Being responsible for the construction of your own home is complicated, challenging and disruptive, but it can be rewarding on many levels. For those who feel capable of tackling the job of General Contractor (GC), here are some things to consider.

You!

Before making the decision to be your own GC, take stock of your personal attributes. The following are some questions to think about:

• Do you understand construction principles?
• Are you detailed oriented and equipped to track the financial information associated with a large building project?
• Do have the time to devote to this project?
• How well do you manage people?

These questions are meant to stimulate your thinking, and get you started on an honest evaluation of your abilities, but they are not the only questions to consider. Take some time to visualize the step-by-step procedures needed to build a house, and how you fit into that process. After that exercise, if you feel prepared to manage the construction of your own home, congratulations, you are now the general contractor and on your way to saving a lot of money.

The General Contractor (GC)

Now that you are your home’s general contractor, that should become your ‘day job’. By taking on this role, you must devote the same amount of time and energy to the project as a paid GC. There is no room for shortcuts during the construction project just because you are in charge.

General Contractors provide many services and you should provide these services too:

• Be thoroughly familiar with all specifications in the blueprint
• Develop a pool of sub-contractors with the skills to cover all construction requirements
• Be familiar with applicable building codes, licenses, and other legal issues
• Understand how to deal with delays and other disruptions in the schedule
• Identify multiple suppliers for critical building components, and know lead times when ordering
• Examine work in progress to ensure specifications are being met

As with the questions to ask yourself regarding your personal capabilities, you should consider the specific job requirements of a GC, and make sure you can execute these requirements in a satisfactory way.

Money

Because you are now both owner and builder, you have an additional responsibility that a typical GC does not have. You are responsible for making the financial arrangements that underpin the project. These arrangements require finding a construction loan, and securing a mortgage on the finished property. In the past, owner-builder loans were difficult to obtain, and traditional lending institutions like banks and mortgage companies were overly cautious when it came to lending money to owners who planned to be the General Contractor. Today these types of loans are still avoided by most traditional institutions, and the qualification process is still extremely difficult. However, the demand for owner-builder financing is on the rise, and there are viable lending options for people who want to build their own home, their way!

Money is the most common reason people choose to be their own GC. After all, saving the cost of the GC can amount to many thousands of dollars off the total cost of construction. According to Carl Heldmann, nationally known homebuilding author, owner builders can save 25% of the cost of building a house. Quality can be another reason a person chooses to be their own GC. There is a lot of truth to this approach because you, as the owner, will seek ‘perfection’ in every aspect of construction.

It is important to shop lenders as carefully as you do for sub-contractors. You need to find the best loan terms for your particular needs, and partner with a lender that specializes in owner-builder financing. You will also need to decide on the type of loan or loans you need. You must choose between arranging for two separate loans that cover construction and a mortgage, or finding a single loan that combines both construction financing and a mortgage (construction to perm financing). There are advantages to both, but it is most advantageous to obtain two separate loans. The reason for separating the construction loan from the mortgage is as follows:

• You get locked in on construction costs with a construction to perm loan, and almost always have to go back to the bank for additional financing before the house is complete. This increases the amount of your mortgage.
• You are in a stronger position to negotiate with a banker when you have a physical structure on the property rather than a set of blueprints.
• Lending institutions can charge a higher interest rate for the mortgage part of the construction to perm loan because many borrowers are willing to pay a bit more for the convenience.
• A construction to perm loan does not allow the borrower to tap into the sweat equity that gets created during the construction process and the borrower acting as the GC.
• The biggest advantage to combining the loans is that you are qualifying for both the mortgage and the construction loan in the beginning, so funding for both phases is assured. But this can lead to a higher interest rate on the mortgage.

Acting as your own GC requires a combination of skills and aptitudes, but the good news is that most people are capable of performing this role with some research and a lot of patience. Overseeing your own home as it comes out of the ground is an unforgettable experience, with many benefits. Of course there is that intangible sense of accomplishment, but there are many tangible benefits as well:

1. You save a lot of money! Typically 15% – 25%
2. Your home is built exactly as you intended
3. You know which subcontractor to contact if some aspect of construction develops problems later on
4. You minimized risks inherent with hiring a GC, such as significant time delays, cost overruns, contract disputes and questionable craftsmanship

For most people, owning a parcel of land affords stability, permanence and a home. Whether you dream of living in the country away from traffic and congestion, a family-oriented place in the suburbs, or house right downtown, you will need some land.

