Over the last year and a half, the housing market in the United States has exploded. Unfortunately for buyers, record-low interest rates and a limited supply of houses listed for sale resulted in a hot seller’s market. With dozens of bids placed on each house, many buyers suddenly found themselves unable to purchase their dream home. Buyers were pushed out even with the funds in hand. Some buyers decided to abandon the search, turning to building instead. However, interruptions in supply chains for steel, concrete and lumber due to the COVID-19 pandemic sent the cost of materials soaring. To make matters worse, builders who had been unable to work due to local restrictions were burdened by a backlog of projects. Thankfully, the cost of most building materials has begun to drop and many builders have begun accepting new projects. After months of frustrating delays, prospective homeowners are wondering how they can build a custom home hassle-free. Follow below for our twelve steps to building a custom home in California without breaking the bank or boggling the mind.
Of course, choosing the right lot on which to build your custom home is vital. In our recent post “Steps to Buying Land in Los Angeles to Build a Home,” we outlined a dozen elements homeowners must consider. First, homeowners must look in the right subdivisions. Next, they should seek out shovel ready properties. Third, homeowners should check claims made by the current owners of each parcel ofland to ensure they are telling the truth. Fourth, homeowners should review theland’s accessibility, as this will determine how materials and equipment are delivered to the site. Homeowners must also consider how clear the land is and how many trees, boulders and other obstacles they would have to remove.
Next, homeowners should review surrounding infrastructure, including supportive businesses like groceries, banks and medical centers. They should also ensure that utilities are available to that site. This might mean sewer lines exist and power is readily available. However, it might also mean convenient access to groundwater with a well or the ability to connect to utilities further down the road. Homeowners must also weigh the time and cost to build in a specific area and understand tax rates and insurance fees. Lastly, homeowners should measure the slope of the land, test the soil and research the plot’s susceptibility to natural disasters.
Municipal zoning laws, easements and other regulations restrict a number of elements. They restrict the minimum and maximum height of a building. Laws also restrict square footage, number of structures and land use for each plot of land in the district they apply to. In his article “CityLab University: Zoning Codes” for Bloomberg, Benjamin Schneider explains how local zoning laws impact growing neighborhoods. First and foremost, those planning to build a custom home must understand how their district’s classification system works. Schneider writes that classifications are zoning categories that use “letter-number combinations [to] represent the nuts and bolts of what is and isn’t allowed.”
Typically, these classifications are denoted “R for residential, C for commercial, and I for industrial.” The numbers that follow these letters indicate how many and whichtype of structures are permitted. For example, in Los Angeles, neighborhoods zoned R1 fit single-family residences while R5’s are zoned for apartments, shelters and other multi-unit buildings. Builders might also be subject to FAR requirements, form-based zoning codes and lot-coverage rules.
In addition to zoning laws, homeowners and their design-build team must familiarize themselves with the rules of their subdivision. They must also know local and state building codes and testing and permitting requirements. Nina McCollum elaborates in her article “5 Construction Laws to Know Before You Build a House” for This Old House. First, those planning to build a custom home must check for lot approval. McCollum writes that “laws can change over time." Because of this, "the presence of an existing structure” on the lot you purchased "doesn't mean it's there legally.” Homeowners can check property records like tax documents and parcel maps by submitting a request through the proper government office. In your area, you might find these records at the “county courthouse or the county recorder’s office." You might also find them at "city hall or another city or county department such as the tax assessor’s office.”
Next, homeowners should research local ordinances and covenants that might affect their ability to build a certain type of custom home. According to McCollum, “your zone might be approved to build a certain type of structure." On the other hand, "a local ordinance restricts the size or height of that structure.” Your subdivision’s Homeowners Association might also restrict building based on neighborhood covenants. To ensure you are within your rights to build, contact the HOA and obtain approval from your district’s planning commission before breaking ground. Third, familiarize yourself with the IBC as well as local building codes related to disaster hardening and energy efficiency. Last,research all permits and plans you will need to submit before drafting thesewith a builder.
