones, which may require additional permits or restrictions.

• Landscaping: Consider existing trees, vegetation, and landscaping, as well as the potential for landscaping and outdoor living spaces.

1. View and Orientation:

• Orientation: The orientation of the lot can affect natural lighting and energy efficiency. Consider how the sun's path and prevailing winds will impact your home's comfort.

• Views: Take into account scenic views, sightlines, and privacy considerations when selecting a lot.

1. Budget and Costs:

• Purchase Price: Understand the cost of the lot, including any hidden fees, property taxes, and closing costs.

• Site Preparation: Factor in site preparation costs, such as grading, excavation, and utility connections.

1. Future Growth and Development:

• Future Developments: Research potential future developments or changes in the area that could impact your property's value and lifestyle.

1. Builder and Architect Collaboration:

• Consult Professionals: Collaborate with your builder and architect during the lot selection process. They can provide valuable insights into the feasibility of your home design on a particular lot.

1. Resale Value:

• Consider the Future: Think about how your lot choice may impact your home's resale value. A well-located and desirable lot can enhance your property's long-term value.

1. Due Diligence:

• Inspect and Verify: Conduct thorough due diligence, including site visits, surveys, and environmental assessments, before finalizing your lot purchase.

Types of custom home building contracts

Custom home contracts can vary depending on the specific requirements and preferences of the homeowner and the builder. Here is a brief summary of some different types of custom home contracts:

1. Fixed-Price Contract:

• In this type of contract, the builder and homeowner agree on a fixed price for the construction of the custom home.

• The builder is responsible for completing the project within the specified budget, regardless of any cost overruns.

Pros:

1. Price Certainty: Homeowners have a clear and guaranteed price for the entire project, reducing financial uncertainty.

2. Budget Control: Fixed-price contracts encourage parties to stick to the budget and avoid cost overruns.

3. Reduced Risk: Homeowners are protected from unexpected cost increases, as the builder assumes responsibility for budgeting.

4. Easier to Finance: Lenders typically prefer fixed-price contracts because they offer predictability.

Cons:

1. Higher Initial Cost: Fixed-price contracts tend to have higher initial prices to account for potential contingencies.

2. Limited Flexibility: Changes or upgrades during construction can lead to extra charges.

3. Potential for Lower Quality: Builders might select lower quality finishes to stay within the fixed budget.

4. May Discourage Innovation: Builders may be less inclined to suggest design improvements.

1. Cost-Plus Contract:

• Under a cost-plus contract, the homeowner pays the builder for the actual cost of construction, plus an agreed-upon fee or percentage for the builder's profit and overhead.

• This type of contract provides more transparency but can lead to cost fluctuations if unforeseen expenses arise.

Pros:

1. Transparency: Homeowners can see the actual costs of materials and labor, ensuring transparency in project expenses.

2. Flexibility: Easier to accommodate changes or upgrades during construction without significant financial penalties.

3. Potentially Lower Initial Cost: The absence of contingency fees can result in lower upfront costs.

4. Quality Assurance: Builders have less pressure to cut costs, potentially leading to higher quality work.

Cons:

1. Cost Uncertainty: Homeowners are exposed to cost overruns, as the final price is not fixed.

2. Budget Challenges: It can be challenging to control costs, especially if there are unexpected issues.

3. Administrative Burden: Requires more detailed record-keeping and documentation for both parties.

4. Potential for Disagreements: Disputes may arise over the actual costs, builder's fees, or the fairness of charges.

Ultimately, the choice between a fixed-price contract and a cost-plus contract depends on the homeowner's priorities and risk tolerance. Fixed-price contracts offer predictability but may come with higher initial costs, while cost-plus contracts offer flexibility but require careful budget management. To mitigate risks, homeowners can also explore hybrid approaches like a cost-plus contract with fixed builder fee to protect the project from unnecessary cost overrun for counseled conditions or untestable material and labor prices. Consulting with legal and construction professionals is essential to make an informed decision based on individual project needs and goals.

Commonly asked questions

What is a custom home?

• A custom home is a residence that is uniquely designed and built according to the specific preferences and needs of the homeowner. It is tailored to the owner's individual requirements, from the architectural design to the choice of materials and finishes.

1. How does the custom home building process work?

• The custom home building process typically involves several key steps, including design and planning, obtaining permits, selecting a builder, construction, and final inspections. Each step is customized to the homeowner's vision and requirements.

1. How long does it take to build a custom home?

• The timeline for building a custom home can vary widely depending on factors such as the complexity of the design, size of the home, and local permitting requirements. On average, it can take anywhere from 6 months to over a year to complete a custom home.

1. What is the cost of building a custom home?

• The cost of building a custom home varies significantly based on factors such as location, size, design, and the quality of materials, site conditions and finishes. It's important to work closely with a builder and architect to establish a budget that aligns with your vision.

1. Do I need to hire an architect for a custom home?

• While it's not always required, hiring an architect is a personal choice for custom home projects. Architects can help you create a unique and functional design that meets your needs while ensuring it complies with local building codes and regulations.

1. What should I look for when choosing a custom home builder?

• When selecting a custom home builder, consider their experience, reputation, portfolio of past projects, references, and whether they understand and can execute your vision. It's also essential to discuss pricing and contract terms.

1. Can I make changes to the design during construction?

• Making changes to the design during construction is possible but can be costly and may lead to delays. It's best to finalize the design before construction begins, but if changes are necessary, discuss them with your builder to assess the impact on the project.

1. What permits and approvals are needed for custom home construction?

• The specific permits and approvals required depend on your location and the scope of your project. Common permits include building permits, zoning permits, and environmental approvals. Your builder can help you navigate this process.

1. What are some energy-efficient options for custom homes?

• Energy-efficient options for custom homes include installing energy-efficient windows and doors, using LED lighting, incorporating high-efficiency HVAC systems, adding insulation, and considering renewable energy sources like solar panels.

1. How can I ensure quality control during construction?

• Quality control during construction can be ensured by hiring a reputable builder, conducting regular site inspections, communicating with the builder regularly, and using high-quality materials. A professional home inspector can also help identify any issues.

1. What warranties are typically provided for custom homes?

• Custom homes often come with warranties for various components, such as a structural warranty, roofing warranty, and appliance warranties. The specific warranties can vary, so be sure to discuss this with your builder. Oklahoma requires a 1 year builders warranty.

1. How can I stay within my budget during custom home construction?

• To stay within budget, establish a detailed budget upfront, prioritize your needs versus wants, work closely with your builder to monitor costs, and avoid making extensive changes once construction has begun.

1. What are some design trends in custom home building?

• Design trends can vary, but some popular ones include open floor plans, sustainable and eco-friendly features, smart home technology integration, energy-efficient design, and the use of natural materials.

1. What is the best time to start the custom home building process?

• The ideal time to start the process is when you have a clear vision, budget, and have secured financing. Additionally, consider factors like local weather conditions, as construction may be affected by seasons.

1. Can I use my own architect and designer for a custom home?

• Yes, you can use your preferred architect and designer for a custom home, but it's important to ensure they have experience in residential design and understand local building codes and regulations. It is best to consult with the builder during the design process to get an accurate depiction of costs of construction for a particular design.