There is no doubt that building a home is an exciting proposition, if fact many times it will seem like you are “drinking from a fire hose.” Of course like any complicated project, it is good to have a roadmap showing the starting point, the intermediate steps and the finish line. Here is an idea of what that road map looks like.
First Things First when Building a Home: Get Your Financing Lined Up
When you first start thinking about building a home in or around Madison, WI one of the very first steps you will want to take is to discuss with your financial institution how much home you can afford. This is always a good idea as many a disappointment has come to pass when a prospective buyer is ready to start building a home only to find out that there are problems developing with respect to financing. Find out where you stand right away. You should also keep in mind new construction costs tend to escalate during the process of building a home as the buyers have a great deal of latitude for adding costs. My advice: when you begin building a home start out with a conservative budget. To finance your new construction, depending on the kind of builder you engage, you will either need a mortgage or a construction loan that will convert to a mortgage.
Picking the Type of Builder and Getting it Right
There are fundamentally two kinds of builders: Semi-Custom and Custom. In a semi-custom project, often called a “turn-key” project, the builder typically provides the lot and the home, and upon completion, you pay for it using a mortgage product from your bank. This is very similar to buying existing construction…except that usually when building a home, the new construction is still in some preliminary stage of completion, or may not have been started yet. Turn-key projects are frequently built by semi-custom builders. They are typically building in a new or existing subdivision and you purchase a pre-designed home from their catalog–these are generally homes the builder has built several times before. What makes it semi-custom is you get to pick many selections of finishes and features from their options list that they will incorporate into your new construction. Building a home this way is usually a little more economical while still letting you “put your thumbprint on it.”
Custom builders on the other hand typically build an unique home on your lot specifically for you. This type of Madison Metro Area construction offers you the highest degree of flexibility in selecting the features and finishes you like when building a home, as well as the ability to make structural changes, add rooms, change dimensions, etc. Of course all this comes at a price. Think of it this way: with a semi-custom project you are buying a lightly modifiable home from a builder’s catalog of homes. With a custom project, you are still building a home but you are paying a builder to build the specific home you want. You can have your architect draw up plans or you can modify existing plans the builder may already have on file.
Custom homes usually require you to secure a construction loan. Basically, you arrange a construction loan with the bank and the builder will take draws against your loan as he completes certain stages of the new construction. Usually, when the home is completed, your bank will roll your construction loan into a mortgage. This of course should not be taken for granted and you will want to thoroughly explore and understand how your bank wants to handle the financing of building a home and the eventual mortgage.
The Buyer’s Agent Plays a Major Role in Building a Home
At first you might think, “Why would I want a Buyer’s Agent if I am building a home?” Good Question. Here’s why: Building a home is still a real estate transaction and you will still be negotiating the final price and terms with your Seller (the builder) who may either be representing himself or who may have a real estate agent representing his interests. Like any other transaction there will be a contract to purchase, frequently a Wisconsin Offer to Purchase form, with a rasher of builder amendments. Builder amendments are very seldom designed to benefit the Buyer and frequently are used by the Seller to diminish the Buyer’s rights and flexibility. This is something your Buyer’s Agent is trained to keep an eye out for. Additionally your Buyer’s Agent has probably been through many new construction transactions and knows what to look for. Moreover, your Buyer’s Agent works for you so you can discuss any concerns you may have over the building contract, loans etc; your Buyer’s Agent will help you maintain a level playing field; and your Buyer’s Agent can let you know if they see anything that you might want to or should discuss with your attorney. Best of all, in nearly every case, the builder or the builder’s listing broker will pay your Buyer’s Agent’s commission.
Nelson & Associates has Significant Experience in Working with Buyers and Regional Builders
When you start thinking about building a home in the Madison Metro Area or anywhere in South Central Wisconsin, you will want a Buyer’s Agent by your side to help make sure you get a good, fair deal. Contact Jon Nelson today. Jon has the experience to make building a home as hassle free as possible!