Next, homeowners planning to build a custom home might consider hiring a lawyer before they pick a builder, engineer, designer or general contractor. You might also consider hiring a real estate lawyer to look over documents related to each vacant lot before purchasing. In her article “9 Tips for Hassle-Free Home Construction” for HGTV, Boston custom home builder Cindy Stumpo explains the value of hiring a lawyer. Stumpo recommends “having a lawyer review the contract with your builder” and other members of your design-build team. Because “building a home is a major investment,” it is crucial to “make sure all your bases are covered.” Hiring a lawyer does add to your home-building budget. On the other hand, “a small lawyer fee up-front could save you thousands of dollars should something go wrong during construction.”
Assembling a teamwith appropriate experience, understanding of local laws and excellent timemanagement skills is key to building a custom home. It is especially importantin order to build without incurring unexpected delays or added costs. Writingfor Forbes in “SevenKey Factors To Consider When Building Your Home,” Reagan Greeexplains. According to Gree, “the builder you select to build your home…[is]critically important to your peace of mind and expectations to deliver yourdream home.”
Homeowners shouldconsider each builder’s “reputation, track record, financial stability,reviews, follow-up warranty and what features" they include in theirpricing structures. Taking all the time you need to “review types of builders”best suited to your project will "make the process run smoothly.”
In our recent post “Choosing a Builder for Your Custom Home,” we offered tipsfor interviewing custom home builders in California. Though we listed thirteendifferent questions to ask builders as you interview them, below are a few tostart with. First, ask how involved each builder plans to be in your project. Fullyinvolved builders wil draft plans, apply for permits, work with subcontractors,manage the build and provide warranties on all materials and craftsmanship.
Less involvedbuilders might only draft blueprints and pop in occasionally to review progresson the build. Next, homeowners should ask how builders choose each contractorand subcontractor they work with. They should also ask how builders price eachbuild and how builders bill clients throughout the process. Read the entire article for a complete list of questions to askcustom home builders during the consultation and interview project.
In addition tohiring a local builder, be sure to hire a local construction crew and local subcontractors. Hire a local interior design team and a local landscape designer. Hiring locally allows homeowners to hold team members accountable as their business is dependent upon the surrounding community. Hiring locally is also usually more cost-effective and provides a better chance for clear communication between parties during the construction process.
By hiring locally, you are also more likely to work with people who are familiar with laws and building codes of your specific subdivision. Ask neighbors for their recommendations, google recent reviews and check for complaints registered withthe Better Business Bureau before hiring any new team members.
Settling on plans for your custom home early on is necessary to quickly secure permits and finish the build within your chosen timeframe. Before hiring a design-build team for your custom home building project, try to flesh out how you want your home to function. Also try to flesh out what you want it to look like. In our recent post “Choosing a Builder for Your Custom Home,” we recommended preparing a list of “must-haves” to direct your design-build team. Before meeting with a builder, try to address “how many occupants the home must accommodate” and how many bedrooms and bathrooms are needed.
Try to determine which type of floor plan you prefer, exterior and interior styles you like and an approximate square footage estimate. Inform your design-build team of all these preferences and ask how they can accommodate each within your budget and timeline. Define your needs early on, understand local building laws and clearly communicate with your builder. In doing so, it is more likely your plans will be approved quickly with minimal necessary changes.
Building a custom home in California means making dozens of decisions both large and small on adaily basis. From hiring the right builder to choosing kitchen flooring, homeowners are constantly tasked with making choices that could make or break their budget. To avoid burnout from the repetitive decision-making process, homeowners must mentally prepare themselves before building. In her article “6 Things Homeowners Regret Not Knowing Before Building a Custom Home” for Apartment Therapy, Brittany Anas explains. Quoting Ryan Vet, a homeowner who recently built a custom home in North Carolina, Anas notes how exhausting the process can be. According to Vet, “‘every little thing has to be planned.'" This includes everything "'from how thick and what color the grout is between tile to every light fixture.’”
