If you’re building for the first time, the first thing you need to know is not how much you want to spend but how much you can spend.
No. 1, financial institutions will tell you, go to your financial institution.
“They should come in and do an approval first,” said Dale Nies, assistant vice president and bank office manager of Brillion office of BankMutual.
“We’ll go through the whole process — check their credit, check their earnings and check to make sure that they have sufficient funds for a down payment. They can get by with 5 percent down on up to as much as they have available for down payment.”
Pre-approvals usually are free. “You can find out at least how much you can afford,” said Andy Lamack, retail and mortgage lending for Baylake Bank. “And you find out how the construction loan process works because it’s a little different than typical financing.” Plans for construction are not an absolute must for “approval first,” but they eventually will be. “When they want to convert from the ‘approval first’ to the construction loan, we do need the plans, the specs and the cost breakdown on the property that they’re constructing,” Nies said. Knowing what you can afford for a mortgage is helpful for the builder, too. “The builder then knows that the person can afford what they’re trying to do, and it gives the builder confidence then to move on with plans,” Lamack said. “It also sets the limits of how much the people can afford, so they’re not wasting their time trying to do more than the people can afford.” The builder can offer ideas for what can be built for 1,500 square feet or 1,800 square feet or 2,000 square feet. “That’s what the ‘approval first’ is going to do for them,” Nies said. “It’s going to give them the numbers that they can go out and do their shopping.”
Speaking of shopping, JoEllen Wallangk, this area’s regional manager of the Better Business Bureau of Wisconsin, has tips.
“First of all, make sure you’re working with a good contractor,” Wallangk said. “You can check them at www.bbb.org. We have a lot of reports.
“We recommend people look for accredited businesses. But check out whatever business you’re going to use and make sure if there have been complaints they’ve taken care of them.”
With your plans, make sure exactly what you want and think through where you’re flexible and where you’re not flexible.
“Choose your contractor, don’t let them choose you,” Wallangk said. “Do your research. Check local references. Make sure they are in the local phone book, because if you have a problem, you want to be able find them again. You don’t want somebody who’s in and out.” Make sure your contractor is insured so you’re not liable if a worker gets hurt on your property.
“If whatever project you’re working on requires a permit, it is best if the builder gets the permit,” Wallangk said. “Know that if the builder asks you to get the permit, you are then liable to the municipality on whether or not it has been built and the builder is not liable, you are.”
Be wary of lenders recommended by the builder.
“You want to make sure that that lender is working for you and not the builder, that you’re getting the best rates and the best terms,” Wallangk said.
A rule of thumb is 28 percent of gross monthly income going toward housing. Most people don’t want to commit 30 or 35 percent to their house, Nies said. “They do want to do other things, too, rather than just be tied to a mortgage,” he said.
Tax credits are available to people planning to build a home. Your financial institution can explain the credits.
“The best bet is to stop in and talk to their lender in advance, even if they’re buying a house,” Nies said. “There are a lot of (real estate agents) and probably a lot of builders who want them to do that ahead of time so that they’re not spending a lot of time with the individual doing the specs and cost-breakdowns of things and then find out that they’re looking at something that’s way out of their price range.”
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