In the residential construction home business, one of the more trickier things to make sure sufficient funds are available for your project is the appraisal. Essentially, once a client orders their home and your custom home plans have been drawn up, we send the contract along with the blue prints to the lender. Of course the lender needs to place a value on the structure and the only way to do that is to get an appraiser to determine its value. This cost is passed along to you the client and it typically runs around $450-600. Depending on how busy things are in the real-estate world, appraisals can take up to 3 weeks.
Appraisers use a software program where values are placed on such things as square footage, sizes of garage space, quality of products, such as granite or Formica. Where you build is perhaps the largest contributing factor because they will pull values from other homes in the area that recently sold or were constructed. View lots, homes on acreage, existing structures, all play a role in determining worth of the project.
After the appraisal is completed, the lender will set in motion what is referred to in the business as “funding the project”. If the value of the project, cost of construction or acquisition cost is more than the appraised value, the client(s) will have to bring “money to the table” to cover the difference. If your appraised value is more than the acquisition cost, depending on how long you have owned the land, a down payment will be determined to fund the loan. Most construction loan programs that banks use take into consideration the length that you have been on title with the land; if over a year, known in the business as “seasoning”, you can obtain 100% financing. You will have to confirm of course if your lender offers this. If, though, you are negotiating on land, then banks offer different programs that will require as little down as 5% up to 20%. For the most part, rates are similar, but “closing cost” can often be different. Closing cost is margin that in essence means the cost of doing the business of getting the loan in place. Say a bank says they have a 3% closing cost. If your loan is $300,000 then it would equate to roughly $9,000 dollars. That money can be for the loan agent, but mostly it’s what the bank is making off the sale of the money it uses to loan to you. A strong word of caution here: when they say 3%, it does not always mean 3%. They still have junk fees. A junk fee might be “courier service”, “Administrative Services”, “Pen Use”… Not to be funny, but when you read some of the fees, you might want to chuckle to keep from crying. We did mention 3% closing cost but others can be 2% and some higher if your credit worthiness and or FICO scores are difficult. You might be able to negotiate some of the junk fees, but I have found it almost impossible to negotiate the closing cost fee unless it is for a large sum of money. At this point it’s time for a review:
Let’s reflect on what we have learned
- Select a builder to build your home (True Built Home should be your logical choice)
- Select the home you want
- Order your home-processing payment from $2500-3500 will be required
- Get your custom plans completed by our excellent design team-depending on work load and any changes you make it can take up to 2 weeks
- At this point we can send the blueprints to the lender along with on the other important paper work for appraisal, 1-2 weeks. We also send the plans out to get engineering if needed-1-2 weeks
- Once appraisal has been completed, the lender normally collects all the bids and estimates for the project and “runs” the numbers
- Once engineering is done and all the financials look good, client submits for building permit
- Once the permit is completed-4-6 weeks for most counties/city, you’ll want to call your local True Built Home Branch and request your pre-con meeting
- You’ll want to bring all county/city paper work, along with your plans stamped from the county/city to the per-con meeting
- Under normal construction times, we should be able to get a foundation crew to your site within 2 weeks. During especially busy times, it may take longer
- The pre-con meeting finalizes all selection and any last-minute changes to standard or upgraded items
- Depending on cost of the project and whether or not you own your land, a down payment maybe require to the lender to fund the project
- True Built Home is given an escrow number and we verify funds are available. If you are a cash deal, we collect a percentage of the first payment at the pre-con meeting
Granted, all the above things are not “inspired”, it typically flows this way.
One of the fundamental things the owner of True Built Home, Lewis D Mann, wanted when he started the company was to impart as much knowledge about the products he puts in the homes; the process that True Built Home uses to construct their beautiful house and the transparency of the process to you.