Come along as we build our custom home- lessons learned in real time.

[Anonymous]

Anonymous wrote:This might be a good time to talk about financing new construction, which will also address a number of comments about the value of the house/land, etc First, our new build is under an hour drive to downtown DC (with traffic), OR, a 15 minute drive to a train station + 30-40 minute ride in. So, its definitely a suburb but I wouldn't call it an exurb.

Three main categories of costs to build include: Lot/land cost, Site prep (that includes permitting, grading, sewer/gas/electricity hookups or infrastructure if neccessary, stormwater management, etc), and construction. I'll add a 4th category, which is financing (loan closing costs + interest until the new construction loan converts to a mortgage, at completion of construction).

Our loan is a construction to permanent loan, which we got through Sandy Spring bank. If there is interest, I'll go into more detail, but the thing to know, in light of upthread confusion or misinformation, is that the bank appraises the construction plans and while they don't reveal the specifics of the formula, just like any other appraisal they use comps in the area. We're pretty in line with similar homes that have sold in the last 3 months within a 2 mile radius--a little high, as is typical of new construction, but within the +20% .

Its very hard to get a loan if the home falls outside of these norms. It does help to have 'dry powder'/cash as a previous poster noted. Just like a regular mortgage, the bank will not finance 100% of the cost of the home. Construction loans are just that-for the build. They don't cover purchase of the land, or site prep. Those are all significant costs. Site prep is an easy 100K.

How are do these construction loans work before converting to a traditional mortgage? Rates, payments etc etc

[Anonymous]

Anonymous wrote:

Anonymous wrote:This might be a good time to talk about financing new construction, which will also address a number of comments about the value of the house/land, etc First, our new build is under an hour drive to downtown DC (with traffic), OR, a 15 minute drive to a train station + 30-40 minute ride in. So, its definitely a suburb but I wouldn't call it an exurb.

Three main categories of costs to build include: Lot/land cost, Site prep (that includes permitting, grading, sewer/gas/electricity hookups or infrastructure if neccessary, stormwater management, etc), and construction. I'll add a 4th category, which is financing (loan closing costs + interest until the new construction loan converts to a mortgage, at completion of construction).

Our loan is a construction to permanent loan, which we got through Sandy Spring bank. If there is interest, I'll go into more detail, but the thing to know, in light of upthread confusion or misinformation, is that the bank appraises the construction plans and while they don't reveal the specifics of the formula, just like any other appraisal they use comps in the area. We're pretty in line with similar homes that have sold in the last 3 months within a 2 mile radius--a little high, as is typical of new construction, but within the +20% .

Its very hard to get a loan if the home falls outside of these norms. It does help to have 'dry powder'/cash as a previous poster noted. Just like a regular mortgage, the bank will not finance 100% of the cost of the home. Construction loans are just that-for the build. They don't cover purchase of the land, or site prep. Those are all significant costs. Site prep is an easy 100K.

How are do these construction loans work before converting to a traditional mortgage? Rates, payments etc etc

You pay interest on the money you draw to complete your build during the construction process.

You close at the beginning and not the end, and keep the rate the entire time. I'm not OP, not sure how Sandy Spring works, but we had to close at the beginning and you still have the option to put more $ down before it rolls over to a traditional mortgage.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This might be a good time to talk about financing new construction, which will also address a number of comments about the value of the house/land, etc First, our new build is under an hour drive to downtown DC (with traffic), OR, a 15 minute drive to a train station + 30-40 minute ride in. So, its definitely a suburb but I wouldn't call it an exurb.

Three main categories of costs to build include: Lot/land cost, Site prep (that includes permitting, grading, sewer/gas/electricity hookups or infrastructure if neccessary, stormwater management, etc), and construction. I'll add a 4th category, which is financing (loan closing costs + interest until the new construction loan converts to a mortgage, at completion of construction).

Our loan is a construction to permanent loan, which we got through Sandy Spring bank. If there is interest, I'll go into more detail, but the thing to know, in light of upthread confusion or misinformation, is that the bank appraises the construction plans and while they don't reveal the specifics of the formula, just like any other appraisal they use comps in the area. We're pretty in line with similar homes that have sold in the last 3 months within a 2 mile radius--a little high, as is typical of new construction, but within the +20% .

Its very hard to get a loan if the home falls outside of these norms. It does help to have 'dry powder'/cash as a previous poster noted. Just like a regular mortgage, the bank will not finance 100% of the cost of the home. Construction loans are just that-for the build. They don't cover purchase of the land, or site prep. Those are all significant costs. Site prep is an easy 100K.

How are do these construction loans work before converting to a traditional mortgage? Rates, payments etc etc

You pay interest on the money you draw to complete your build during the construction process.

You close at the beginning and not the end, and keep the rate the entire time. I'm not OP, not sure how Sandy Spring works, but we had to close at the beginning and you still have the option to put more $ down before it rolls over to a traditional mortgage.

