Questions about building our own home...


  #1  
Old 03-22-05, 08:03 PM
DandAKrafka
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Questions about building our own home...

My husband is a Lead Carpenter for a very upscale contractor. He has worked on several million dollar homes and simple jobs such as a 12 sq. roofing job. He has about 12 years experience in rough and finish carpentry.

We are moving to Nebraska and are hoping to build our home. He would do all the work except the carpeting, plumbing, electrical and HVAC. We are pretty much picking Home Depot specials that we hope to upgrade someday but "will do" for now. We have new twins and we need to get into a house pretty quickly once we move. We have thrown about $60,000 down the drain in rent and I am done with that. The one thing we are "splurging" on is the kitchen since to redo this in a few years would be very costly.

My first question is, do you actually have to have a contractors license to build your own home? This is probably a state by state issue.

The land will be bought and paid in full. My husband was born and raised there and has family that are selling us land which we can luckily pay cash for.

I'm a bit concerned about a few things. My mother is financing the work, the the land and dwelling will be in her name, then we will buy it from her. She will finance us enough to be able to have a regular monthly income so that he can work 7 days a week on the home, but only for 4 months. He says that that at the end of the 4 months the home will be livable. Is this possible working on a home 7 days a week of course with some help on weekends, etc.

Has anyone done this? Any tips or suggestions? Also, is there any other option to a construction loan? I know we can to a construction to mortgage loan, but was wondering if there might be another way that I am not aware of.

I have lots of other questions about materials but I'll leave that for another post...maybe I can find my answers in the archives.

Thanks for any input you can offer!
 
  #2  
Old 03-23-05, 05:32 AM
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Last edited by kuhurdler; 02-04-07 at 02:39 PM.
  #3  
Old 03-23-05, 05:45 AM
DandAKrafka
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Originally Posted by kuhurdler
I'm confused, you said you can pay cash for the land, and then you say your mother will be financing it. WHich is it?
We are paying for the land cash, putting it in my mothers name so that she would be able to finance us to build the home.


Originally Posted by kuhurdler
You don't need to use your mother to finance it necessarily.
I don't think a lender will give us a construction loan without my husband or I working. This is why if she were financing the $$ we would factor living expenses into that, basically her paying a contractor to build a home and then selling back to us.


As for the subs.... for the plumbing, HVAC and electrical are family members so hopefully they will show up on time or no invite for Thanksgiving! My "newest" big fear is cost of carpeting, yikes it seems awfully high!?

Thanks for your input!
 
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Old 03-23-05, 07:23 PM
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DandAKrafka,

I understand your issues but lets address 3 issues.

1. Most municipalities will allow the homeowner to pull the building permit for the project. Few rarely disallow it. However finance companies may dictate that a licensed contractor must be hired. In your case, this is not an issue.

2.
He says that that at the end of the 4 months the home will be livable.
This isn't the issue that he can decide on as it is the isssue of acquiring the CO. (Certificate of Occupancy). This is given upon approval at final inspection. This means painted walls and finish flooring! Once this is given, then the owner is allowed to move in. 4 Months? - very possible to get it done. However we need to be realistic about various issues, weather conditions, material delays, inspections, getting that help from friends and realtives when you need them, etc that may extend this time frame.

3. Since you are getting help from your mother. It is feasible to do what you mentioned, but upon completion of the home, the issue of acquiring a loan would or could be attainable if the appraised value would be 20% more than what the investment was, which I assume it would be. This way, you could get the loan and remove your moms name from any documentation. There will be a transition phase here that her name will have to be removed to allow you two to get the loan. It is not only an issue of trust but liabilities which are at stake here. For everyones benefit, ensure that Lien Waivers are provided for all work and materials provided. This will be a must for trying to acquire a loan.

Also inquire about Builders Risk insurance, etc. while this project is under construction. Talk to a good insurance agent on these issues. This a high risk endeavor and the lack of insurance or other requirements to construct this home could cause great harm to your mom. As you can tell, it is not just having the ability perform the work but to be responsibile for the work.

This transaction should be discussed with a good attornery to protect you and your mom.

Hope this helps!
 

Last edited by Doug Aleshire; 03-23-05 at 08:06 PM.
  #5  
Old 03-23-05, 11:08 PM
DandAKrafka
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Thanks Doug for your reply. It was very informative. Could you give me input on a few of the matters you discussed?

First, in the county in Nebraska we are moving to you aren't required to have a contractors license. Which my husband doesn't have. He will absolutely retain insurance. He always has it for side-jobs so that is no issue at all. Our local bank takes care of our insurance needs and can provide it once we get out there. We are *planning* to break ground in July which should be an excellent time of year for building, no real weather issues (okay maybe extreme heat) until November.