Buying land with the idea of constructing a dwelling on it requires some research and more than a little smart thinking. It is easy to get carried away with the benefits of buying a piece of land and overlook the drawbacks. But, let’s take a quick look at the benefits before we dive into the other factors that might not be so grand.

The Benefits of Buying Your Land

A piece of land is like a blank canvas, sitting there waiting for the right person to build something magnificent. But there are also very tangible benefits to consider:

• Land can be a profitable long term investment if purchased at the right price.
• If you are interested in moving to the country, land prices can be much cheaper than in the city.
• Some people aren’t ready to build a house, but they know where they want to live; these people may buy a piece of land and hold it until they are ready to build.
• Having a large amount of land provides the flexibility to build special purpose out-buildings such as a large garage, a wood shop, or a rental unit.

Whatever your dream might be, selecting the right piece of land in the right location is crucial.

Factors to Think About – Before you Buy

It is impossible to overstate the importance of doing your research on a piece of property before you fall in love with it…and certainly before you buy it. Consider these factors:

1. What is the surrounding environment? If you are moving to the country, is there a cow pasture next door? If you will be in the city, what is the traffic pattern like on Monday mornings?
2. How about soil testing? Is it a buildable lot? One of the issues that everyone must consider when building a house is to ensure that the structure sits on solid ground. If the soil is too rocky or too soft you may not be able to get a building permit. The cost to remedy an unrecognized soil problem could put your project in jeopardy. Check with your local building department and make sure there is a soil test contingency in your sales agreement.
3. Zoning requirements must be checked. Local authorities (city, county and state) should be consulted before undertaking a construction project, so it is important to understand their requirements before buying the land.
4. What easement restrictions are needed or currently in place? If your land is accessed by driving across an adjoining parcel, it is very important that a legal easement is obtained and recorded.
5. Public utilities should be checked out. What services are available for water/sewer, electricity, gas, and cable? It is possible you may need to drill a well, or heat with propane, if public utilities are not available.
6. Get an appraisal. In any land purchase, it makes sense to get an outside appraisal by a professional appraiser. This will not only help to confirm the purchase price, but it might be required if you plan to borrow money to purchase the land.

A very good way to get a feel for a particular location and learn about its benefits and drawbacks is by renting a house in the area and living there for a few months. The added time will also give you an opportunity to secure the right type of financing as well as get to know the various sub-contractors in the area.

Technology advances are making our homes ‘tech savvy’ by allowing us to run our homes remotely from a Smartphone, PC or tablet. You can set up individual home automation components or you can tie all components together in a whole-house solution. But before you get lost in the host of products on the market you need to understand a little bit about the technology behind the systems.

Home Automation Technology

There are many competing home automation standards for both hardware and software that allow you to remotely control your home’s security system, lighting, climate control, appliances, and consumer electronics.

You will need to determine which platform you will use so that all your controls and automation sub-systems are compatible. One suggestion is to list your top home automation sub-system components, the ones that are the most important to you. Researching how well they perform on each platform will give you a head start in making your choice. Once you have narrowed your choices, you can check out the secondary home automation components on your wish list.

Some of the current home automation platform front runners include:

INSTEON: Uses both the existing home wiring (power line) and radio-frequency communication to add remote control and automation to home control applications of all types.

Z-WAVE: A wireless communications protocol designed for home automation and remotely control applications of residential homes and light commercial environments.

ZIGBEE: (Mesh network) Communication protocols uses small, low-power digital radios to create personal area networks that can transmit data over long distances by passing data through intermediate devices to reach more distant ones, creating a mesh network. ZIGBEE Certified Product Directory

X10: Communication protocol for home automation using power line wiring and brief radio frequency bursts for home automation signaling and control. A wireless radio based protocol is also defined.

Benefits of a Smart House

Beyond the cool factor, automating your home’s systems with remote monitoring and controls provides you with:

• added safety and security
• added visibility and awareness
• time saving and convenience
• lower utility bills and peace of mind
• ability to keep tabs on your children and pets

Insurance Discounts

Have fun exploring your options – and don’t forget to ask your insurance agent if they offer homeowner policy discounts for installing a home automation system.

The buildings we live in protect us from nature’s extremes, but they also affect our health and the environment. Sustainable, or Green, Building is the use of healthier and more resource-efficient building construction, operation, and maintenance practices. Here are a few resources for the owner builder who wants to explore green building options.

