When building a new home, you must first decide if you want to hire a custom builder or a tract home builder. There are a lot of variables to consider, so let’s dig in.
Tract builder. The tract home builder, also known as a production builder, is often a regional or national company that builds thousands of homes each year. Typically, these companies build in master plan communities, partnering with a developer who has already subdivided the land, paved the streets and connected utilities to each lot.
Tract builders typically offer house plans of varying sizes and styles, along with lists of options and elevations (the outside look). By mixing and matching elevations with floor plans, tract builders can have a variety of different looking homes in a neighborhood with similar floor plans inside. Buyers purchase the lot and house together by choosing from a platted map of the subdivision. You likely will be charged a “lot premium” for more desireable lots such as those backing up to a natural area.
Besides picking the floor plan and elevation, buyers are usually able to pick out the type of floors, kitchen counters, cabinets, appliances, paint colors and other aesthetics, all within a range of available choices. Production builders buy materials and labor on a massive scale, saving you money. They also have the building process so systemized that construction cranks along on a brisk schedule. Building supervisors oversee the contractors to ensure that the work is done well.
In recent years tract homes have made big strides in energy efficiency. Another possible plus: many of these communities come with a neighborhood pool, amenity center and play grounds.
Custom builders. With a custom builder, you provide your own lot or acreage and you have much more flexibility in the design of the house. As the name implies, with a custom builder you are free to choose and design whatever house suits your tastes and budget, with a few caveats.
Once you find your lot or acreage, be sure to check the zoning and deed restrictions before you contract to build a house. If you are building on a vacant lot in an existing subdivision, make sure it has utilities connected to it. If not, or if you buy land in the country, you’ll have to pay to have the utilities installed, which can be costly. Also, if building on a lot in a neighborhood, make sure to comply with any restrictive covenants and bylaws of the homeowner association before designing your home. Many associations have specific rules for various architectural elements and building materials. Next, you’ll need an architect or house plans. A custom builder may offer several house plans from which you may choose. Ask the builder to show you pictures of homes he has done.
Building a custom home is usually more expensive. Customers often have more expensive tastes and smaller custom builders can’t purchase materials on the larger scale of a tract builder. The process can take longer as well, so plan accordingly when scheduling living arrangements. Once your mortgage is approved, you will typically pay the builder “draws” of money from the lender, which are typically made in periodic payments during the building process. Once the project is completed, the construction loan becomes your regular mortgage. The financing instrument used is known as a Construction-to-Permanent Loan. As a safeguard, you should require that the builder provide documentation that all subcontractors were paid. All in all, you are more intimately involved with the building process when working with a custom builder.