Owner Builder Program – A Working Knowledge
By James Oswald
Owner building is a very rapidly growing way to own a home. More and more people are starting to learn about the benefits of acting as their own General Contractor. Building a custom home has never been easier than it is now with the very low interest rates on loans, the reduced pricing offered by sub contractors, and the failing housing market which allows a potential builder to buy vacant properties for pennies on the dollar. These are things which automatically convert into instant equity once the house is finished. So, even the individuals that have never thought of, nor have the working knowledge of building a custom home, are doing so with great reward. In this article, you will learn what others just like you have learned about this extremely valuable alternative to buying a house in our battered economy. I will talk about the pros and cons of building your own home and how it compares to trying to find a house on the market for the right price that you can ‘deal with’, different techniques of owner building, lending options for perfect credit, not so perfect credit, and unemployed individuals, comparable costs, building ‘green’ and how much you save by doing so, and much more. At the end of this article, I will tell you all the benefits and programs that are offered. Chances are one or more will fit your needs exactly. After reading this article you will have a basic working knowledge of owner building and appreciate the awesome benefits that naturally follow.
In today’s market most homeowners are running into a huge problem. They are finding that selling their home to cover their existing mortgage is increasingly impossible. The demand for housing is very low and buyers aren’t willing to pay above the fair market value. In fact, most buyers are meagerly trying to get ahead of the market by offering bids way under what the house is worth. And if the buyer and seller come to an agreement, it usually means that one of them got the short end of the stick. As a former mortgage broker, I have seen this time and time again. I was always unusually involved in all my transactions, keeping reigns on the entire process to make sure my clients were happy with what they were getting. 99% of all new purchases that I was involved in, my clients were not happy with one or more things about the house they were buying. Whether it was the school district, the size of the yard, crime rates, mandatory repairs; I’ve heard it all! But they would always “settle” for the house because of one or two things they did like. Now, if I had asked my clients if they would rather buy this house or get exactly what they’ve always dreamed of, I guarantee that all of them would say “I want exactly what I’ve always dreamed of”. This is where owner building comes in. As an owner builder you have the freedom to build whatever you can imagine within local code standards. You have the flexibility to choose your location, plans, and contractors. There are no price wars between you and a seller. And you save THOUSANDS of dollars by cutting out all the unnecessary steps to owning a home. For example; let’s take a house that has been appraised at $200,000 and is being sold for $195,000. You might be able to talk them down another $5,000 but we’re assuming that the seller has a mortgage that needs to be paid off on top of the expense of moving. You now own a home for just about what its worth with almost no equity. Buying that same $200,000 house brand new from a GC leaves you at exactly $0 in equity. General contractors usually build houses for 20% or more under what they sell them for. This is the ONLY way for them to get paid. Now imagine that YOU are the GC and you are living in a
house that you built. It might cost you $150,000 to $180,000 to build that house. Now you have a $200,000 house with $20,000 to $50,000 in equity. This number increases with the more work you do on your own. There is no way around it; building is better than buying. If you currently own a home that you can’t get out of, you could even sell your house for a lower price and make up the difference with building a home.
The process of building your own home is easier than most think. There is potential for some problems but usually these problems are common among most building sites. The process starts by submitting a loan pre-qualification. This form will determine how much you are able to borrow for your project. Most lenders will demand that the loan does not exceed 80-85% of the future value of the home. This does a few things. It insures that you will have at least 15-20% in equity once you’re finished and it also insures that you don’t have to pay PMI (Private mortgage insurance).PMI is a separate insurance policy that the lender charges to borrowers that have been lent more than 80% of the value of the home. Why? Because in the event of a foreclosure, the lenders insurance company will only cover 80% of the value. The bank is at a 20% loss. PMI covers this additional 20%. PMI usually adds a few hundred dollars on to your mortgage payment each month. The second step is to close the loan. This could take 2-6 weeks depending on the underwriter’s reviews. The loan will be paid out in ‘tiers’ or ‘draws’. This insures to the bank that the house is actually being built and built up to code. The first tier is the footers and foundation. The second tier is rectifying the structure and all the necessities such as electrical and plumbing. The third tier is everything else like drywall, insulation, paint, ECT… Once you have the loan, you are now able to start bidding on the sub contractors. Local sub contractors will try to offer you the lowest price for labor and materials when they know that you are ‘shopping around’. It is always a good idea to place bids to three or more contractors so that you can get a feel for who is pricing way to high and who is worth the money. Once that’s done and you have selected your contractors, it will be time to build. This part of the process usually takes 6-8 months to complete. During this phase, you will manage your site. You are the final authority as to everything that happens on your project. Not knowing as much as the contractor and being in a position of authority can be a little nerve racking. Don’t let this bother you though. They are there because you hired them. You are their employer. If you have a question or concern you should address it to the crew. And if you aren’t sure about something you can always contact the owner builder company to guide you through the rough patches. If you aren’t happy with the work or you feel something needs to be changed remember, you still haven’t paid them for their work. Never pay a contractor in full for their work until they are finished and the work has been inspected and passed by a professional. This will insure that the crew will not move on to another project until they are finished with yours. After the house is finished, move in! Most of the time the loan that you have for the construction and land will automatically convert into a fixed mortgage. There should be no reason that you need to take out more than one loan for everything.