Renewable Energy

ENERGY.GOV – Planning for Home Renewable Energy Systems: This article offers an excellent overview of sustainable energy options for residential construction and renovation. It includes links to more detailed descriptions of the different alternative energy options.

DSIRE.ORG – Renewable Energy Incentives and Policies in the Unites States:  Each state and community has its own set of codes and regulations that you will need to follow to add a small renewable energy system to your home. DSIRE.ORG is the most comprehensive source of information on incentives and policies that support renewables and energy efficiency in the United States. DSIRE.ORG is funded by the U.S. Department of Energy.

Green Building

EPA.GOV – Components of Green Building: This website offers extensive information about how green construction methods can be integrated into buildings for maximum benefit, ranging from reduced waste and lower operating costs to enhanced health and quality of life.

Green Home Designs & Floor Plans

Green Floor plans are available from a host of home plan sources. Too many to mention here. A quick search for Green Home plans or Sustainable Home Plans will yield plenty of options. There are also architects who specialize in green design.

Here are some valuable tips
gathered from successful owner builders:

1. Collect all waiver of liens. After every payment (cash, check or credit card) to a contractor and supplier, have them immediately sign a waiver of lien. At the end of construction, the title company which orchestrates the closing of your permanent mortgage will require evidence your construction has been completely paid. Failure to collect all waivers can delay refinancing your construction loan into a lower rate mortgage which will prolong the length of time you are paying a higher rate on your construction loan. OBL can give you blank waiver of lien forms.
2. Prevent theft of building materials. If possible, install a gate and/or a fence at the job site. Putting up “No Trespassing” signs or “Beware of Dog” signs may also be helpful. If you have an RV, parking it at the construction site will let passersby know that the construction site is being monitored. Consider borrowing a friend’s RV if you do not own one. Parking a spare car at the construction site may have a similar effect. Even an erected tent can be useful. Don’t let your lumber company deliver lumber until your foundation is installed and the framers can start the next day. Don’t let your windows and doors be delivered until your house is framed and they can be installed the same day. Lumber and windows are most vulnerable to theft. Have your builders risk insurance include a theft endorsement equal to $10,000 or more.
3. I am not a fan of giving anyone a deposit. Considering the shortage of labor, a deposit will seal your priority with your trades. Just make sure your trades are reputable. 50% deposits should be expected for windows, cabinets, and any special-order items.
4. Always pay your lumber or framing materials provider directly. Never have your carpenter pay your lumber company. Always pay the lumber company directly. Framing materials represent the single most expensive component to your building costs and failing to pay for your materials directly may mean you have to pay for them TWICE. Some contractors fail to remit your payment to the lumber company or misuse your payment to pay down lumber purchases for other projects they are working on. If this happens, the Lumber Company will place a lien on your home for the unpaid building materials. If this happens, good luck refinancing your construction loan. Play it safe and ALWAYS pay for the framing materials directly and not by a third party.
5. Read the fine print. Although some estimates/bids/quotes may seem to include all materials or services for a particular element of construction, they may not. Make sure you fully understand all contracts before signing. Ask your contractor, “What isn’t included in this bid that you may need?”
6. When in doubt, hire a professional. Many believe that the more they do themselves, the more they are going to save. Unless you have significant experience in a specific trade, it is highly recommended that you sub-contract this work to a professional. Errors cost time and money. Additionally, subcontractors’ work comes with a warranty, yours does not. Consider also: the time you spend doing these things is time taken away from your normal earnings. And if you can only do these things on weekends, it’s going to take even longer to complete construction. The longer construction takes the more construction loan interest and loan processing fees you will pay which can offset any potential savings from using your own labor.
7. Pay all monthly billing statements on time. Late payments will affect your credit score. I had no idea how much damage one late payment can do you my credit score.
8. Don’t buy a new car or recreational vehicle or create any other debt until after you refinance the construction loan. Additional debt will raise your debt-to-income level which will cause a higher interest rate when you refinance your construction loan. If your debt-to-income goes too high, it might prevent you from qualifying for a refinance loan.
9. Stay in control of your building budget. Be careful not to overspend on building materials, such as, cabinets, floor coverings, and light fixtures. Keep to your building budget. After the house is built, there will be plenty of time for upgrades. The last thing you want to happen is to run out of construction money. It is very difficult to refinance your construction loan with a partially finished home. We were lucky. We qualified for a loan increase which OBL gave us. PHEW.

If you have a tip we can share with other Owner Builders, please let us know.

Best Regards,
Fred L. Arnold, President
Owner Builder Loans, LLC