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This page last updated on 31 May 2013; Copyright ©; All rights reserved by Pacific Modern Homes, Inc. (PMHI)
Assuming that you will need a loan to build your new home, it is important to first determine two things:
1. The maximum loan amount for which you can qualify?
2. The largest monthly loan payment with which you will be comfortable?
The answers to these two questions will determine your maximum construction budget.
In order to determine the maximum loan amount you qualify for, a potential lender
considers your credit score, income and debt. Credit scores are referred to as your
FICO Score. FICO Scores range between 300 and 850. Higher is better. Your FICO score
is determined by your payment history, amount owed, length of credit history, new
credit, and types of credit used. Generally speaking, lenders want your credit score
to be 660 or higher to be considered for a loan. Lending requirements vary among
lenders. The Federal Government has a free publication, “Your Credit Score”. In it
you will learn why your credit score matters, what good and bad scores are, the elements
of your FICO credit score, and how to raise your score. With regard to income and
debt, most lenders do not want your total monthly debt (including your house payment)
to exceed 38-
Another aspect of the construction lending process is to determine the anticipated value of the completed project. This is an important part of the construction lending process because, in general, the lender will loan about 80% of the appraised value of the completed project, including the land costs. For construction lending purposes, the Appraiser uses the building plans to arrive at the anticipated value. As you can imagine, one could have spent thousands of dollars to get to this point and it would be nice to have an idea of the anticipated value before spending any money. We suggest one consult either a Real Estate Agent or to determine anticipated value before spending any money. This is not the same as an appraisal, but it’s useful in evaluating the overall project. Note: This is of particular importance if the home values in the area you’re considering have dropped in recent years.
When planning where you want to build your new home it is important to consider the following:
• State, County and City Building Fees.
• Distance from your work, schools and social activities.
• Slope of land, if any (construction costs on sloping land are higher).
• Any Covenants, Conditions and Restrictions (CC&R’s) that apply to the property. Many CC&R’s have home size and style requirements along with home owner association dues. Some also have use restrictions.
• Utility costs including public connection fees or cost estimates to install a private water well and/or septic system.
• Build ability of the lot. Some lots have additional requirements to build on because of environmental issues, grading requirements, soil bearing requirements, and long driveways or other access problems.
If you already own your lot, your local PMHI representative can help you resolve the cost issues related to the above considerations. If you are working with a local Realtor to find your new home building site, make sure that you make any offers to purchase the property, “Subject to”, the above considerations for at least 30 days. That way you will have the opportunity to evaluate the development costs before you actually purchase the property. Again, your PMHI representative can help you with the construction cost items by giving you a Construction Cost Estimate using a proprietary PMHI estimating program.
Another point you should consider when choosing a plan is its appraisal value when completed. Generally speaking, it is wise to build a home that is similar in size and quality to the other homes in the immediate neighbour hood. If the home you’re building is a lot larger or smaller than surrounding homes it could have an adverse effect on your appraised value. The value of the other homes in the area will have a direct effect on your appraisal since they are used to identify the value of your new home. For more information about appraisals you can contact your local PMHI representative, a local appraiser or www.zillow.com.
Are you planning on “Aging-
When your home plans are completed, you will be ready to generate your construction budget and obtain labor and material quotes for those items that you do not plan to do yourself. The format for your construction budget (called the Job Cost Breakdown) will be given to you by the lender. The lender will also give you the necessary paperwork to complete for the Appraisal request. All this information can be intimidating to you. Again, your local PMHI representative can help you with contractor referrals and material suppliers who can give you the labor and material costs for their part of the Job Cost Breakdown. For the portion of your project that will be supplied by PMHI (the shell or framing package), you will receive a written quote and specification based on your home plans and engineering. Your PMHI representative will also help you in properly completing the Job Cost Breakdown so you will be ready to submit it to the lender for approval.
To make this process go as smoothly as possible, you will want to get the list of required documents needed in order to get a permit from your local building department. If you follow the list, it will make the permit process much easier to work through and possibly go a little faster. Your local PMHI representative will be happy to help you get the needed documents together.
After moving in it is a good time to organize and save your plans and all construction documents for possible future reference. Make sure you also save a complete list of your subcontractors and their contact information. Organize and save all warranty information for the materials used in your new home, including all new appliances. The pictures you took during the construction phase should also be organized and saved with these documents. Bottom line, it is much easier to organize this information when it’s fresh in your mind. Then it will be ready and available if needed in the future. In conclusion, building your dream home is one of the most rewarding experiences you can ever have. With over 40 years of experience helping others build their new homes, all of us at PMHI know we can help you succeed, too. Give us a call…..and let us help you get started.