Build a Home on Your Farm, Part 4 - The People You Will Work With to Build Your Home
Updated: Jul 3, 2020
This is a 5-part series of articles that discuss building a house on your farm or homestead. We look at planning, budgeting, designing, building, and we share our lessons learned along the way. In Part 1 we explore why to consider building a home on your farm. In Part 2 we discuss different types of homes you may want to build. Part 3 goes into site planning and home design. We'll discuss the people you work with to help build your home in Part 4. And finally the step-by-step process is explained in Part 5.
I'm writing this as if I'm sending a message 12 months back in time to when we first started out on our home building adventure. We didn't know where to start. We had so many questions, and we asked around in an attempt to best understand what lay ahead. But we received lots of different answers, and some were good answers but had gaps in information that we didn't realize until later.
If you are embarking on a similar endeavor and this is how you're feeling, we hope this helps shed some light on the way ahead. Let me say that no two paths will be exactly the same, so yours will vary from this. However, this should provide you structure on what to expect. To set a framework for the discussion, this is largely for someone building a custom home, although if you are purchasing a manufactured or pre-fab home, many of these steps will apply as well.
In this article we discuss WHO is involved in the process. The people and organizations who play a role in getting your house built. The next article discusses the step-by-step process. Let's get started.
The vast majority of people building a home will need a loan, and since money makes the world go 'round, we start with the lender as the first person on our list. While it's not usually just one person and is instead a team of people working on your loan, you typically will work with one individual from the lending institution throughout the undertaking.
Getting a loan to build a home is different than if you purchase a pre-existing house. You will be working with a lender on a construction loan, and instead of getting one lump sum of money for a loan, the lender gives out money in chunks to the contractor as he or she builds a home - these are called draws. Money will be drawn from the lender at different stages in the construction process as the contractor needs funds.
Construction loans are higher in interest rates than typical home loans, and they have a short duration - usually no longer than one year. During the build process, the lender will send a representative to the site to ensure work is being completed as agreed upon. This is not an inspection of the quality of work, just a verification that the contractor has completed what is expected at different steps along the way.
When looking for a lender, obviously the first question is whether they provide construction loans. Not all lenders will do so, but those who do will normally offer options to construction-to-permanent loans where once the construction is complete the loan then converts to a traditional mortgage with better interest rates. This is the path we took, and it saves money in that there will be only one closing with associated closing costs.
Another variable to consider with lenders is purchasing land. If you have not already purchased the land, then you must plan to fund that step. We bought our land in conjunction with the construction of our home, so we had one single closing on both the land and the house. If you purchase land before building - which is common - then you will have a land loan, which may be through a different lender. Once you begin plans to build, you should plan to roll the note from the land in with the mortgage on your new home.
In any case, shop around between banks, mortgage companies, and credit unions to find the right lender for you.
The person building your house is every bit as important as the bank helping you pay for it. It is critical that you are comfortable with the person responsible for constructing your future home. You should be able to trust this individual to have your best interests in mind and that shortcuts will not be taken during the process. A contractor should be able to understand your desires for your home and advise you on materials and design along the way. The contractor should be someone you can work with and be accessible to address questions and concerns.
Make time to interview as many residential contractors as you can. Ask for recommendations and evidence of work such as a portfolio. Drive by homes that the contractor has built to get an idea of their work. And don't be afraid to discuss price. Most contractors don't like talking about price because there are so many variables that go into it: size of home, materials used, terrain and accessibility to the home site to name a few. While this is valid, it's important you have an idea of what to expect. Acknowledge the variables and ask the contractor for an average range per square foot, or if he or she can provide prices on the last three or four homes they built.
The first potential contractor we interviewed was very resistant to giving us estimates for the work he did. We talked for over an hour, and he gave us his sales pitch. He clearly did good work, but we finally had to tell him we couldn't proceed with him without an idea of cost. At that point he finally offered what the average cost per square foot was for the last several homes he built. It was far above our budget, and we could have saved each other a lot of time if he had just been willing to provide that information up front.
Remember that your builder will need to be approved by the lender. In many cases contractors have worked with numerous banks in their areas and may already be approved, but if not there is a process where the lender will need to vet your desired contractor before agreeing to provide you a loan.
Again, take your time to get this right. There are companies that build houses and there are individual contractors. You will have a good sense for them after meeting with them face-to-face. We spoke with a few, and as a result we knew the builder we landed on was the right guy for the job as soon as we met.
Alas, the person who designs your home is nearly as important as the people funding and building it. Yes, you can go to any number of home design websites to buy ready-to-go architectural plans, but odds are you will not find a plan that is perfectly suited for you or your property. A residential architect can help.
Like lenders and builders, interview a few different architects. See what sort of homes they design and find out what his or her rates are. We advise looking for someone willing to offer ideas but not be pushy about them if you want to go a different direction. An architect should be someone willing to help you achieve your vision.
A title insurance company will make sure everything is legal with regards to the title for the real estate in question. They ensure the buyer gets the title to the property once the purchase is made, and they normally arrange and conduct closings. Title companies may have different roles in different states. For example, in Texas they are responsible for the escrow.
To be honest we've never given much thought to a title company in any of our home purchases. We typically go with whatever the lender or real estate agent recommends. In any case, reach out to the title company representative to ask questions. If you are buying unimproved property or need a survey, they can advise you on how to proceed.
Your lender and builder will require you to have a builder's risk insurance policy in place before construction can begin. Ideally this is the same insurer that you will work with for your homeowners insurance after the house is ready to be moved into.
You may need to get the property surveyed when you purchase it. Some survey companies are more expensive than others, some are faster than others. Your title company or contractor should be able to advise on preferred surveyors.
An appraiser will be hired by your lender to assess the value of the completed project. You may need to provide him or her with information on the property to include a current survey, and also information on the house plans such as interior and exterior materials, and square footage.
County Tax Assessor.
You need to let the county know that you are planning to build a residence. If the land does not already have an address associated with it, you will request from them a 9-1-1 address. For us, a representative from the tax office asked us to mark where we would put the entrance to our property, then she came out to document the location and in turn gave us what would ultimately be our address.
If the property does not already have power and water (and maybe gas if applicable), then you will have to work with the local utilities to get hooked up to them. They will advise on any sort of easement requirements. For example, we needed a cleared path 60 feet wide as an easement for our power hookup.
Your contractor will need water and power at the job site, so plan to have that hooked up before construction is set to begin.
Contact the local post office to let them know you will be building a residence in their area, and they will tell you what you need to do for establishing a mailbox and getting your mail delivered.
Site Prep/Land Improvement.
You may need to have some improvements made to the property before you can get started with construction. Our land was completely covered in thick brush and mesquite, so we had to hire a bulldozer operator to clear out the home site as well as the easement needed for the electricity hookup, and a driveway.
You will work with many different people and organizations throughout the process. Consider them your team, and now that your team is identified we wrap up the series with a step-by-step discussion of construction process in the next article.