Exactly how impossible is it for the average Joe to have a custom home built?

W

WaitingToBuyByAndBy_IHB

New member
I'm sure custom homes are built for the wealthy all the time. But I'm wondering if it is possible for the average Joe to pull something like that off. Er... hypothetically... me.



Say I knew of a great lot I believed was available for residential zoning, and suppose I was able to work out a purchase of that lot, but I'm not rich and I have a monthly rent obligation. I have an occupation that is not related in anyway to housing/construction/contracting/architecture/planning/zoning/etc.



So even if I could line up a builder, get a construction loan from the bank (at least I have excellent credit), and use that loan to buy the land and pay for construction, the bank is probably going to want me to start making payments on the loan immediately, right? So there's really no way I can afford to rent the current home and pay the mortgage on a house that doesn't yet exist.



Would it make a difference if there was enough land for 3 to 4 houses of which all but one (ours) could be sold at a profit to help pay for everything after construction is complete?



I think my brain understands all this, it's the stupid dreamer in me looking for a way to make this work. Do me a favor and shoot him down.
 
Where are you (Utah, Fresno, Phoenix)?



The only way I'd suggust you do this (the ONLY way) is if you build the home yourself. That means with your own two hands. I know several folks who have back home. This assumes you are pseudo retired and have a ton of free time on your hands you'd otherwise waste fishing or watching daytime TV. Then again, you could be parusing Pat Veling's reports and found a way to make them actionable.
 
Custom Home is a term loosely defined. Vietnamese in Westminster copied from some cookie cutter production home floorplans. They hired a draftman for $10/hr and modified the plan and elevation to their preference like double door with a portico with cheap 2 story high fiberglass fluted columns. He applied pin-wheel half round windows everywhere. The windows were all cheap vinyl from Home depot special order. This home for many is a custom home. Chinese developers bought vintage properties in Temple City, San Gabriel, Alhambra, and Arcadia. They bulldozed charming craftsman bungalows and built several custom homes on one properties. Custom home definition for many is a floor plan built just once. This is a huge misconception. Custom Home is when a home meet the criteria of a well developed floor plan and good execution of architectural details well balanced on to the elevation with excellent proportion. It needs to meet certain pedigree standard. Rarely a custom home is well executed without a good builder and architect.



Average Joe can build himself a home but a custom home he needs to hire an architect. Fee is about $200,000 and upward for a custom home.





[quote author="WaitingToBuyByAndBy" date=1212681381]I'm sure custom homes are built for the wealthy all the time. But I'm wondering if it is possible for the average Joe to pull something like that off. Er... hypothetically... me.



Say I knew of a great lot I believed was available for residential zoning, and suppose I was able to work out a purchase of that lot, but I'm not rich and I have a monthly rent obligation. I have an occupation that is not related in anyway to housing/construction/contracting/architecture/planning/zoning/etc.



So even if I could line up a builder, get a construction loan from the bank (at least I have excellent credit), and use that loan to buy the land and pay for construction, the bank is probably going to want me to start making payments on the loan immediately, right? So there's really no way I can afford to rent the current home and pay the mortgage on a house that doesn't yet exist.



Would it make a difference if there was enough land for 3 to 4 houses of which all but one (ours) could be sold at a profit to help pay for everything after construction is complete?



I think my brain understands all this, it's the stupid dreamer in me looking for a way to make this work. Do me a favor and shoot him down.</blockquote>
 
If he's just referring to getting a home built on a plot of land, I've known several people who have done that in Torrance, West Covina, and (north) El Monte. They bought mostly small baby boomer era homes on large lots, had the house bulldozed and replaced with a bigger one, or a duplex for the in-law's. Usually single story, tiled floors, and lots of concrete with a small patch of grass in the front. Some Asians don't like grass or carpet because they think it's dirty with bugs crawling around.



I've yet to see anyone I know do the same in South OC (yet). But if it ever happened, I think it'd be one of my Vietnamese friends in Mission Viejo.



