Building your own home

Homebuyers facing a shortage look to build

A dearth of homes for sale nationwide has some homebuyers considering building their own house. That can be trickier than just buying an existing home. Here’s how to get started:

1 Find a loan If you need financing, beware that not every bank or broker offers construction loans.

“Most mortgage people will go their whole career without ever doing one,” says Jerry Thomas, a mortgage loan officer in Farmington Hills, Michigan. “Another big group of (lenders) will do one and then swear they’ll never do another one again.”

There’s no easy way to find a construction lender. Ask for referrals from friends and family. Builders also often have lenders they recommend.

2 Lock in the land You don’t have to own the lot free and clear before you build. But to those thinking of buying the land now and building later: it is much harder to finance. The number of lenders who finance vacant land is significantly smaller than the number of lenders who will do a construction loan.

3 Qualifying and the down payment It’s harder to qualify for a construction loan than for a typical purchase mortgage. That’s because the bank is taking extra risk, since there isn’t an asset to secure the mortgage at first. Typical down payments are around 10 percent. Federal Housing Administration, Veterans Affairs and U.S. Department of Agriculture mortgage programs back construction loans and can allow some credit leniency, along with low — or no — down payments. 4 Using a builder or DIY

There are two kinds of builders: custom builders and “production builders.”

If your house plan includes many special or unique features, look for a custom builder. Otherwise consider a production builder, which constructs a high volume of similar homes and works for maximum efficiency.

Beware that cost overruns are the biggest danger you could face when building a home, says Dan Moralez, regional vice president for Northpointe Bank in Holland, Michigan.

A builder’s bid sets cost allowances for lighting fixtures, flooring, countertops and other major features. An upgrade here or there can bust the budget.