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Dean Johnson

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Contracting A Home


Planning & Finance

img Contracting a home is one of the most challenging projects a do-it-yourselfer can take on. We're not talking about the "built with your own hands" type project -- although that sounds fun, most of us would never finish.

Rather, "self-contracting" involves hiring professionals (subcontractors or "subs") to actually do the majority of the labor. Your job is basically a general contractor who coordinates just about everything to do with building the house.

Self-contracting requires good organization and people skills as well as a basic understanding of the work being done by all your subcontractors.


Working With Your Lender

Selecting a lender is the first and most important order of business. To avoid extra fees, choose a financial institution that can provide both a construction loan and a mortgage. Also, find a lender who has experience working with self-contractors.

First, you'll need to be pre-approved for a standard "end" mortgage before talking about a construction loan. Once that's done, the construction loan process can begin.


NOTE: Remember, the lender is the expert and it's your job to listen and ask questions. If the lender suggests adding an extra 3% or 4% to the total amount or going with a 1-year loan instead of a 90-day loan, it's probably a good idea.

imgThe first piece of business you'll complete is a sworn construction statement. It's an itemized breakdown of what it will cost to build your house including actual bids from subs and suppliers for every bit of labor and specific materials going into the house.

Rounding up bids is a job in itself. However, it's what the lender needs to make sure you can actually build the house for the amount of money you want to borrow.



How The Loan Works

img After the lender approves an application, the construction loan is finalized. Do you walk away with the cash? No, the money stays with the lender, and is only drawn out as needed during construction to pay off subcontractors and suppliers.

A self-contractor never sees the money because the lender assigns a title company to verify the work, collect lien waivers, and pay the bills.

Getting lien waivers is key, because legally any sub or supplier can lay claim to your property in the form of a lien if they're not paid for work or materials. The lender has to protect its own interest in your property so it wants everyone to sign away their lien rights before they get paid.


EXAMPLE: Let's say you start getting bills from some of the first subcontractor work. Those bills are forwarded to the title company and they verify that the work was done. Once the sub hands over a signed lien waiver, the title company hands over a check.

At this point, you're only paying interest on the money that's been paid out; not a whole lot compared to the final bill.

A finalized sworn construction statement with grand totals is submitted to the bank along with all the lien waivers collected from the subs.

If the lender's appraiser agrees that construction expenses are worth the house's value, the construction loan is converted to an end mortgage with the typical monthly house payment.


NOTE: You can negotiate a longer loan period than the estimate to accommodate unexpected delays. You pay more money in interest, but also have a cushion of time that most self-contractors end up needing.



Self-contracting brings along demands and changes in lifestyle that aren't for everyone. This information is intended to help you make an informed decision about whether or not you want to self-contract. Ultimately, you take the risk, but also reap any reward.


Advantages: 1) Contracting your own home can provide a tremendous amount of satisfaction. 2) You may save an average of 20% off the total construction bill. 3) You make all the decisions that determine how the house is built.

Disadvantages: You'll be taking risks as self-contractor that you wouldn't take by hiring a professional builder/general contractor: 1) Lack of experience. Any mistakes made -- and they can be expensive -- are yours alone to bear. 2) Most subcontractors get steady work from builders, so your project probably won't be a priority. 3) In addition to your regular occupation, self-contracting is a draining, stressful, full-time job for about four months.

Many people sell their old house once they decide to build in order to avoid two mortgage payments and also to start putting equity into the new lot. In the interim, they rent a place until the new house is done.



Your Role As Contractor

As contractor, you'll have to do your part and come through on things like materials and schedules. It's not all that rare for the framers to show up the first day and not have any lumber there. So be sure to work out those deliveries with suppliers.

imgStart shopping around early -- long before you start building -- to find the best prices and the best service. Since you're a contractor, the lumberyard may bid on your job. But you can also go through a home center to itemize the lumber you'll need.

Primarily, it's your job as contractor to make sure materials get to the site on time, that work is done properly, and that everyone stays on schedule and knows about any changes.

If you make changes during construction, remember that each change takes time, pushes back the schedule and adds to costs. Don't expect the framers or the finish carpenters to make up the lost time. Give them (and all the subs) time and support to do a good job.


EXAMPLE: We slipped up when we decided to change the egress windows and forgot to tell the masonry crew. They had the original plans so the new openings were too small. It only took two guys about a half hour to redo them, but it's one of those mistakes that could have been avoided.

It sounds funny, but construction is one business where neatness counts. Lots of debris is generated and you'll end up paying if your subs spend time moving stuff out of the way. Keeping the site neat helps keep it efficient and saves you money.

As a self-contractor, you'll deal with many people: bankers, attorneys, subcontractors, realtors, insurance agents. Building a house gets kind of hectic and the whole process goes much smoother if you're able to communicate and work well with each person.


Architects & Plans

img Architect fees may range from 8% to 15% of a home's finished cost. Shop around for an architect who has good experience working with self-contractors.

Have your architect make a scale model to represent the final version of the plan. The model will cost a bit more, but takes much of the guesswork out of the layout.

A less expensive plan option is to look through design catalogs. They offer full construction plans for homes already designed and built. So the bugs are often worked out beforehand.

If you work with an architect, you'll have a ready-made source of information on just about any material that goes into a new home.

imgThe architect should explain details on the plan and solve any problems it may have. Our architect made the basic outlines of the house to form a combination of cottage, chalet and farmhouse styles.

It's a good idea to get your architect out to the site once you find one. Pictures are an okay substitute, but for the money you're paying, make sure they preserve all the unique lot features you want reflected in the plan.

In addition, the architect can visit the site during the building process; another expense beyond simply drawing up plans. But, it's the kind of service that can save a first-time contractor time and money.


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