Profile picture for user949925

Help me plan building a new custom home faster than 'should' be possible

I need help sorting out a plan for the next year or so.
We want: 
-a .33acre+ lot, upon which to build . . .
-a ~2500sf custom home
as well as
-a new truck
I believe we have enough income that if we get creative, this can all be pulled together by, say, next June.
We have: -$10k savings for this purpose
-all six credit scores for us are 760+
-$1850/mo lease thru jan '13
-$165k projected pre-tax income 2012, which provides . . .
-$30-40k (gradually) available over the next year to save/spend to hit these targets.
We're already paying around $2k/month rent. I'd like to invest that in home equity instead of pissing away over $20k/year for nothing in return.
We want a custom home instead of a tract build because we want the space arranged differently than the plans available in the Sacramento area, where we're looking to buy a lot.
Current debts: 
-$19k @1.9% car
-$7k @0% credit ('toxic', but no interest; pay this or save for bigger down payment?)
-~$100/mo student loan payment (quite inconsequential, really)
If we take the $10k and put it on the car, we can prioritize for interest and have that paid off within three months. Then another two months for the credit card (if necessary) and six or seven months to save down payment for new custom home move-in July 1, 2013.
But it won't work like that . . .
We need some help figuring out the cash flow.
It seems like in order to get the house completed for next summer, we'd need to get the lot ASAP, then plan, finance and build the home ASAP.
What steps do we need to take to make this happen?
  • June 07 2012 - Sacramento
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Answers (10)

Profile picture for Ofe Polack
Please, you do not need to disclose your financial profile publicly, it is much better and more efficient to contact a few lenders who can analyse your financial profile privately.  Good luck!
  • June 07 2012
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definitely seek a financial advisor and loan officer.
  • June 07 2012
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Profile picture for SoCal Engr
I think this falls under the category of "act in haste, repent in leisure".

A custom build, from zero-to-done in 12 months is not realistic. I'm not sure what the current financial/lending conditions are, but (back-in-the-day, when financing was more readily accessible)...

1 - The bank wanted 25% down for a lot (vice a move-in ready home).
2 - It cost us about $25K and 4 months to get buildable plans for a custom house, and this was a remarkably reasonable price (other architects wanted much more).
3 - For the actual construction-to-perm loan, the bank wanted us to have about 10%-15% in reserve to address any overruns - as the bank made it abundantly clear that they would not pay for any construction overruns.

Based on what you've outlined, work hard to prep and be in a position to buy the property. In the interim, talk to lenders and get smart about both lot purchases and construction-to-perm vehicles. You may find that the details of either - or both - are going to have an affect on your planning.

I know I'm coming off as a wet blanket, but that's not my intent. It's just, I've been down this road already, and it's not a 12-month process. The standard statement of "schedule -v- quality -v- cost" really does apply, You can't impact one without impacting the others. Also, it's easy to become emotionally attached to the idea of "custom" and "do it now". Don't give up on it, but - especially since you're not in a position to absorb "cost" issues - be prepared to do things in stages...and on a longer schedule.

p.s. About the only way I could see to make all this happen "faster than possible" with any expectation of a reasonable resolution is if you had cash to burn...and it's already sitting in a pile and just waiting for a match.
  • June 07 2012
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Step 1: qualify for a loan to buy a lot.
Step 2: qualify for a loan to begin construction.

All the best,
  • June 08 2012
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Profile picture for Blue Nile
"I believe we have enough income that if we get creative, this can all be pulled together by, say, next June.
We have: -$10k savings for this purpose
"  -

No, you do not have enough income to accomplish your "goal" by your target date in Sacramento.  If you did, you would have $200k savings for the purpose.

"-$1850/mo lease thru jan '13" -

No, you will not get any "custom" home for that kind of payment.  You are not throwing any money away on rent, you would waste thousands more on "interest" paying the bank for "no equity" if you did "custom" in California.

"-$30-40k (gradually) available over the next year to save/spend to hit these targets." -

Then why don't you already have $40k savings from last year alone?

"We want a custom home instead of a tract build because we want the space arranged differently than the plans available in the Sacramento area, where we're looking to buy a lot." -

There are a lot of easier ways to accomplish that goal than to build from scratch.

