Categories: Blog

Building a new home is a thrilling opportunity for anyone looking to branch out from the norm. It gives you the chance to portray your personal style, rather than  the style of the market at a given time. The interior spaces are shaped to your needs and priorities, not those of another family or era. The dream you’ve held comes alive in a home that’s uniquely yours—unlike any other.

Building a home also can be a daunting prospect at first. You may even think it is too a big of an undertaking, or that it is too expensive, or too fraught. With the right team, and the right approach, building a new home can be an exciting journey each step of the way! Understanding the process helps you align your expectations in accordance with your vision and budget, to where you become a true partner advancing the project rather than someone hanging on for the ride.

In order to help you make the final decision, or to help you evaluate the decision, here are some tips drawn from real-life, custom home-building experiences that can make your dreams come true successfully—and with minimal stress.

What Does it Take to Build a Home?

A home-building project has six main components:

• Vision/Design
• Budget
• Lender
• Architect
• General Contractor
• Construction

We’ve broken these out to help show the big picture, but each component will overlap significantly at all stages.

Vision of Your New Home Construction

The home you imagine yourself living in has probably been taking shape in your mind for several years. You likely have a “wish list” that contains all of the features and ideas you’ve fallen in love with over time. However, more than one person—be it partner, spouse, children—will be living in the home. And people can have radically different ideas about what makes a dream home. Or dream living room.

It is one thing to toss ideas back and forth, but when it comes time to consider your final budget, priorities must be set and decisions must be made accordingly. If picking wallpaper or carpet becomes contentious, designing an entire home can present a dizzying number of choices and opportunities for disagreement. The majority of these choices are made at the outset. Are you building for a family? Do you like to entertain? Do you prefer austere or cozy spaces? High ceilings and big windows? Wide-open floor plans? Will you have house guests? Do you need workspace, or home offices? A roof-top deck?

The bottom line is that when it comes to budget, you might neeed to make compromises. Your budget will drive everything, from the location you choose to build your new home, to the exterior design and finishes, how fancy the bathrooms are, and whether or not you can include a wet bar in the home theater.

Individual line items such as tile, lighting, and plumbing fixtures may not appear expensive. But just like at the grocery store, it all adds up. Structural steel is expensive. Concrete is expensive. Stucco and composite paneling are less so.

So, the first step is to make sure everyone is on the same page. What are the priorities around designing and finishing the space? This conversation should be held openly and honestly, but not take up too much of your time.

You will see an immediate benefit when consulting with an architect if you have a solid idea of what you want and where you want it. Gather some photos of different spaces that appeal to you, making sure you can accurately describe what it is you love about them. Know that it’s never too soon to consider the kitchen footprint, cabinets, and where the island will go. Storage space is underrated and can often be overlooked. On top of that, do you imagine your home having a specific focal point or unifying design “theme”? These are just some of the questions you should be thinking about early on.Having a concrete groundwork will help put you on the right path from the start, and will help avoid unnecessary delays.

Budget & Lender For Home Construction

At this point, you will begin to find out the limits of your project. If you have already purchased a home, you understand the basics: income-to-debt ratios, interest rates, down payments, favorable appraisals, and so on.

Construction loans have a number of moving parts. They are for a fixed and short term: one year or so, not 30. You’ll likely be paying rent or mortgage during construction. The up-front, out-of-pocket money you spend on the architect can be considerable and it’s not until the plans are appraised that the bank will sign off on your loan (however, such out-of-cost expenditures are included in the money the lender sees you bringing to the table).

The loan will include a contingency in the range of 20% (which counts against the limit you can borrow). The home will generally need to be appraised for a fair amount over the construction loan value as you roll your house into a traditional mortgage to close the construction loan at the time of completion of the project.

Simply put, this means the construction loan provides the money to create your space and once that loan is paid off, you will take out a traditional mortgage on the finished home. The mortgage lender will want to see up-front equity value in the final product.

It may also be a good idea to acquire your own contingency fund, likely on the same order as the bank is requesting. You don’t want to put yourself in the position of having the project stall, or run out of money.

Who you choose as your lender will matter—maybe not as much as your general contractor, but they will play an important part. They will pay the general contractor, who will, in turn, pay the subcontractors. They’ll help you keep track of invoices and running totals.

