Building a house? Keep these five things in mind

May 15, 2019

This paid piece is sponsored by MetaBank.

Is building a home in your future? Just as it allows you an opportunity to make your home your own from the ground up, the process of building may seem like a daunting feat.

Having a positive and memorable experience is possible, though, if you do your homework and collaborate with experts who have seen it all.

MetaBank’s Keith Portner has spent 25 years in the real estate lending business and has experienced about every situation.

“MetaBank does construction and permanent financing of all types of homes, from the first-time homebuyer to the $1 million home and beyond,” Portner said.

“We have been fortunate in the past year to be involved in the building of five custom homes valued at more than $1 million, but our variety of projects also has been great.”

While the construction financing industry is competitive, “this business is not all about rates and fees,” he added. “That doesn’t buy you a relationship to help you through the process and keep you out of trouble.”

Portner and the Meta team draw on that experience in helping guide clients through the building process.

They shared their expertise in this list of five things every homeowner should know before building.

No. 1: Work backward in financing

No one wants a surprise at the end when it comes to the numbers that come with your new home.

The best way to avoid this: Work backward.

Sit down with your lender and talk about what you want your financing to look like once your home loan is done. You’ll talk about how a home payment will fit into your budget, whether you’re looking for a 15- or 30-year loan and whether you’re looking to participate in any special financing programs.

“We’ll determine what your maximum payment and loan amount will be and project a conservative rate,” said JoAnn Linn, Meta’s director of mortgage lending.

“We’re hoping to come in less than your maximum, but this will give you a realistic basis to work from, and you can begin making decisions from there.”

Set aside about 10 percent of your budget for overruns and unexpected expenses.

When you’re building, you’ll also need a construction loan and a permanent loan. Working with the same bank on both simplifies your experience.

“When you work with the same local bank on both, they share the same file and documents internally, making underwriting and appraisals much easier and less of a hassle to the family building the home,” Meta mortgage lender Peter Jenkins said.

“You have enough to worry about, so let your banker work for you instead of the other way around. With this approach, it seems like it’s just one loan when in reality it’s two separate flexible loan steps.”

No. 2: Know your builder

Your relationship with your homebuilder is critical.

Portner encourages homebuyers to carefully research their partners, including the architect, builder and lender.

“Sioux Falls is fortunate we have many skilled, hardworking and honest builders in the market,” he said.

“The key is to find the right team to work with — trusted experts you can communicate with who understand your vision and needs.”

How do you find them? Portner suggests the 2019 Spring and Fall Parade of Homes, resources at the Home Builders Association of the Sioux Empire and enlisting the assistance of advice from lenders and Realtors.

Then, do your own due diligence. Ask the builder for former clients, and talk with them or ask to see their homes and provide referrals.

No. 3: Choose your lender carefully

Not surprisingly, this team of veteran lenders advises you to keep experience in mind when choosing a lender.

“It’s a competitive business, but it comes down to experience,” said Deb Jensen, MetaBank lender. “Find an experienced lender who can help you review all the contracts involved in new construction to help you avoid pitfalls.”

For instance, Meta’s lending team will review contracts related to the construction, a description of the materials being used and the allowance items, plus they will physically walk the property and look at what has been designed and make sure everything adds up.

“Construction is not static. It’s very dynamic,” Portner said. “And we have the expertise to review these documents and catch oversights that can come back to result in unexpected costs. We know how to make sure you’re accounting for everything from landscaping to appliances. It’s infinitely better to detail all of this upfront than it is to run into unpleasant surprises during construction, but first you need to know what to look for, and we do.”

With new construction, escrows also change during the first couple of years. An experienced lender can guide you through and prepare you for changing payments.

No. 4: Craft a plan before construction

The more detailed your plan before construction means the fewer issues you’re likely to encounter during construction.

Meta requires a builder and homeowner to provide a lot purchase agreement or details on the lot, a contract from the builder, a description of all materials being used and a breakdown of costs.

All documents are carefully reviewed, so gaps are caught upfront, resulting in less time lost on the job site and fewer change orders.

During construction, carefully review all draws before the loan is advanced.

“All our clients do this, and I think our reputation in town is very good when it comes to paying builders and subcontractors,” Portner said. “Subs like builders who pay their bills fast, and we like to expedite that process.”

No. 5: Remember the golden rule of real estate: location, location, location

Most critically: Before you build, make sure it’s in the right location.

Understand the zoning of the surrounding area to ensure something less desirable is not built by you. Flood-related risks also are especially top of mind this year.

“Be aware of how the lot sits and if it’s lower than surrounding lots, or is it close to a water source with flooding potential,” Portner said.

Don’t overbuild for the area. If most houses on the street are $400,000, you don’t want to build at $550,000; it’s better to be at $375,000, Portner said.

“Chances are if you overbuild, it potentially will affect the resale value when you go to sell the home,” he said.

You’ll also want to be aware of what’s nearby: schools and school districts, places to work, entertainment and other factors that are important to you. Consider how busy the street is, how close it is to railroad tracks or an airport.

Be aware of covenants governing details such as exterior finishes, colors and square footage. If possible, purchase on a golf course, on a lake, near good schools and with the view and desirable location in mind.

Other natural obstacles such as trees, ditches and mounds on the lot might require extra work such as removal and fill.

“You have to think resale. We’ll get customers who want to buy a lot today and then build in three years,” Portner said.

“In three years, a lot can change. Your needs and desires can change too. We encourage homebuyers to reach out early in the process, long before you’re ready to close, so we can help guide you every step of the way.” 

To get started financing your new home, contact the team at Meta at 605-782-1818 or email kportner@metabank.com.

Building a house? Keep these five things in mind

Is building a home in your future? While it can be daunting, it also can be fun and memorable if you learn from those with experience. Don’t miss these five tips you must keep in mind.

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