"Build on Your Lot" Builders and Other Newbie Questions

theemilyannFebruary 19, 2013

All -

This is my frist post on this forum and my first house to own or build. My fiancee and I inherited an acre of land in an unincorporated part of a suburb of Houston (make sense?) - it's technically in "Brazoria County." We're in the very early research stages of the "is this right for us" and here's the quick back ground:

It is a full acre
It has been "developed" if you will (1970's trailer home, not livable; various wooden and aluminum sheds; gravel/crushed concrete drive; well; septic system)
The well and septic system are basically a loss and will need to be rebuilt / filled in / redrilled,
My student loans and fiancee's current school payments keep us from currently being able to afford more than $1200 on a house
It's not on enough land to classify it as "country" but it's not city enough to have things like street lights and sidewalks.

We're looking at established builders because we feel like developing this property to a livable-by-current-standards home is a good decision (can sell for significantly more than it's worth, walk in $30K up due to land value), and believe that a major builder that builds standard houseing would be the most expedient, cost-effective way of doing it. We don't want to be in this house forever, or even more than 10 years, so we're trying to make it a good investment by spending as little as possible to get the most impact.

This is all a round about way of saying - pelase give me some advice! I've been reading the internet and talking to people that I know to get anecdotal evidence about building a home, but everyone I'm able to speak to did this when they were my age (late twenties) and that was 40+ years ago.

I don't, at this point, even know what questions to ask. We think we've figured out a good estimate for the taxes, insurance (WindStorm area II - yay not area I!) and what the monthly payment would be for the mortgage, but I'd like to get a good feel for the actual PROCESS.

When do you actually have to start paying fo the mortgage loan? I assume it differs if you get a consttruction loan and then pay that off with the mortgage, but good estimates of that v. time building the house v. time havnig to find houseing while paying for a mortgage as well would be helpful.


TL:dr: I'm a first time home owner, builder, looking for some general advice or good literature to read about the process.

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I'd start by having someone come out and give a price on removing the mobile home and upgrading the utilities. That's likely to be costly, but you have to do it. Can you and she do any of this work yourselves? I personally wouldn't have the skills, but it'd be a huge money-saver, if you could.

At that point, you could investigate selling the lot "as is", though an empty lot isn't the easiest thing to sell. Does the neighborhood have other empthy lots? Is this a neighborhood into which people want to buy?

Once the lot is "ready", then talk to some builders about what they'd charge to build a small, simple house. Since you obviously aren't attached to this lot and are looking at it as a temporary fix, choose a floor plan that's very generic and will appeal to many people. In your situation, the goal is always to own the smallest house in the nicest neighborhood; that's the easiest house to re-sell.

Is $1200/month a reasonable price for a mortgage in your area? It would be fine here, but I know that's not true everywhere.
I have the impression this'll be a financial stretch for you. Don't go too close to the financial edge; that's never a good idea. If you have to wait 'til your student loans are paid off, do it. Those things are crippling.

    Bookmark   February 19, 2013 at 9:38AM
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I'd start by talking with an experienced realator in your area to find out what s/he thinks the property is worth and what comparables in your area for improved lots may be.

You should talk to a bank for exploration of lending terms.

You should talk to the applicable regulatory agency for their building and permit requirements and costs.

A reputable builder or two should be able to give reasonable, but ball-park costs for various types of construction, ie, 1-story, 2-story, etc.

Talking to an architect or designer will give you an idea of these costs.

You have a lot of due diligence to do before making a decision to do anything. Good luck on your project.

    Bookmark   February 19, 2013 at 9:47AM
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Sophie Wheeler

What you're talking about doing here is building a house on spec. Even experienced builders are losing their shirts doing that right now. Even if you 100% built it with your own hands, you wouldn't save enough from that for any significant profit from the venture. And, it would take a ton of your time and energy. If you are looking to build something for you to inhabit, that's one thing. You'd still be better off by buying something existing. It's cheaper, and it sounds as though your budget can't take the hit of even doing an conventional home purchase right now.

Really, this inheritance is nothing but an albatross around your neck. With all of the questionable structures on it, you're lucky that the municipality doesn't classify it as an attractive nuisance and make you tear it down right now. Your best bet would be to sell it as quickly as possible for however much you can get for it and apply that towards your student loans. In Texas, land is the absolute cheapest part of the home building equation. And unless this is located in a VERY desirable spot, no way are you going to do a spec home and come out ahead.

    Bookmark   February 20, 2013 at 9:13AM
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This would be an excellent question for Dave Ramsey, who hosts the call-in show for financial advice and alot of callers ask similar questions to this w/ specific housing questions, etc. and what the best option is for them. I'd do that before anything so you can get an understanding of how taking advantage of this inheritance will work the best for your situation. You can find his show and when to call on the link below. I listen to his show all the time and find it very valuable!

Here is a link that might be useful: Radio Show

    Bookmark   February 20, 2013 at 10:13AM
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I don't know what you ought to do, but I will tell you about what our process has been to build on our own lot.

We started by asking around for recommendations of builders. You could also go on the parade of homes to try to find builders. We took the design/build route and are building a custom home, but since cost is a big issue for you, I'd recommend picking among plans the builder builds regularly, because he can probably build those plans more cheaply than a house he's never built before.

Then you can get quotes for the plan(s) you're interested in. Make sure the quote is as complete as possible-- if there's an allowance, price out what you want and make sure the allowance is sufficient. Then add in a buffer for whatever you and your builder forgot to account for. Once you've got it all worked out, you will sign a contract with the builder and apply for the construction loan.

The bank will want to ensure 2 things: that you can afford the loan, and that the property (house+land) will appraise for what you will owe when it's finished. If you are approved, and appraisal is good, then you can go forward with seeking the building permit.

Once you have a building permit, then you can start building.

Payments for your construction loan begin as soon as your builder starts drawing money from it. There will be procedures in place to ensure that your builder only takes money as he needs it to build your house-- he can't take the full amount immediately.

FWIW, I'd do as much as I could to clear out the old mess before getting the builder involved. The bank doesn't want to see any kind of construction having begun before the loan closes, but you could certainly clean up the lot. And that will probably be a good thing even if you decide that you're better off selling the lot.

    Bookmark   February 20, 2013 at 12:23PM
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