Build a House You'll Love
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Everyone dreams of building their own custom home, but not many people know where to begin. And that’s where we come in. We planned and wrote this story to act as your own personal guide in your very own custom home building process. From your initial meeting with your lender to your very first walk through your brand new house, we tell you what you need to ask, the things you need to know and everything in between. But it’s not just us dishing out the advice. We reached out to 417-land’s best lenders, architects, builders, custom home designers, interior designers and landscapers, and we worked their advice in every step of the way. Ready to take the plunge and build your own custom home? Dive in, then get to planning.
Getting the Funds
Applying for a construction loan often takes a bit longer than applying for a regular mortgage loan because there are more steps involved. “The first thing that happens is getting credit approval for your end loan,” says Michael Frerking, the senior vice president and residential lending manager at Guaranty Bank (1341 W. Battlefield, Springfield; 417-520-4333, gbankmo.com). This is the loan for the amount you will pay in total after everything is said, done and built. You need to supply some paperwork for this step, including recent paystubs, two months of bank statements and two years of tax information. There is also a credit check at this time, and getting fully pre-approved can take a day or two. “There is no cost for getting pre-approved for this end loan,” Frerking says.
Find Your Key Players
The loan isn’t all to worry about at this point. A lot of conversations should be happening during the pre-approval process (if they haven’t happened already). “I usually tell clients to do three things,” says Patti Bloxom, residential specialty lender at Great Southern Bank Home Loan Center (1520 E. Primrose, Springfield; 417-888-4370, greatsouthernbank.com). “They need to pick a builder, pick plans for their house and pick a parcel of land or a lot where they want to live.” Although you won’t be starting the actual project with your builder and architect yet, it’s important that you know who they are as early as possible, because your lender, builder and architect often all meet and work together during this stage.
Your builder will help you accurately plan your budget, and if you are working with an architect, they will provide plans. Your budget and these plans will then be considered along with the lot or land you’re building on, and an appraiser will use them to determine what the home’s finished value will be. “It’s assigned a dollar market value by an appraiser, because the bank wants to make sure what you are building is not going to be valued lower than the cost to build,” Bloxom says. At Great Southern Bank, Guaranty Bank and most other banks and lending institutions, 20 percent of the construction project cost is required up front, so your borrowed amount can be for as much as 80 percent of the total construction costs. “The equity value of the land or site can be contributed towards the 20 percent if you already own the land,” Bloxom says. Once the appraisal is approved, you’ll likely work with a title company and your lender on a closing.
The Loan Breakdown
After the closing, your financing is officially in place, and it is time to start the building process. But the bank doesn’t just hand your builder one giant lump sum. With construction loans, builders are given disbursements, so the bank is only lending a little bit out at a time. “The lender will go out and look at the site to confirm the builder is doing what they’re saying and that everything checks out accordingly,” Frerking says. This means if the first step is laying concrete and framing and the budget says this will cost $10,000, the builder will do the work, then provide the bank with bills related to the work in the amount of $10,000 to be paid. “It’s good that it’s given in these different disbursements, because the borrower is only paying interest on what has been loaned out so far during the process,” Frerking says. Naturally, as the build progresses, so will your monthly payment. After the build is complete, you will work with your lender to refinance your construction loan into permanent financing.