I have a couple of coworkers in Texas who had custom homes built. Land is cheap there and they had connections with local construction crew.
 
Building your own home is very popular in Massachusetts. We built a home in the suburbs of Boston back in the 90's. It's was a lot cheaper to build your own home than it was to buy an existing one. Sometimes it can get quite expensive if you have to run the utilities to the house. We opted not to run the gas line down to the house because it was costly.
 
is the 2 angell in univ park, known as "the jewel of irvine", a rebuild or just a crazy remodel of the existing floorplan?



<a href="http://www.redfin.com/CA/Irvine/2-Angell-92612/home/4697876">http://www.redfin.com/CA/Irvine/2-Angell-92612/home/4697876</a>



this one in turtle rock might be completely custom. if you look at via sienna on google street view, none of the other homes on the street are anything like this one.



<a href="http://www.luxuryportfolio.com/property/irvine/exceptional_via_siena_luxury_home.cfm">http://www.luxuryportfolio.com/property/irvine/exceptional_via_siena_luxury_home.cfm</a>
 
Sorry, I think I used the wrong terminology. I assumed any home not built by a developer was a custom home.



As momopi deduced, I'm really just exploring the idea of contracting a builder to build a new house rather than buying a new home from a developer. I thought it might be another approach to obtain sane pricing for housing. I figured there might be someone on the board familiar with how that process works.



I live in Irvine, and the vacant lot I'm dreaming of is in Lake Forest. If it were possible to get a construction loan that converted to a 15-year fixed rate mortgage (without requiring payments until after construction was complete) then I could start building while I continue to rent and move into the house and start paying off the mortgage once its built.



Unfortunately, this is the real world, and while I'm ignorant of construction loans I sorta expect the bank wants to be paid monthly as soon as they make the loan and I just don't see how I could make the monthly payment on the loan and my monthly rent at the same time.



As I hinted in my previous post, I have neither the skill nor the resources to build my own home. I suppose another idea would be buying a pre-manufactured home and having delivered to the lot, but assumes I could get a loan that covers both the lot and the house at a point in time when they are actually in different physical locations.
 
Your heart is in the right place. Your head? Yeah, no, not so much. You can either take my blanket "you're barking up the wrong tree" or you can do the research yourself and come to the same conclusion.



Prefabs are a DREAM to finance. Banks love those. And people LOVE to purchase them on resell for some reason. Not that there's anything wrong with them (there isn't anymore, IMO) but it's not as cost effective as you might think.
 
Usually at a minimum you'll have to make at least interest only payments during the construction phase of the loan -- but only on the total amount disbursed to date (the construction lender will only disburse funds for the construction portion directly to the contractor(s) once the lender's inspector verifies the work is being done). So at least you won't have to pay interest on the entire loan amount from the beginning.



However, many lenders may be willing to establish a construction loan interest reserve account and to lend you the money to put in that interest reserve account.



Here's a good overview of the process:



http://www.wikihow.com/Get-a-Construction-Loan-(US)



Here's how the site describes the interest reserve account:



<em>"Interest reserves are added to your loan amount to make the monthly payment on your loan. Yes, you read that correctly, you will not have to make a monthly construction loan payment while your home is being built. The payments are made from this interest reserve account and no, it?s not free. This reserve is added to your construction loan amount. <strong>Interest reserves were designed for the benefit of the customer. Most people building a new home are either paying rent or have an existing mortgage payment while their home is being built. The last thing a customer needs is another monthly payment while building. So, banks created the interest reserve account by adding up the estimated interest payments over a 12 month period and add this to the loan amount.</strong>" </em>



Looks like Countrywide offers this option: http://mortgageeservices.com/?id=countrywideconstructionlending



<em>"3. Customer may qualify to finance an Interest Reserve into the approved loan amount or may pay out of pocket to establish an Interest Reserve at the closing. Interest-only construction loan payments are automatically paid out of this reserve until the funds are exhausted. Once the Interest Reserve is exhausted, customer is responsible for making interest-only construction payments until the loan converts to permanent financing and customer is then responsible for making monthly permanent loan payments."</em>



So it could be possible for you. I just don't know in this environment what it takes to qualify for financing of the interest reserve. Lots of construction loans out there are having problems. Regulators are getting very concerned.
 