Vet and his wife were not “customizing as much as they could have.” However, they were still faced with “seemingly endless” decisions at every turn. To avoid what Brittany Anas terms “decision fatigue,” homeowners should have “a good idea of what they want from the beginning.” They should also consider letting the design-build team make many of these decisions on their behalf. Lastly, homeowners should find ways to eliminate choices they are unlikely to consider before weighing certain decisions. For example, builders often offer a series of “price point customizations.” These price points automatically remove customizations that are either too low or too high in price. As Anas writes, “it’s much easier to choose between three than from 300—especially if one is out of your budget.”
In order to ensure your home stands the test of time, ask your builder to use quality, custom grade materials. Writing for Million Acres in her article “Is Your Home Builder-Grade?,” Maurie Backman explains. She outlines the difference between builder grade, quality grade, custom grade and ultra-custom grade materials. Backman writes that “the less expensive it is to construct a home, the more those on the building end stand to profit.” Because of this, many of today’s builders “intentionally opt for the cheapest materials possible in an effort to trim their costs.” These materials -- called “builder grade” materials -- are great for a builder’s bottom line, but not so great for homeowners.
Builder-grade homes are typically constructed with “the most minimal, inexpensive materials you'll find available.” These include everything “from windows to doors to tile to the paint you'll see on your walls.” These materials are usually mass-manufactured, “less durable and less attractive than higher-grade materials.” Windows are often single-paned and drafty while cabinets are usually crafted from particle board that quickly dents and degrades. Those who allow builder-grade materials in their custom-built home will likely find themselves “sinking more money into repairs...than they'd care to spend.” Instead, homeowners should pay more upfront for quality or custom grade materials that will resist both daily use and disaster.
Next in our list of twelve steps to building a custom home hassle-free is to extend your timeline enough to accommodate for minor delays. Buffering your timeline somewhat in case of emergency ensures your custom home is built in time for you and your family to move in. Making these allowances prevents you and your family from searching for additional accommodations while issues are resolved. In the article “10 Things I Wish I’d Known Before Building a House” for MyMove, Jae Curtis elaborates. Curtis notes that builders might initially be optimistic, providing homeowners with “a tighter timeline” that does not necessarily reflect the true schedule. According to Curtis, “build timelines are not “hard and fast schedules” but rather “loose guidelines.”
A number of factors, including “bad weather, building issues and scheduling contractors” can remove the timeline from the homeowner’s control. Homeowners must understand that the timeline for their custom home build is “subject to every contingency in the book.” Add a few more weeks to your timeline than you initially planned to prevent issues from wreaking havoc. Lastly, be sure to “get all the little jobs done before your first night in your new home.” Otherwise, it might be difficult to get contractors and subcontractors to return and finish the job at the same price.
Though there are some additional alternative methods of financing a custom home build, most homeowners choose one of three methods. These include permanent financing (also referred to as a mortgage), construction financing and land financing. Follow below to learn more about these three methods of financing a custom home build.
In her article “Land Loans: Everything You Need To Know” for RocketMortgage, Emma Tomsic explains how land loans work. She writes that land loans are “used to finance the purchase of a plot of land.” They can be used to purchase multiple types of land, including that on which one plans to build a home or business. The type of land loan you might apply for differs based on “where you’re buying land and how you intend to use the land.” There are three common types: raw land loans, unimproved land loans and improved land loans.
Those who plan to purchase completely undeveloped land with no utilities or amenities apply for raw land loans. When purchasing land with “some utilities and amenities” but no access to “an electric meter,” you would apply for an unimproved land loan. Improved land loans are granted to buyers when the land “has access to things like roads, electricity and water.” Unfortunately for buyers, “land loans are a riskier transaction for lenders." This means that lenders usually require "higher down payments and interest rates than a typical home loan.”