I am a bit concerned about the 4 month time period. I just want to be in as soon as possible because we will be living with other family members and I'm not to keen on this. I am willing to do it because it is rent free and will allow us to actually have our own home in the end. I just don't want to be there long. I have newborn twins that will start crawling around that time and their place is not baby proofed so this is a huge issue for me. Plus, I know that living with family members is not easy and sometimes not good. Been there done that. I'll do it for the sake of a house though!

That is good input about the loan. The home will be worth considerably more than what we are putting into it. The land alone which will be paid for in advance will help with that. Could you tell me a little more about Lein Wavers? Perhaps my husband has heard of this but I haven't.

Also, can you tell me about the transition phase where my mothers name will have to be removed to allow us to secure a loan? Who's name is it in during this time?

Thanks for your input, I'm learning a lot on these boards, mostly that building your own home is NOT easy!!
 
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Old 03-24-05, 05:33 AM
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Last edited by kuhurdler; 02-04-07 at 02:39 PM.
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Old 03-24-05, 05:55 AM
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DandAKrafka,

This is an article I wrote - use what you think will help you.

"When a homeowner wants to take on the task of being a General Contractor, (GC), several issues have to be addressed.

Owners building new homes "could" save plenty if they are willing to take on the vast responsibility of being a GC. What one assumes is not necessarily what the truth is. Reality will soon set in as to what it really takes.

Being a GC is not just building and getting paid "big bucks" as one assumes. It is hard work both mentally and for those that are working on-site, it is demanding physically.

From having good plans drawn, the designer/architect will take the owner through the steps of what is involved, things that can save you money and how to avoid pitfalls. Good plans, good planning and a honest self-assessment are crucial. For those desiring to be the General Contractor, many issues must be considered.

For instance, reading blueprints and understanding them. They are not just lines but a map of things to come. How one interpruts them and understands the process of construction is a necessity as not understanding is a liability that could take you from saving money to seeing the budget disappear before your eyes. Nothing worse than having to take 2 or 3 steps back to rectify a step that was done too early. These mistakes happen too often to those unfamiliar with the steps, inspections and how things are to be done.

Planning and what does this actually mean? It is determining your budget, applying for the best loan, seeking subcontractors, LICENSED and INSURED, that can undertake the task at hand and know who is good or bad. Agreeing on price for the task at hand. This may involve negotiating which for some may be difficult. Be too hard, you'll be in trouble finding someone. Be too agreeable and you may pay more than you like. This in itself is a difficult task when you consider that you have to schedule the project and know that subcontractors are very particular in meeting schedules to avoid loosing money, not yours, theirs!

The issue of getting good plans means that where you obtain your product for the job that they can do a take off that doesn't leave anything unturned. Lack of information means others assume. We all know what that means. I see plans done by others and they lack detail, information which means, assumptions cost you money. If a MTO (material take off) was done and the load is dropped at the site, lack of material either due to error in estimating materials to a paper glich means delays. Again this means the GC must be on the ball for being prompt to this dilema is critical to scheduling. Let's face it, this is not a weekend project that you can just pass off until you get time to resolve it.

It is the issue of shopping for what the home will need to have, initially it is deciding the exterior applications, windows, doors, etc. These items should be known when having the MTO done. Again, these items are discussed at the time the drawings are done. It will be selecting paint colors, sometimes even the brand is important as you may have a specific brand in mind. You'll have to think about sinks, cabinets, appliances, lighting fixtures, faucets, shower doors, ceramic tile, floorings, door handles, cabinet hardware, etc. Shopping may be the wrong word, how about "price comparison"? Then you have to figure out when to get it all, when to deliver it, who will deliver it, where to store it, etc. This is where you can save money initially but it is very time consuming.

Not everyone can do this and then manage a project with order and maintain a good accounting system all the while making sure that things are done right, inspected and all the while trying to stay on schedule.

On top of all this, its not only having sound and accurate construction knowledge, but understanding the Building Codes requirements, understanding what leins are, how they work both for you and against you, when to make payments to subs and when not to.

Most imporant is TIME, this venture will require time that may not be dueable to your current schedule. If you have to work at a job and intend on being a GC, you may already be in trouble. Being honest with yourself is the hardest thing to do. Telling your boss, if employed by others, that you have to leave to take care of some immediate business may mean you could loose your job. Planning a 4-6 month period to be off work to build this home may not work if the planning and schedules are not done and soon extends beyond the date you planned to return to work. Saving money can be soon clouded when the dream becomes overwhelming. This of course can make it hard on those married and those with children. It's a very large sacrafice. This will become a full time venture and one that cannot be taken lightly.