[quote author="WaitingToBuyByAndBy" date=1212681381]Would it make a difference if there was enough land for 3 to 4 houses of which all but one (ours) could be sold at a profit to help pay for everything after construction is complete?

</blockquote>


Yes, it would make a difference, but it may not help you out. If the project includes building SFR housing that you will not be living in as your personal residence, then the classification of your loan would be a commercial construction loan and not a home construction loan. You won't be able to borrow as much against the property for a commercial construction loan -- LTV requirements for commercial construction loans are usually lower...typically in the 60-80% range (home construction loans could go up to 80-100%). Underwriting will also look at whether you had sales contracts signed by the buyers of the houses. Otherwise you would be building these houses "on spec." Interest rates may also be higher for commercial construction loans than home construction loans.



You would also have the added hassle of having to subdivide the lots into separate parcels for each of the additional houses.



Wow! Must be a pretty big lot!
 
IMO, if you're worried about making both rent and a mortgage, I suggest you delay these plans until you have sufficient cash reserves to not have to worry. Maybe buy the land now and hold off on construction to spread out the cash issues. Otherwise keep renting and start saving.
 
Don't know what style you are looking at, but if it's Craftsman, BK provided the link to <a href="http://www.thebungalowcompany.com/">this company</a> awhile back for plans.
 
no_vaseline,



"Prefabs are a DREAM to finance. Banks love those. And people LOVE to purchase them on resell for some reason."



I couldn't tell if this was sarcasm or surprise. Please clue me.



DeadbeatRoomate,



Thank you very, very much for this information. Ironically, I've got the wiki how-to of the day on my iGoogle home page (guess that one hasn't popped up yet). This gives me hope. Now to inquire about that land, find some plans, a builder and figure out if this would indeed be cheaper than just buying an existing home at current OC prices.



Bubblegum,



I hear you about cash reserves. Imagine if I were somehow able to secure the arrangement DR suggested and the builders run over the time estimate. Then I would be in a very stressful situation. I definitely would want to ensure the builders finish on time or I have 6 months of payments I can make before developing an ulcer.



EvaLSeraphim,



Thanks for the links to the plans. Via Redfin, I've looked at the insides and outsides of a LOT of homes in South Orange County and while I found a couple I fell in love with, I really, really like what I saw on the link you sent. Very charming. Do you know if there are 4 or 5 bedroom designs with this style of architecture? The largest I could find on the site was a 3 bedroom.



CalGal,



Thanks for the insight on connections. This lot is on an empty cul-de-sac (there's probably a good reason nobody has developed this parcel in the last 10 years, and I'll probably find that out along the way). Point is, it seems like water, electricity and gas are not far, but certainly not close either. I will keep the connection costs (water, electricity, gas, telephone, sewer) in mind as I add up the costs for this project.



A big thanks to all. Shame on me for not searching the internet before asking.
 
They do offer a four bedroom. If you click on "view all plans" there is a search function at the top of the page. Use the pulldown next to "Bedrooms" and select "4."



A la Cal Gal's suggestion, don't forget the costs of zoning, planning, permits, etc. Do you know if the land is currently zoned residential? If not, you can call the planning dept at the City and find out.
 
Here is another great site with excellent plans by my favorite architect <a href="http://www.rosschapin.com/Plans/plans.html">http://www.rosschapin.com/Plans/plans.html</a>





[quote author="EvaLSeraphim" date=1212789036]Don't know what style you are looking at, but if it's Craftsman, BK provided the link to <a href="http://www.thebungalowcompany.com/">this company</a> awhile back for plans.</blockquote>
 
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