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Chapter 1: It All Begins at... the Beginning
That's a rather cryptic title for a chapter, don't you think? But we think it sums up the experience of most people who decide to undertake the home building process. The beginning is always a great place to start, but in this case, where exactly is the beginning? Building a new home is not something you do every day. In fact, it will most likely be something you do once in a lifetime, and that's if you are one of the lucky ones. There are so many parts to building a home-securing a loan, hiring a contractor, finding land-it's hard to know where to begin.
Well, there's no perfect answer to that. Some people find a piece of land they love and the desire to build a dream home grows from that seed. Others have a complete blueprint of their custom home in their heads before they look for land. Some people have a budget in mind right off the bat, while others have to spend some time figuring out what they need and what they can afford. In a nutshell, the home building process is complicated, not to mention inconsistent. There is no right place to start.
But there is something you can do to up your chances of success. And that is to ask yourself a few hard questions before investing money, time, and emotions into this project.
- Is my partner/spouse in favor of this project, and can I depend upon their full support throughout the process? (If the answer is no close this book now . . . or ask your contractor for the name of a good divorce attorney.)
- Where do I want to live, and how long do I want to live there?
- How much money do I have to spend on this project, and is it in line with my dream house?
- How much time do I have to spend on this project, and is this a good time during my life to undertake it?
Be honest with your answers. If your wife or husband is not ready for the home building process and all it entails, you may want to shelve this project for a later date. Similarly, if you are short on money or time, building a home probably isn't for you. If you are going through some other major life change-a change in career, the death of a parent, the birth of a child, etc.-you should also probably wait until things even out for you. Building a home can be very stressful, and you shouldn't take it on if other events in your life are draining your emotions. You are going to need all your strength to get through this!
Here are a few things you'll have to do up front to ensure that your home building process goes smoothly.
Get Your Finances in Order
Before you look for land, before you draw up plans for your home, get your finances in order. This means knowing how much money comes in every month, versus how much goes out. Take stock of the cash you have in the bank, the equity you have in your current home, as well as any other sources of cash you might have. Now, how much money can you put toward this project? How much can you borrow? How much mortgage can you afford? We are going to talk a lot more about finances in Chapter 2, but for now you should have a rough idea of your budget. This is one aspect of home building that you absolutely must get right. If you are having trouble, ask a financial advisor or loan officer for help.
Now that You Know What You Can Pay, How Much are You Willing to Pay?
Just because the bank will give you a certain amount of money, doesn't mean you want to borrow that amount. You may have other payments such as school loans, car loans, or credit card bills that require a monthly commitment from you. Decide what your limits are when it comes to spending money on housing. What can you afford to pay, without losing sleep? This is the point at which you should take a good, hard look at your monthly cash flow, and come up with an amount that you can comfortably live with.
Consider the "What Ifs"
What if the market goes sour? What if your contractor runs away with all your money? What if your home ends up costing more than you thought it would? We are not being doomsdayers here. These things happen . . . often. The home building process is fraught with variables beyond your control, and you need to be financially, and emotionally, prepared for them. Have a plan in advance for all the "what if" situations you can think of, and decide in advance how you will financially and emotionally cope if worse comes to worst. So, how's your risk tolerance these days? Realize that in building a home you'll be taking risk after risk. Are you up for it?
Optimism is a wonderful quality, but it's not the most important quality you need when tackling the home building process. Instead, be sure to think of all the things that might go wrong, and have contingency plan when they do. In most cases, just discussing these things and keeping them in mind will help you resolve them before they do some damage.
Be Ready to Deal With Lots-We Mean Lots!-of People
How are your people skills? Well, time to ramp them up. There are a lot of players involved in the home building process, from the real estate agent who sells you the land all the way to the person who hangs your last curtain, and in the end you are going to be intimately acquainted with all of them. You are going to be dealing with a lot of people, with a wide range of personalities and different ways of communicating. Now's as good a time as ever to break out your flexibility and tolerance. A little later we are going to show you how to choose workers who compliment you, but the fact is at one point or another you are going to have to deal with someone who just sees things, and does things, differently than you. And you are going to have to deal.
Do You Have What it Takes to Be Your Own General Contractor?
First of all, this book assumes that you are not going to be the one actually mudding and taping drywall. In most cases, in fact, you are not even going to be hiring the drywall guys-that will be up to your general contractor. Some people, however, choose to act as their own general contractors. The main motivations for this are saving money and having control over the entire project.
But before you decide to be your own general contractor, you need to know what's involved. You need to realize that general contractors are professionals with experience, and that your lack of experience could end up costing you lots of time, and money, in the long run. Nevertheless, being a general contractor isn't a bad idea if you've got the goods. Ask yourself the following questions:
- Do I have the time to devote to this project, and is my time flexible?
- Do I fully understand the construction process, and do I have some experience? Can I tell good construction from bad construction?
- Do I enjoy working with lots of people?
- Am I good at organizing multiple projects? Can I juggle more than one thing at a time?
- Do you have access to a full roster of sub-contractors? Trustworthy subs are integral to the success of your project. Even one bad apple can set your project back and cost you valuable time and money.
- Do I stay calm and levelheaded when unexpected issues and problems come up, and am I good at problem-solving?
- Am I good at managing budgets and financing?
Remember, answer the questions honestly! If you answered yes to every single question, then by all means have a go at being you own general contractor. But if you answered no to even one question, give some serious thought to handing the project over to a professional. If you don't have the skill set to handle the project, there's a good chance it will end up costing you more money than you planned on saving.
Okay, at this point you have a good idea of what the home building process entails. Time to get organized.
Get Your Ducks Lined Up . . . Now
There's a ton to keep track of when it comes to the home building process. You'll have to keep track of loan and permitting paperwork, construction contracts, finance and budget paperwork, designs from your architect, invoices, information on your land purchase, materials information and receipts, and warrantees. Did we miss anything? The point is, there's a lot to keep track of, and you are going to have to be organized. If you are not an organized person, time to turn over a new leaf or hire someone to be organized for you. There are lots of books devoted to organization. Apparently it's something we could all use a little help with!
Here's a quick and easy way to get organized. Go out and buy yourself a loose-leaf binder and some dividers. Make sure you have a section for every category such as: house plans, contractor information, contracts, financing, land information, invoices, permits and approvals, paid receipts, land information, and any other categories you think are relevant. Any time you receive any communication regarding one of these categories, file it away. That way, you'll always know where to look when you need to find something.
Make sure you have the phone number of your contractor and subs handy at all times. Keeping your project on schedule is difficult at best, and good communication is key.
And while you'll have a bank involved with your finances, who, ultimately, will be keeping track of them? You, of course! The best way to keep track of your finances is to set up a separate bank account for money related to home building. And to revisit the loose-leaf binder you've already set up, you should have sections devoted to loans, receipts, and everything regarding your finances. Beyond that, some of today's software programs make it easier than ever to keep track of your finances. Try QuickBooks by Intuit.
Now that you have all your ducks lined up, it's pretty evident that you are serious about this home building thing! In the next chapter, we are going to talk about what's going to make this project go 'round. That's right . . . money! We'll show you how to budget your project, then we'll tell you everything you need to know about construction loans.