NP - I believe the PP and OP are both referring to construction-to-permanent loans, whereby you have a single closing. The other option is a construction loan that upon completion converts to a traditional mortgage - so you close the construction loan, then close the new mortgage. Both options typically have higher interest rates than a traditional mortgage, with C2P being the highest. (We just finished our construction loan and found the process confusing initially! We ended up choosing another broker over Sandy Spring bc we had a low mortgage on the property and SS was not forthcoming that we would lose that interest rate- our lender kept our low mortgage on the new property and gave us a construction loan leveraged on our old house)

[Anonymous]

You're building a $1.4 million house and don't have 82K in cash? Huh?

[Anonymous]

Anonymous wrote:

Anonymous wrote:These "foundation to keys in four months" stories seem impossible. I've never seen a custom project take less than a year. I mean, acclimating the flooring to the conditioned space ought to take a couple of months, and isn't happening while the drywall is off-gassing the moisture, and that's months after the wall close in is done so the HVAC is turned on.

I live in the Oakland terrace part of Kensington and we absolutely see one million dollar plus new builds going up in a couple months. Also, to answer another pp, many of the tear downs seem to sell for around 400k.

Custom builds that aren't put up for sale and are owned by a private owner? Builders hustle for a payout. They don't hustle when it isn't their money on the line.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This might be a good time to talk about financing new construction, which will also address a number of comments about the value of the house/land, etc First, our new build is under an hour drive to downtown DC (with traffic), OR, a 15 minute drive to a train station + 30-40 minute ride in. So, its definitely a suburb but I wouldn't call it an exurb.

Three main categories of costs to build include: Lot/land cost, Site prep (that includes permitting, grading, sewer/gas/electricity hookups or infrastructure if neccessary, stormwater management, etc), and construction. I'll add a 4th category, which is financing (loan closing costs + interest until the new construction loan converts to a mortgage, at completion of construction).

Our loan is a construction to permanent loan, which we got through Sandy Spring bank. If there is interest, I'll go into more detail, but the thing to know, in light of upthread confusion or misinformation, is that the bank appraises the construction plans and while they don't reveal the specifics of the formula, just like any other appraisal they use comps in the area. We're pretty in line with similar homes that have sold in the last 3 months within a 2 mile radius--a little high, as is typical of new construction, but within the +20% .

Its very hard to get a loan if the home falls outside of these norms. It does help to have 'dry powder'/cash as a previous poster noted. Just like a regular mortgage, the bank will not finance 100% of the cost of the home. Construction loans are just that-for the build. They don't cover purchase of the land, or site prep. Those are all significant costs. Site prep is an easy 100K.

How are do these construction loans work before converting to a traditional mortgage? Rates, payments etc etc

You pay interest on the money you draw to complete your build during the construction process.

You close at the beginning and not the end, and keep the rate the entire time. I'm not OP, not sure how Sandy Spring works, but we had to close at the beginning and you still have the option to put more $ down before it rolls over to a traditional mortgage.

NP - I believe the PP and OP are both referring to construction-to-permanent loans, whereby you have a single closing. The other option is a construction loan that upon completion converts to a traditional mortgage - so you close the construction loan, then close the new mortgage. Both options typically have higher interest rates than a traditional mortgage, with C2P being the highest. (We just finished our construction loan and found the process confusing initially! We ended up choosing another broker over Sandy Spring bc we had a low mortgage on the property and SS was not forthcoming that we would lose that interest rate- our lender kept our low mortgage on the new property and gave us a construction loan leveraged on our old house)

Interesting. What lender did you use? Ours said it would be a brand new mortgage (and rate) and that since the existing home is being torn down, it cannot be used as leverage.

[Anonymous]

Yes, we have a construction to permanent loan, which has a previous poster mentioned, means a single closing. The lender (in our case, Sandy Spring), reviewed our construction plans and then conducted an appraisal, and that's how the amount of the loan was decided. Like any other mortgage, the bank is not financing the full cost of construction. Maybe other posters could jump in with their experiences, because the final formula for doing this was not disclosed to us. But its pretty much in line with having the equivalent of a 20% down payment.

Other terms: we pay interest only (monthly once we started to draw down the loan for construction purposes. That was only AFTER we had put up our cash for the 20% (ish) of the construction costs. Rate secured for the loan is 3.25% (a different poster called it--we got the loan back in 2020 when interest rates were low. Then we ran into a TON of COVID related delays--I will share the saga, its a doozy). The bank let us hang onto that loan (and that rate), for dear life--by paying a maintenance fee. When a bank does a construction to perm loan, you're supposed to be completely done one year or so after getting the loan. We'll be a whole two years and change past the targeted one year completion date. So we've paid out over 10K in fees to maintain. Its just one example of those unexpected costs to build into the project.

So to recap:
Cost of Land: 82K (self financed)
Site Prep & Financing costs: 163,000 (self financed)
Construction costs:1,150,000 (80% bank financed, 20% owner financed--estimate, as we're not done yet)
Total cost: 1,395,000

I'm sure there are other ways to do this--this is just one path.

[Anonymous]

It really almost doesn’t seem worth it if you’re only building a modest home. Site prep and your very reasonable lot costs are about $250k and that’s before anything else. So someone looking for a $700k-ish thousand dollar house wouldn’t have much for construction.