Research and ask questions about everything, make sure you become very familiar with each step of the lending process. If the lender is responsive, proactive, and easy to work with, your sense of comfort and well-being will be enhanced immensely.

The Architect

Your architect will be someone you choose on a commission basis. You’ll want to make sure that they have an American Institute of Architects (AIA) contract. Their involvement and availability will vary on your project; for example, some architects will work closely with you and your contractor for the entirety of the project, some will only play a brief design role. If your architect is with you for the entire project, it will cost much more than that of a design where the architect hands off the finished plans and moves on.

As it was previously stated, you will need to pay the architect up front, generally on a schedule, and if the finished design doesn’t appraise as needed, you might need to modify the design—or disregard the original plan entirely.

You are going to want a realistic architect who has worked in your location, knows the building code, has completed projects you can visit and clients with whom you can speak—one who is keenly aware of your budget and dutifully respects it. It is also important to choose an architect who has a firm grip on current construction costs so that initial design work fits the budget. This will reduce wasted time and frustration over multiple revisions. Knowing the building code means the city will approve the plans first time around, perhaps with minor amendments, and the review process takes time (sometimes six weeks or longer). You don’t want to repeat it.

The right architect will create a design that is buildable, one you will love, and will establish a professional relationship with you that is responsive and truly collaborative. Don’t be afraid to—cordially—let your architect know if your visions are diverging, seek to understand why, and figure out how to realign your goals.

A detailed and well-considered set of construction plans will the basis upon which the project will be appraised by the lender, approved by the planning authorities, and bid on and built by the general contractor. The better the architect and the plans they create, the better the bid and the smoother the overall build.

The General Contractor

The contractor will be part of both the financial and building aspects. Your vision goes into the design and the design defines most of your costs, as well as the outcome of the finished home.

Once you are satisfied with the design and have chosen a lender, you’ll need to put your budget and design into action with the team who is going to build the home.

In other words, you’re ready to select your general contractor.

Like the rest of the home-building process, you should begin researching potential contractors early on. In choosing a contractor, you’ll want to check references again. You’ll want to see their past work.

When construction is booming, general contractors often book projects out a year or more in advance. You’ll want to give yourself time to be very thorough with your decision, yet be ready to pull the trigger as soon as you find someone reliable.

Once you have plans in hand, you’ll arrange separate appointments at the site with the potential general contractors you’ve chosen in order to review the plans and help them understand the project scope. Your architect can and should be present, because questions about the design and how it will get built efficiently are answered on the spot with clear direction.

You should understand that the lowest bid may not be the best or most accurate when it comes to making your decision on a contractor. You’ll want to understand whether the contractor uses open-book or fixed-cost accounting. You’ll want to know that contingency funds are in place for a reason. No matter how honest the general contractor, some degree of over-run is to be expected, and it may have everything to do with you and your evolving vision.

You need to ask how, and how much, the contractor bills for their management services, which will appear as either a total, or a scheduled draw.

Ideally, your contractor should host a weekly Owner-Architect-Contractor (OAC) meeting. These meetings put you at the site with the general contractor or site supervisor (and architect if they’re working with you through the build) to discuss the previous week’s work, overall progress, and where the next week is heading. They’re also when all sorts of questions get raised and answered, where you get reminded you need to decide on the windows and get them ordered, and can assure your team the appliances will arrive for installation on Wednesday.

These meetings are meant to keep you meaningfully involved, however, the last thing you want to do is swing between being detached and then overly involved, even intrusive. It is your house, but there’s a drastic difference between getting what you want and getting in the way.

After the initial OAC meeting, the general contractor will subsequently arrange another string of appointments, usually with the subcontractors who install the plumbing, mechanical, and electrical (and sometimes even the framer will be present). They will evaluate the site, try to anticipate any issues, see what’s really involved so they can give their best estimates.

Once you provide the contractor with a set of the plans, they will come back with a very detailed bid for the project that includes the bids from the subcontractors. This will likely include a contingency, but one that is probably less than the lender’s.

Within the bid, you will see a mix of relatively fixed-cost items such as the furnace and ductwork, the electrical, and plumbing, with other costs such as concrete for the foundation and driveway, stucco and exterior applications, and insulation and drywall. There can be some wiggle room within all of the bid items. For example, in the type of insulation, or exterior materials. You’ll be a part of any decisions that might need to get made. Be prepared to make these decisions.