For those that are taking out loans, to be a owner/contractor also has some problems, at some lending institutions. Lenders tend to frown on the owner/contractors. They are very wary of giving out such loans as they are a higher risk because too many owner/contractors fail to complete the project within cost and at the projected appraisal value. Again, the issue is what you plan in the beginning must be adhered too. If you can't fully satisfy their doubts about your abilities to do this, they will and often turn you down. If you don't have all your "ducks in a row", when seeing your lender, i.e. having the plans in hand with a job schedule, job cost sheet (Sworn Construction Statement), bids from chosen subs with proof of insurance, you can pretty much consider the time and energy you've spent a complete wash other than hiring a GC.

In other words, you don't have to know everything, or technical information but you must show that you can "manage this project" without being over budget.

I have always recommended that you get at least 3 bids when hiring a GC. The same should apply when hiring subs for the project. It is not to hire the one with the lowest bid but one that can perform the services requested and has a proven track record. Compare apples to apples. Everyone should return with all items discussed or as I expect, per contract specifications. Nothing less! All of this should be checked out during the bidding process. Being satisfied in who you hire will make the process go smoothly. If you pay more, getting what you want done right the first time and on schedule is most important.

A good set of plans from an architect, designer and having a good real estate attorney who understands local zoning regulations is very important.

I can say that no project is "totally free of potential problems". Maybe a sub can't come on a certain date, material that was special ordered is late or came in broken or was just wrong in color, or the weather isn't cooperating. The fact is that a GC must be adaptable, flexible and in control when a problem might occur. This is partially the reason that one should add 15% to the budget. This not only covers what might go wrong but you might be able to get that extra something for the home if things go right!

When you consider hiring a GC, you think that they are making good money at your expense. The question is, are they really? I can say that this may be true in most cases but then again I have seen them go in the hole due to cost overruns. Yes, it happens and then you don't see them in business anymore. If this happend to you, then what? On an average, you could save yourself 20 - 25%. This would be money saved on overhead, mark up and profit a GC would make. Now that may seem like allot of money but actually net profit a GC makes is around 5-8%. Bear in mind that this is if things go right. As your own GC, you are eliminating overhead, mark up and profit. Some call it "Sweat Equity", some call it "Easy Money" and others, I can't say it here. You have to be the judge of your abilities.

Being your own GC is a challenge and it can be overwhelming. It is not for everyone. What can make a difference is thinking everything out, good planning from plans to scheduling, to hiring good subs, to understanding the process and how all the hours and restless nights get you to the final result, a home you can be proud of.

Just a side note, I have a repeat client, who was his own GC 1 1/2 years ago. He has undertaken another major addition/renovation project which is not well planned and his scheduling method is a joke. You don't call subs to come out on a days notice to do work. Weather conditions also effect the whole process. He says that he has to do this and do that, all the while he has a job that requires allot of traveling. He didn't learn the first time but he must pay for the delays. He wasn't willing to pay for my project managing services which were far less than a GC would charge. He wanted me to design a home that had class but was affordable with intent to sell. As usual, no red lines from the City in approving my drawings. I prepared estimated costs and he had the money to do this at will. He has already gone over budget. Even still, he will make money, just not as much as he figured. For being an experienced automotive engineer, he is very smart. It is an example of where one has experience and where one does not. We can all learn from our mistakes but if you can't afford mistakes, you may not have privilege and time to learn how not to make them."

More of what I have written,

Will you be using subcontractors on this project? If yes, ask to meet them, and make sure they have current insurance coverage and licenses, if required. Also ask them if they were paid on time by this contractor. A "mechanic’s lien" could be placed on your home if your contractor fails to pay the subcontractors and suppliers on your project. That means the subcontractors and suppliers could go to court to force you to sell your home to satisfy their unpaid bills from your project. Protect yourself by asking the contractor, and every subcontractor and supplier, for a lien release or lien waiver.

What types of insurance do you carry? Contractors should have personal liability, worker’s compensation, and property damage coverage. Ask for copies of insurance certificates. The best way to do this is to have the Contractor get his insurance company to mail this to you. When this arrives, check the postmark to ensure that it comes from the City the insurance comapny is located. Make sure that the insurance is current. Call the insurance company if you have any questions. Avoid doing business with contractors who don’t carry the appropriate insurance. Otherwise, you’ll be held liable for any injuries and damages that occur during the project, regardless of any contract written.