"-$19k @1.9% car" -

So you want to do the same thing now for a truck too?  What is wrong with buying it used at about $5k for cash and not spending the interest?  What makes you think you need a truck if you spent so much on a car?

"But it won't work like that . . .
We need some help figuring out the cash flow.
" -

Of course it won't!  Most people can spend up to 40% of their income on housing; but you have chosen other priorities, and have a very unrealistic expectation on what custom homes cost and how long it takes to build.  And if you were not able to manage your cash flow to put more in savings for down payments and maintenance and contingencies, you are not prepared to build custom, especially with no construction experience.  1 yr to build is pushing it even if you already have the property, all the cash, and completed and approved plans.  In some cases, it can take 2 years just to get the plans approved even after they are completed.

"It seems like in order to get the house completed for next summer, we'd need to get the lot ASAP, then plan, finance and build the home ASAP." -

It seems like if you really plan to move by next Summer, you need to skip buying a lot, and
1) find a good mortgage loan officer, and have them assist you with a pre-approval, and find out your real target purchase range.
2) Start searching for what "might" meet your needs already constructed, in your price range.  Likely this will involve screening Real Estate Agent representation as well
3) Figure out what you can modify in an existing home to conform to your floor plan needs, and the cost and time frame to construct that.

Either that, or change your spending patterns now, and put off buying anything for a minimum of 5 years.
  • June 09 2012
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Profile picture for Sharon Lewis
There are several major builders out there who are starting to 'custom build' on either a piece of land they own or land you buy (deed to them for the purpose of building)
  • June 09 2012
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Profile picture for Jeff Grenz
Lots of great advice.  

1.  See a lender and get your overall available budget figured out.

2.  Look at available lots as well as tear down properties that are priced similarly to lots.   These have not been in demand, but will be soon, so the best way to hedge your investment is to lock in the land.

3.  Be careful of "magic ratios" friends, and agents give you to select your lot, that varies significantly by neighborhood.  I never use them (as ratios are often for the benefit of the person telling you)

4.  Consider the "design-build" process, designing the project to fit the budget.  This can be done with a builders inside design skills OR an outside architect or home designer with a meeting of the minds of all parties.

Lending for a custom home is a specialty not done by the majority of banks, but it is becoming more common again.  I received a call from a small bank CEO yesterday explaining they had just restarted their builder lending group.

The loan you get for a custom home is typically a short term, 12 month loan.  Once the home is completed, the loan is replaced or sometimes recast as the traditional 30 year mortgage, depending on the lender.  

In our current housing market you can often purchase a custom home for less than you can build it.  Except for this last boom, this is not really that unusual.  Custom homes may not appraise for their full cost, in which case, you would have to have a down payment (or total equity) of more than 20%.

I built, designed and developed custom homes and custom communities in the Sacramento region since 1985, my family's building business in the region dates back to the mid 30s.  If you have any more specific questions, I would be happy to help answer them.
  • June 09 2012
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Profile picture for tdefazio
I built a home using the Wells Fargo conventional renovation mortgage.  Just completed it, actually.  Securing the financing wasn't easy but once we were rolling, the process was nice and efficient with the use of a third party service to evaluate the construction progress and funds distribution.  I bought a .35 acre lot in 2008 and tore down the house to start new.  Ended up with a 1900sqft main house and a 480sqft detached guest house.  Let me know if you need any help along the way.
  • July 03 2012
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Profile picture for Blue Nile
Ted -

You forgot to post how long it took from the time of purchase of the lot to "move in", and you also forgot to post how much the total cost was including the land, permits, change orders, etc.

Well, maybe you did say how long it took... bought 2008, finished 2012, thus 4 years?  Have you moved in yet?  Did you find all those hundreds of things that you wished you had done differently yet?

As stated before, 1 year time frame is "unrealistic", and if 1 year is the "goal", then it is better to buy "existing" and modify it for specific needs afterward.
  • July 03 2012
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Profile picture for Jeff Grenz
Once you have the resources in place (ability to borrow and cash for the equity) the one year time frame is completely reasonable, as long as you are using professionals, from lot acquisition to final inspection and move in.
  • July 08 2012
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