ver since I was child I wanted to build custom home on a lake, but no matter how many questions you ask and read you run into major obstacles. I wanted to share my experience and lessons learned so you don't need go through same thing.
Lessons Learned in Building A Custom Home
So you picked your builder you shared all your pinterest pictures and spreadsheet of must haves. You created that perfect house plan that's it right?
Loans & Appraisals
The main two components that will derail you building a custom home are loans and how appraisals are conducted.
In our case we found the perfect lake 1 acre 312ft sunset view lake property. We had some cash, but why lock it up in asset when cash is cheap at 2-3% interest?
These below lessons learned were in 2020 to 2021 in middle of a pandemic so some these lessons were due to those environmental conditions.
Buying Your Perfect Lot
- Residential Lot Loans not owned by construction company require 20% cash down
- Most financial institutions lot loans balloon with full amount due at 3 years! So you need to build your home by then!
- Closing costs for lots are 2-5% due to taxes for that year are owed plus title and respective insurance
- Verify that your realtor isn't taking a commission on your introduction to your builder! We got lucky that our realtor was great and didn't demand commission on intro to our great builder.
So you finally bought the lot and you are now camping on the weekends and enjoying the property. Let's build immediately right?!
The Custom Build
In our case the pandemic caused major demand and within 6 weeks we went from building in 2 months to 8 months! So planning your floor plans early will save you a lot of time.
Lessons Learned in building a custom house
- Future Appraisal at 80% is the amount that most bank will loan you for construction loan and with Debt to Income (DTI) ratio up to 40%
- Choose floor plan that appraisal will be highly valued. Examples of this is put bedrooms on main or higher floors and not above attached garages. This is because finished basements get valued at 75% less! Our 1st and 2nd floor was at $253/sq ft but rest basement was at $77! This resulted in our build + finishes was 200K over the 80% appraisal to loan threshold!
- Choosing your finishes - make sure you start with all standard choices then change one thing at time. This will save you money in the end.
- Watch supply chain risks. In our case, we had 110k+ increase in lumber prices! Waiting a little bit cut these prices down.
- Builders will want deposit down, but be transparent this is usually negotiable, and it makes sense they need some good faith due to lead times in 2021 and upfront planning.
- Over communicate and at all stages ask how will this impact my appraisal or supply chain issues.
- Try to get as many structural needs done under loan due to expensive lift after build is finished.
- Look into equity buyout programs with your financial institution or home equity loans this may be helpful if the interest rates are cheap and your other investment vehicles are doing well.
- Use your local county's GIS website to determine the average annual tax rate and make sure your mortgage payments + property tax + HOA is within your budget. During building phase do not forget to pay this property tax! In construction loan this is usually on YOU!
- Add on gutter guards while they putting up gutters your back will thank you later
- If on lake make sure you finish your rip rap and sea wall
- MAKE SURE the septic pump "controller" is "ON" and there is SD card in...most inspectors leave this off thinking done at final inspection. This will cause your pump not to run on your schedule and result in 1yr early need to empty your septic.
- Install sod not grass this made a HUGE difference and put rock not mulch for around the house.
- Run cat8 cable yourself to put in your wifi access points and cameras. I used ubiquti dream machine pro and 48 PoE switch with access points + cameras.
- Pocket doors where can
- Run wired outdoor lights down drive way vs solar in the longterm this will save ya especially in winter when no light gets to the solarlights(i.e. we went solar but have longterm plan to replace all our outdoor lights with permament lights)
- Timers on your outdoor lights set to dusk and sunrise are incredible. We bought 6 these for only $140 and put in ourselves
- PUT your washer and dryer in your master closet! This has been incredible!! No moving clothes up sets of stairs.
- We learned hardway we should have had the a gas line ran to our outdoor firepit. Now doing that afterwards is very difficult and requires seperate survey by propane company.
- Finish your boathouse early we did just our dock and its very big pain to get the builder back and they will have to replace parts of our grass.
- Make sure they clear all the DEAD TREES off your land. In our case they did not we had one that could fell on the house and that was big $2k expense afterwards.
- When installing well make sure they also add "air compression" to push iron down or in 6 months you'll get stains and yellow looking water. This cost us $3,200 afterwards vs in the loan.
- Send message to your mortgage company yearly asking for a "Analysis on the escrow costs and send difference asap" by doing this we got $4K back because they do this on their time but by law required to act in 7 business days when you ask.
- HVAC needs be maintained by company yearly and you need change filter every six months. I called our company and used the "elite" plan through ARC and only $20 a month included priority service, free diagnostics, 10% will all repairs, and all maintenance is free. This was essential due to we had issue in 1.4 year mark and thankfully I was able signup for this as they visited which ended up being completely free.
In the end we had to majorly compromise our finishing touches from not ideal master bath, removing secret spiral staircase, outdoor fireplace, hard wood floors, and basement bar. My 10 year old self who saved, dreamed, and planned wished he has had above tips so this wouldn't happen. We had compromise and are lucky we had a great builder who didn't tell us to go the end of the build line. In the end, we are still getting close to our dream and now have side projects to work on (UPDATE: Finished most of them and was a blast doing them) . I hope it helps you so you don't make the same mistakes and can get your exact dream.
Resources:
- Primer : See what your walls would like painted with this cool AR app
- Amortization Table
- Financial Loan Calculators
- County GIS website for calculation of housing values / taxes