Lien Waiver – http://www.dreamhomesource.com/forms/LienWaiver.pdf - Check with Nebraska on their lien laws and get the appropriate forms. This is a must.
A signed Lien Waiver is given by a supplier of materials or services to the owner of a house or other structure to formally acknowledge that there is no right to file a mechanic's lien. One or more lien waivers may be critical to you and your mom to complete a sale of the property or to secure financing. (In you case this is what you will be doing once building is done)
The importance of a lien waiver is that in the course of constructing a new building or improving an existing one, you will likely contract with a number of different companies and individuals to include friends or family . These suppliers provide materials or construction services (or both) in the course of the construction. These might include plumbers, electricians, carpenters, lumber yards, paint sellers and countless others. Each of these suppliers, if not paid, probably has the right under local law to create a lien on the property to secure payment. These liens are called "mechanic's liens."
Each state has laws dictating how mechanic's liens must be created. In most states, some notice must be given to the property owner within a certain time period. In some states, the time for the lienholder to file starts to run when the work begins. In others, the time begins to run when the labor is complete or the materials delivered. The lienholder must also file the lien in the appropriate county office. When properly created, a mechanic's lien secures the payment of the debt owed to the supplier, just like a mortgage protects a bank. If you are a property owner, you likely cannot sell or finance the property until the lien is paid or otherwise released.
Often, a sale or financing is scheduled to close shortly after the construction has been completed. The buyer or lender may be concerned that a supplier will file a lien after the closing, too late to pay the lien out of the sale or financing proceeds or make other arrangements. To avoid this problem, the buyer or lender may request the owner to secure lien waivers from all of the suppliers involved. This effectively prevents the supplier from creating a new lien after the closing.

Insurance -
Builder’s Risk Insurance is a property policy designed to provide coverage for property while under construction. It covers the Contractor’s/Owner-Builder interest in materials at the job site before they are installed, materials in transit intended for the job and the value of the property being constructed until it is completed and accepted by the owner. The policy may be written to cover the whole structure for new construction or rehabilitation projects. As I mentioned before, contact a good insurance agent to ensure that all areas of coverage are in place – this may include workmans comp and General liability insurance. These insurances are what a General Contractor carries and will be in part, if not whole of what your husband will need. This relieves any burden on your mom for any losses or injuries incurred while this home is being constructed. Once done, then the homeowners insurance will take over when you acquire that.

Learn the necessary fundamentals first of all of this before you bite off more than you can chew. I am sure that in what you are asking, this is the right step in the right direction. My hat’s off to you!

I hope this helps!
 
  #8  
Old 03-25-05, 09:06 PM
DandAKrafka
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Doug,

Thank you again for very informative information. I have contacted the state for information on lein waivers but have also printed one from the source you listed. We are still struggling to make a decision and it is getting incredibly frustrating but I am confident that *someday* we will have this all worked out.

My one last question to you is do we need lein waivers for products like lumber, windows, etc from stores like Home Depot? Or just for subs who are doing plumbing, electrical, HVAC, etc.?

Thank you again!

Angela
 
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Old 03-25-05, 09:24 PM
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DandAKrafka,

It is wise to get lien waivers from the lumber yard and all subs - including the friends and relatives providing work if they are being paid. Even in the event thay are not and they perform any mechanical work for example, ensure that they provide a lien waiver for it. Keep all receipts of everything!!

When you try and get a loan, you need to verify that everything was paid for and I mean that, everything! Submission of all documents pertaining to the construction, purchasing of the land, etc. will all be needed. The lending institution will not take too kindly to surprises and you also need to protect your mom's interests as well. She also may not take too kindly to anything left in limbo.

If you need help, just ask. I know there are others here that can help as well and I don't mean to be providing more answers than anyone else.

Good Luck!
 
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Old 04-08-05, 06:55 PM
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Here is my two cents worth...

First. Keep friends/family separate from money. If you do mix the two make sure ALL the details are spelled out in writing beforehand. It seems harsh and rigid, but if everyone knows what is expected up front things end up better in the end.

Second. I built my own home, and it took about 10 months. It's about 4'000 ft. finished, 1'000 ft. of porches and six garage bays. I prepared the lot, did the basement and first floor deck, then hired someone to frame the main floor, roof trusses, shingle the roof, sheet rock HVAC and cabinets. Everything else was done by me (grading, plumbing, electrical, flooring, siding, landscaping...). Four months is a very quick turn if he is doing the work himself but is possible if he is acting as the G.C. and hires much of the work. However, four months is a fast project for someone's first.

Everyone thinks that G.C's rake in the money and many people think that an easy way to save money is to cut them out of the picture. Some G.C.'s make a good living, some don't. Keep in mind that any good professional (doctor, lawyer, astronaut, general contractor) make good money, just like any other good professional. Do you want a lawyer driving a Geo Metro defending you in that big trial??? I built my house (cutting out the G.C. and most of the subs.), but don't discount the value of the G.C.'s experience. Like many corporations the right person at the helm can make all the difference. A good G.C. can save you money by efficiently managing your project.

Building my own home I found that the most problematic thing was dealing with other people. I could control my work, but getting subs. to show up on time and do what you want is a big job. Not insurmountable, but still a big job. Don't underestimate the value of planning and management on your project.
 
 

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