[Anonymous]

Anonymous wrote:It really almost doesn’t seem worth it if you’re only building a modest home. Site prep and your very reasonable lot costs are about $250k and that’s before anything else. So someone looking for a $700k-ish thousand dollar house wouldn’t have much for construction.

So true. I"m seeing now why all these new builds go in the millions. Not worth it, otherwise.

[Anonymous]

Anonymous wrote:It really almost doesn’t seem worth it if you’re only building a modest home. Site prep and your very reasonable lot costs are about $250k and that’s before anything else. So someone looking for a $700k-ish thousand dollar house wouldn’t have much for construction.

People don’t do new construction or new build for one of two reasons: lack of patience or they think the costs are ridiculous.

I don’t understand why anyone would buy less than a quarter acre in Bethesda for $600K and build. Of course it’s going to cost millions.

Also, if someone is buying a new build in a community, all of those costs are baked into the sale price: site costs, permits, sewer etc. Realistically the structure of your house, drywall etc probably costs half a million. If that. The reason why those houses are selling for millions is because of greed. Builder wants to make a profit and then some.

[Anonymous]

Anonymous wrote:

Anonymous wrote:It really almost doesn’t seem worth it if you’re only building a modest home. Site prep and your very reasonable lot costs are about $250k and that’s before anything else. So someone looking for a $700k-ish thousand dollar house wouldn’t have much for construction.

People don’t do new construction or new build for one of two reasons: lack of patience or they think the costs are ridiculous.

I don’t understand why anyone would buy less than a quarter acre in Bethesda for $600K and build. Of course it’s going to cost millions.

Also, if someone is buying a new build in a community, all of those costs are baked into the sale price: site costs, permits, sewer etc. Realistically the structure of your house, drywall etc probably costs half a million. If that. The reason why those houses are selling for millions is because of greed. Builder wants to make a profit and then some.

Well, I'm doing a 4500 square foot house and I'll be at 900 with strong finishes but doing finish work myself (floors, cabinetry, trim, tile) and playing role of general contractor and using my good relations with subs to get good deals. Stuff's way expensive.

[Anonymous]

Anonymous wrote:
So to recap:
Cost of Land: 82K (self financed)
Site Prep & Financing costs: 163,000 (self financed)
Construction costs:1,150,000 (80% bank financed, 20% owner financed--estimate, as we're not done yet)
Total cost: 1,395,000

I'm sure there are other ways to do this--this is just one path.

One important, interesting detail. Because we are doing cost-plus, we know exactly what the builder is making on our project. Actual construction (materials, labor) is almost exactly 1M. The builder is making 150K, bringing total construction cost to the aforementioned 1,150,000.

The reason we felt this was a fair price to pay the builder included:
1. Quotes we got from other builders, that were 'fixed price' were actually in the same ballpark. We got one builder that quoted about 200K higher, and one that was 150K lower.

2. From the 150K, the builder is paying his team, which includes project manager who is onsite, bookkeeper, and assistant manager who tracks and negotiates with and schedules the vendors (from countertops, to fireplaces, to flooring). The builder also pays various additional engineering costs (ie, an additional review of our roof and floor trusses). And for a smaller builder, they may only build 1 house/year. Our has two custom builds going right now, and 2-3 smaller remodel projects as well.

Having been able to review multiple bids for everything from plumbing to lumber to bathroom fixtures, I'd say that most builders are not making vast amounts of money on each build. While I know there are unscrupulous builders out there, our cost to build would likely be the same no matter where we built in the DMV. Its the land and site prep that varies wildly. I'm (so far) a big fan of cost plus because you get to see prices for everything. Labor and materials are not cheap. Honestly, labor shouldn't be. Watching these folks build, you can see the skill and training that goes into it.

[Anonymous]

PP here who used the same architect: the OP is kidding themselves if they think a builder is doing this project for less than $150k profit. Not a chance; it would be completely uneconomical. Either they're smoking you on the real costs, or you're in for an unpleasant surprise as the project nears its conclusion. My money is on both.

[Anonymous]

Anonymous wrote:PP here who used the same architect: the OP is kidding themselves if they think a builder is doing this project for less than $150k profit. Not a chance; it would be completely uneconomical. Either they're smoking you on the real costs, or you're in for an unpleasant surprise as the project nears its conclusion. My money is on both.

Friend, read my post again. Our builder is making 150K on the project.

[Anonymous]

I hit 'post' too soon. Its a family business, and several of the people I mentioned on payroll are part of the builders family a la "Smith & Sons". The additional engineering reviews are pretty incidental--I'd say amounting to less then 4-5k. He's paying himself (and family members 150K).

While I never doubt the human capacity for graft--the builder would have to work pretty hard at it, because I get receipts directly from vendors (and I do my own estimates with non builder approved vendors to verify that they're in the right range). And second line of defense---when you do 'cost plus' building, the builder signs a nifty, legally binding document with the lender, on budgets. So we have to get bank approval for going over what our line item budget agreed to.