Construction loans are another type of financing available for custom home builds. In his article “What is a Construction Loan?” for Investopedia, James Chen elaborates. Chen writes that construction loans or “self-build loans” are “short-term loans used to finance the building of a home or another real estate project.” Homeowners usually take out these types of loans to “cover the costs of the project before obtaining long-term funding.”
Unfortunately, construction loans are considered risky to banks and lenders so “construction loans usually have higher interest rates than traditional mortgage loans.” Writing for Bankrate, Miranda Marquit explains. She writes that a “construction loan can be used to cover the cost of the land, contractor labor, building materials, permits and more.” However, “home furnishings generally are not covered within a construction loan.” Construction loans can include “permanent fixtures like appliances and landscaping” in some cases.
Perhaps the least common of the three financing options available to those building custom homes, mortgage loans are awarded to some loanees. In their article “How To Use A Land Loan To Finance A Property Purchase” for Forbes, Casey Bond and Mike Cetera elaborate. They explain who might qualify for mortgage loans when building a custom home. Bond and Cetera write that “buying a teardown [is] one workaround to securing an actual mortgage loan for a land purchase.” This plan of action “is not without its own potential costs and roadblocks.” However, it can be the least expensive, most reliable way to fund a custom build. In order to use a mortgage to fund construction on vacant land, you must “secure permission from your lender." You must also secure all "the appropriate permits, as well as pay for demolition.”
In some cases,homeowners can convert a construction loan into a mortgage loan once the construction has been completed. This is what lenders term a “permanent loan.” Amy Bell explains in her article “Getting A Mortgage When Building Your Own Home” for Investopedia. Bell writes that construction mortgages are “borrowed to finance the construction of a home and typically only interest is paid during the construction period.” Lenders advance cash to homeowners “incrementally during construction, as construction progresses.” Once the builder has completed construction of the home, the loan is converted into a “normal mortgage.” Lenders will require between 20 and 25% down in order to grant construction mortgages.
Many design-build teams will work together flawlessly, keeping the timeline and budget on track. However, building a custom home is an incredibly complex process with dozens of moving parts. Be sure to check in with your design-build team frequently to ensure the project is progressing at a reasonable rate. Keep track of purchase orders and different stages of the property’s development to make sure you are aware of any delays or additional expenditures.
Lastly, homeowners should prepare for expenses not included in the build price. While some of these expenses might be related to delays in shipping or shortages of materials, others are more intrinsic. The latter are fairly easy to estimate and prepare for if one conducts proper research. In her article “Five Things I Wish I Had Known Before I Built My House” for The Wall Street Journal, Beth deCarbo explains. According to deCarbo, “lots of expenses aren’t included in the price of the house.” For example, deCarbo paid “$20,000 for the land, not including property taxes and property-owners association fees.” Before she embarked on the construction process, she had to spend “$1,400 for a required topographical map and tree inventory.”
She also had to spend “$630 to outline the home’s footprint with stakes and tape [and] $800 for the architectural review.” Even before qualifying for a construction loan, deCarbo had to shell out “$3,000 to the development’s road-maintenance fund for wear and tear; $150 for a septic-system permit, and $450 to drill test holes for the septic system.” Each of these expenses were exempt from the loan and this paid out of pocket by deCarbo. Given deCarbo’s experience -- and those of many other buyers --, homeowners should research and set aside money for any preliminary expenses they might incur.
Element Homes is California’s top custom home builder, providing unparalleled service to homeowners up and down the California coast. From LA to San Francisco, the team at Element Homes understands local zoning restrictions, build codes and construction laws. As such, Element’s team of architects, designers and project managers is well-equipped to lead a custom home construction project in your neighborhood.
Our project tracking software ensures our clients are able to follow the progress of their custom build while selecting materials and finishes online. We also provide progress photos of the build as requested, so each client always feels at ease. Schedule a consultation with our team by calling or reaching out via our website. We are happy to answer any questions you may have about our custom home building process.
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