You’ll also see allowances in the bid for all sorts of items with variable costs, including windows, doors, interior hardware like door handles, sink basins and toilets, cabinetry, tile and carpet, etc. These allowances are catch-all buckets for items whose cost have not yet been determined, largely because you have very specific choices to make. They also reflect the trade-offs between the big and small line items: A 3,000-square-foot home is going to require a certain amount of framing lumber, drywall, roof, and flooring. These costs will be influenced by the market for materials at the time, but should fall reasonably close to estimates.

The allowances represent the allocations you make for items that you’ll be picking out, and they can be changed to stay within budget. You’ll always need faucets, but you may need to trade down the gold plate for brushed nickel and other specifically detailed items.

Allowances for lighting fixtures, or any other items you may be purchasing separately, don’t necessarily have to be in the general contractor’s budget if you have adequate liquidity to cover them beyond your contingency fund. But if you’re sticking to the budget you establish with the contractor, you’ll want the allowances in there because they help you see the trade-offs if you’ve underestimated certain high-cost fixtures such as sink basins and toilets.

If you plan on buying these things on your own, you must make sure they’re purchased and available when needed during construction. This might mean securing a place to store things you’ve bought so the appliances are on hand when the cabinets are going in. When you introduce delays, it can have a domino effect as crews left waiting shift over to other job sites. They don’t get paid while you make up your mind or wait for something to ship.

Keep in mind that some contractors will allow you to purchase these items and others won’t. If their terms include ordering all appliances and fixtures—they will be marked up and can impact your budget.

The plans will call for a certain number of windows, sliding doors, or skylights. But the grade and style of window will be determined by you, for example, in consultation with your contractor and/or architect. And you may choose to skip the skylights if you’ve decided the amount you allocated for the kitchen countertops or cabinets needs to be bumped up. The contractor’s construction schedule will show you the timing and overlap of certain building phases, and will therefore indicate when decisions must be made and items ordered.

The general contractor makes sure all of these elements are moving as efficiently as possible; assures quality completion; arranges inspections; and helps keep you on budget. The subcontractors they trust and work with regularly are vital to the project’s success. For obvious reasons, the importance of the general contractor cannot be understated.

Once you’re good with your choice, you’ll sign a contract with the general contractor, who will give you a schedule (which will most likely extend), and submit the plans to the city for review and issuance of building permits.

With permits in hand, you’re ready to break ground.

Construction Time

At this point you are probably both nervous and excited to get the ground running. You have already come a long way, and now it is time for the hammers hit the nails.

Home building is a complex process. Teams of subcontractors will come and go thorugh your space frequently. Your general contractor will be the one constant, in both scheduling these crews and providing your point of contact.

It will also be a start-stop process. You will be waiting on inspections, or on a sign-off or solution from the structural engineer—who will be someone the architect works with, and may charge separate fees if they have to do work above what was included in the architect’s initial scope of work. Weather will also come into play, as well as hold-ups on materials and possibly even challenges with implementing the design.

They key here is to understand that all of the ups and downs are normal. How you react to the hiccups along the way is up to you. For example, it’s important for you to know that just because the house is framed and closed-in doesn’t mean you will be moving in after a few months time. It can look like nothing is happening when in reality, there are huge changes underway. And just because the contractor and teams know what they’re doing doesn’t mean the architect hasn’t thrown them a couple of curve balls.

You’ll want to remain professional and easy to work with—which isn’t the same as giving up all control. You’ll want to make sure that everything is being done as well and efficiently as possible, but you will also want to remain calm when unexpected bumps come along. You should understand that sticking up for your interests and the vision of your home doesn’t need to be confrontational or counterproductive.

All in all, it comes down to who you choose to work with and the relationship you decide you want to have with them. If you take the time and choose well, the architect, general contractor and subcontractors will be become trusted partners. If they come to you with changes, you’ll know it’s because they are addressing something that couldn’t have been foreseen, and not because someone deliberately low-balled the bid. They will also provide cost-saving ideas as the project progresses.

Because the actual building components are so involved, we’ll go into more detail in subsequent articles,  so stay tuned. For now, you should have a good sense of the work that goes into building your home, what you need to bring to the table, and the kinds of questions you’ll want to ask. Dream away!