You, Me, and New Home #3! Advice for Building Semi-Custom Homes (Plus, an Announcement!)
Have you ever wondered what it’s like to build a semi-custom home? Well, buckle up because I’m currently in the process of building my third semi-custom home and I am sharing all the deets. It’s been a LONG road (thanks to COVID), but we’re finally making some real progress on the build.
Since this is my third time going through the process, I thought I would give y’all some insight into how you can find a great realtor, how to choose and customize a house plan, and what the lending process looks like.
I think you might find that the semi-custom home process isn’t much more difficult than the home buying process itself! It’s more attainable than most people think (and way more fun).
What is a Semi-Custom Home?
When you decide to go with a semi-custom home, you will start by selecting a floor plan from your builder’s portfolio. From there, you can customize the floor plan based on your unique needs and desires.
These homes are called “semi” custom because the builder has already laid out most of the design for you, like the square footage and the number and location of rooms. However, the customization process comes in when you start to consider things like windows, cabinetry, flooring, adding a wine bar or media room, etc.
Finding a Builder
Selecting the builder is THE most important part. Different builders in your area will offer different things, so you’ll really want to shop around to find a company that can give you what you’re looking for. Here are a few tips for finding the right builder for you:
Determine what you’re looking for.
What is your budget?
When do you want to move in? Is that date flexible?
Where do you want to build?
What size and style home do you want?
What kinds of warranties are important to you?
Research local builders.
Testimonials are often the best indicator of a builder’s work. Check out the reviews on websites, ask friends and family members, reach out to HOA leaders in semi-custom home developments, check Angie’s List and Google My Business… Find as much information as you can about what it’s like to work with prospective builders.
You’ll also be able to get a preview of most builders’ work through their websites. Check out sample floor plans, model homes, and where they have available lots.
Narrow your list down to the best.
Create a list of builders that you want to sit down and have a face-to-face conversation about your build. You might want to use these qualifications:
The locations of their neighborhoods with availability
The current timeframe for a build
Any additional fees
How customizable their floor plans are
Financing options they offer
Warrantees they offer
A realtor can be an extremely helpful resource during this time, especially if they have experience working with semi-custom home builders in your area! An experienced realtor can help connect you with builders and lenders that can provide exactly what you’re looking for – or pretty close, anyway!
What to Look for in a Realtor
Here’s some advice directly from my friend Steve Smith of eXp Realty!
When looking for a realtor, consider the following:
Research agents you’re interested in. Look for reviews and ask tough questions to test their market knowledge. For example, ask if it’s realistic to buy a semi-custom home with your current situation. Don’t be afraid of the answer - your agent is a problem solver and can help you prepare for the process.
Interview the potential agent to make sure you are going to be a good fit. This can be done during a consultation. Don’t be afraid to interview multiple agents and ask questions surrounding your needs as a buyer/seller/investor.
Ask them to define their area of expertise. This includes location, type of clients they generally work with (first-time buyers, relocation, sellers, etc.), agent network (are they connected to other agents or on a team?). Don’t worry about hiring the most “popular” agent. It’s important that you find someone perfect for you and your situation.
Make sure your agent has the capacity to work with you. Although you may not be their only client, you should feel like you are.
Maintain open and honest communication with your agent. Understand it is a two-way street! Let them know of any income or job changes, big purchases you’re thinking about making, and changes in preference as soon as possible so they can work to make the necessary adjustments.
Your realtor will be able to make the best recommendations every step of the way. They can be instrumental in helping you find a lender that will be able to work with your situation, whatever it may be. Once you begin the process, you will likely find that obtaining financing for a semi-custom home is easier than you thought!
The Lending Process
I recommend speaking with a mortgage lender prior to buying or even starting your home buying process however most builders will offer a list of preferred lending partners that they can refer you to. Otherwise, your realtor will be able to point you in the right direction. In addition, some builders will have internal financing options that come with additional incentives! Consider every financing opportunity and see which terms and conditions work best for you.
When buying a semi-custom home from a production builder, you are purchasing in a community being developed by the home builder on the land they’ve already purchased. You will normally not need to take out a construction loan as the building process will be financed by the home builder. As with the purchase of a resale home, the down payment is due when you close on your new home. Before your down payment is due, however, you will have to put some money down as the builder deposit. The builder deposit is the same concept as earnest money you would put down on a resale home, although the amount is higher. Typically, you will be required to pay 5%-10% of the base price as the deposit.
You can expect a lender to ask for:
A contract from your builder that includes your floorplans
Your declared budget
Income verification
A minimum 3% down payment
Good credit score (generally, 640 or higher)
Using Equity to Create Wealth
After you choose the style of home that you want to build, you’ll be asked to select from some of the builder’s standard options for color, flooring, counters and cabinets, light fixtures, etc.
Although some options might be “basic,” they could be exactly what you need to hold you over until you’re ready to upgrade later on down the line – or you can go for the luxe look right off the bat! That’s the joy of semi-custom. It’s all up to you.
Upgrades that you make to your home along the way should be considered as investments. You can use your home to build equity and create wealth.
What is equity? Essentially, equity is the difference between what is left on your mortgage and what your home is actually worth. So, let’s say that you’ve been in your home for 10-years. Within those 5-years, you upgraded your kitchen, installed beautiful hardwood flooring, and expanded your porch to wrap around your house.
All of those elements will make your home worth more than what you bought it for (provided that the housing market is in good shape) and will likely value your home at more than what is left on your mortgage.
What does this mean? You can sell your home for a profit. Then, you can use that money to buy an income property, put a down payment on another home – like I did! In full transparency, I made a six-figure profit on the sale of my previous home. Home equity is a long-term financial strategy that is incredible for building generational wealth.
Final thoughts
Once everything is all said and done, you’ll have to sign warranty papers. Builders will either have you sign an Implied Warranty document that states they stand behind the work they’ve done for X number of years OR an Express Warrantee that states they will fix certain issues if they arise within X number of years.
Carefully read over the warrantee document with your real estate agent and possibly a real estate lawyer so they can clarify the language and ensure you’re protected!
Drumroll, please…
If I’m being honest, those aren’t my final thoughts at all… not even close! As this is my third time buying and building a semi-custom home, I have A LOT to say about the whole process. I’m about halfway through the process and I thought it would be fun to bring y’all along to the finish line!
Do you have any questions about building or buying semi-custom homes? Shoot me a DM @thelatoyabaldwin on Instagram and I’ll make sure to answer them in future posts!