Overcoming Obstacles

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Provided below is a list of questions and answers that MyConstructionPlanner.com has provided to you to help prevent and overcome the obstacles that you my encounter while building the home of your dreams.

QUESTIONS AND ANSWERS

Overcoming Obstacles

Q.	What if I run out of money?
Q.	What if my Builder and I have a disagreement?
Q.	What if I don't sell my home before my new home is completed?
Q.	What if construction takes longer than originally planned?
Q.	What if interest rates change during construction?
Q.	What if I don't use all the money I borrow?
Q.	Will I have to pay two mortgages during construction?
Q.	To whom are draw payments made?
Q.	Do I need to put a 20% downpayment to qualify?
Q.	Should I pay points?

Building Codes

Q.	How can you be sure your new home will comply with safety and health standards?
Q.	Is there a national building code?
Q.	Who writes the local building code?
Q.	Do building codes set quality standards for materials and workmanship?
Q.	What kind of protection does a buyer have against defective materials and workmanship?

Overcoming Obstacles

Q.	What if I run out of money?
A.	Don't panic! You won't have been the first person to have this problem. Good planning can be a tremendous help early on. Anticipate cost overruns and consider borrowing more than you may need. If you don't use the money, there is no harm. Your permanent mortgage will be reduced by the unused amount. Also, you only pay interest on the amount you actually have had advanced. Short-term completion financing may also be available.

Q.	What if my Builder and I have a disagreement?
A.	We recommend that you and your Builder try to settle any disagreements quickly without involving any legal council. There is very little that a lender can do to force a builder to make changes to the home. Also, it is important to remember that although you have a dispute, you are still obligated to pay according to the Note you signed at settlement. Frequent contact between you and the Builder can help prevent a small problem from becoming a large one. Plan on going to the site and making your own inspection several times during construction.

Q.	What if I don't sell my home before my new home is completed?
A.	Options exist to make sure your financial security is not jeopardized. Price your house realistically and determine exactly what you need to get out of it. Talk any scenarios through with your lender to make sure you get the construction financing that is right you're your situation.

Q.	What if construction takes longer than originally planned?
A.	You may be able to extend your original construction loan period. Requests to extend are reviewed. Delays caused by the Builder are measured to ensure that the delay is temporary and not a symptom of cash flow problems the Builder may be experiencing.

Q.	What if interest rates change during construction?
A.	Check with your lender because there are many possible options. The rate on your permanent loan may have been committed to you upfront or you may have a floating permanent rate. Review your disclosures also, they contain important information you should be aware of.

Q.	What if I don't use all the money I borrow?
A.	Any unused monies can be applied to your principal balance at the time your loan modifies. Your payment would then be re-calculated based upon the smaller balance.

Q.	Will I have to pay two mortgages during construction?
A.	Not always. Depending on the loan program you choose, you may be able to defer all interest payments on your construction loan until your existing house sells. If this is not the program, your interest is billed based upon the amount drawn. Interest payments early on will be relatively small.

Q.	To whom are draw payments made?
A.	Draw payments are made typically one of two ways. They may be made payable to both you and your Builder or just your builder. The advantages of having them payable only to your builder are that your builder receives his funds more quickly. There is no need to obtain two signatures to cash the check. The disadvantage of this plan is that the draw check is useful in ensuring performance of your builder. Some people prefer to control the draw process. Make sure you find a lender that can offer both alternatives.

Q.	Do I need to put a 20% downpayment to qualify?
A.	No you don't. You may qualify for a construction loan with as little as 5% down. Check with your lender. Above all, make certain you are comfortable with all elements of the transaction before signing any agreements.

Q.	Should I pay points?
A.	By paying points you are lowering your monthly payment. This savings in your payment will eventually offset the upfront cost of the points and provide an interest savings over the life of the loan. Consider how long you plan on staying in the property. If you plan on being in the property longer than 4 years, you should consider paying the upfront points. Also, take a look at the tax advantages of paying points. [link to points discussion]

Building Codes

Q.	How can you be sure your new home will comply with safety and health standards?
A.	A building code sets forth requirements to protect public health, safety and general welfare as they relate to construction and the occupancy of a building. Building codes have specific requirements for building materials, fire protection, structural design, light and ventilation, heating and cooling, sanitary facilities and energy conservation. If a builder follows the building code, then your home will meet minimum health, safety and structural integrity standards.

Q.	Is there a national building code?
A.	Local government agencies develop their own building codes. Different areas of the country have different construction methods due to climate, soil and topographic features, etc. Methods used to build houses in a cold climate will be different than those used in a warm climate.

Q.	Who writes the local building code?
A.	Building homes is a complicated process, so building codes are often long and complicated. To prevent each local jurisdiction from having to develop its own complicated codes from scratch, there are several major model code organizations that draft codes that local areas can adopt.

Q.	Do building codes set quality standards for materials and workmanship?
A.	Building codes do not deal with issues such as the quality of the workmanship and materials, except as they relate to safety and health issues. A home may comply with the building code, but have poor finish quality. However, if undersized or low-grade lumber is used in framing, the result may be a home not in compliance with the code AND poor quality workmanship.

Q.	What kind of protection does a buyer have against defective materials and workmanship?
A.	Consumers are protected in these areas through the builder's warranty. For instance, if a building code inspector is examining a home and sees a gouge in a kitchen floor or counter top, that would not be an item affecting health or safety, and as such would not be covered by a building code. The defect should be covered by the builder's warranty. It's important to check references on the builder to ensure that the builder stands behind his or her work. Some builders offer warranties underwritten by independent firms; these warranty programs may cover major systems (heating, air conditioning, appliances) or may offer broader coverage.