There are a few options available to you when choosing what kind of house you want. And with each option is a different cost and savings. The conventional way to building a house is to use wood beams. This is called a (stick built). It is probably the least expensive way to construct your home. The only advantage to this other than the advantages already covered is the cost of actual building. These type of houses can, however, be converted into ‘green homes’ by modifying the plans just a bit. Using thicker beams means more insulation in the walls. Things like that. A great way to save thousands on constructing these homes it to utilize pre panelized framing packages. Pre panelized framers will construct the walls and trusses by computer and send them to you by truck. This is a good idea because it will cut the man hours needed and on site waste tremendously. There was a study done by the Wood Truss Council of America showing the difference between constructing a home on site and pre panelizing. What their study showed is that for a crew to build on site took 93 hours. The same house was built right next to it with the pre panelized framing and dropped the hours to 26.5. Both houses had a crew of 13. That’s 13 men times $20 per hour. There was less waste to clean up meaning more savings. After everything was said and done, the pre panelized house costs almost $3,500 less to erect.
Another type of home to consider is a true ‘green home’. These homes are constructed with ICF (insulated concrete forms). These houses are slightly more to build but they certainly are worth their weight in gold. By borrowing a little bit more, you can own a home that no other house can touch regarding the safety, comfort, overall cost savings, and reliability. How these houses are built is by using polystyrene foam blocks to build the layout of the walls and pouring concrete into them. The concrete walls are reinforced as well. ICF homes can also come in pre panelized framing packages and can usually be rectified in one day. Most of the time you can begin rectifying the walls on the foundation before it dries. This is recommended but not necessary. The comfort that you feel within these homes is indescribable. The walls do not breathe as much as stick homes therefore there is less thermal transition. Concrete has the ability to hold thermal energy for long periods of time. Given that the walls and foundation are concrete, this house draws the energy out of the ground below the frost line which stays at 55 degrees all year round. The polystyrene blocks are permanent and also give an added insulation.
Polystyrene is most commonly used in coolers. And for good reason. People in Miami-Dade county FL. have said that they can use their AC all day every day and have a $45 electric bill at the end of the month. Another up north had his furnace go out in the middle of winter and had no problem coping due to the thermal draw from the ground. It was -10 degrees outside. Another advantage to these houses is the comfort. No matter where you build your house, you will enjoy a quiet that you have never experienced before. The concrete construction drowns out most outside noise and some inside noise as well. They also have a 4 hour fire rating opposed to the 45 minute fire rating on most stick homes. They can be built to withstand seismic areas, hurricane and tornado prone areas, and can take a 180MPH impact with little or no damage. Homeowners insurance is less expensive due to the nature of these homes and they usually appreciate no matter where they’re built.
There are plenty of programs to fit the needs of an individual planning to build. We have access to loan programs that you really can’t find anywhere else. Here are some of the things that we can offer; 100% financing (includes the land, labor, materials, fees, and permits), No closing costs, no payments for up to a year, we can do stated and NoDoc loans (for those who can’t prove their income or are self employed. If you decide to build in one of our ‘green communities’ we have certified GC’s on site all day to help you with your project, we have literally thousands upon thousands of house plans that you can use or modify, And we cover the entire lower United States. After building a house with DIY Homes, you probably would be able to do it again on your own.
I have seen and talked to many owner/ builder companied and have never come across one that is as passionate and helpful as DIY Homes. Some of DIY Homes’ competitors have tried to team up with us in the past because of our uncanny ability to do business in a friendly and competitive way. Like the saying goes “If you can’t beat them, join them”. DIY Homes can offer anything under the sun as far as building goes. You could even bring us a napkin with a drawing on it and we will help you turn it into workable plans. Two websites you can go to read about DIY Homes are http://www.DIYownerbuilder.com and [http://www.DIYgreenhomebuilding.com] . Even if you have never considered building before, look at the websites or give us a call to find out all the current information and to eventually start your own project. It will be the best move you ever make.