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What you don’t know about building a home may shock you

According to data from the National Association of Home Builders, as of May 2013, 4,480 single-family home building permits had been granted to homebuilders in 2013 in Utah. That number is up 36 percent compared to last year, an indicator that Utah’s economy is headed in the right direction.

What you don’t know is that for every building permit granted, there are hours of blood, sweat and tears poured into each home plan. And that’s just for the builder.

As you look into building a new home in Salt Lake or Utah counties, these are some of the most important things you need to know about the process.

Building in Salt Lake County vs. Utah County

There is an invisible line that you can’t see with the naked eye, right on the border of Draper and Lehi that determines the amount of money you can borrow for a construction loan and long-term financing.

For instance, while Utah County allows purchases under conforming jumbo rate terms of $417,000, Salt Lake County allows a buyer to finance up to $600,300 before hitting conforming jumbo rates. FHA limits in Utah County are up to $323,750, while FHA limits in Salt Lake County are up to $729,750. For most buyers, this means you can buy more house for better interest rates in Salt Lake County.

Affordable options that increase appraised value and ability to sell in the future

According to Aaron Hymas, owner of TimberCreek Homes, who has built more than 1,000 custom homes in Idaho and Utah, these are the seven top options that tend to increase the appraised value of a home and increase your ability to sell your home in the future:

  1. Large master bedroom.
  2. Large master closet that is laid out well.
  3. Kitchens with nice appliances and granite slab counters.
  4. Hardwood floors.
  5. Kids' bedrooms with walk-in-closets and lots of storage.
  6. Theater system
  7. Technology such as a touch-screen home automation center.

Getting construction and long-term financing

Alexis, a loan officer from City Creek Mortgage, says, “In today’s financing market, an average buyer must have about a 700 credit score, and enough income to meet debt to income (DTI) ratios that can be verified through taxes over the past two years. A good DTI is 45 percent or lower. Solid employment, meaning holding a job for two years in a row, is also a major factor.”

Want more buying power? Usually the higher your credit score, the more house you can get for the same amount of financing.

Typically, if you get a construction loan, you are on a title and you have a lien against the lot you have selected. So you have ownership of the property, and therefore the conversion from construction loan to long-term financing is considered a refinance.

The great thing about a refinance is that the appraised value of the home could be significantly higher than the construction loan, so much so that you could get an appraisal that gives you instant equity anywhere between 5 to 10 percent, especially in the 2013 economy of Utah real estate.

Generally there are three ways to finance a construction project and convert/refinance to long-term financing.

  1. Cash
  2. OTC loan (one time close) starts out as a construction loan that converts to long-term financing in the future. This type of loan is good because you generally avoid closing costs on the second loan. Although it is hard to find today because of stricter lending laws, it is good for those wanting to lock a rate at today’s market when rates are anticipated to rise.
  3. A combination of construction financing with long-term financing at the end of the construction process. The construction loan is generally 12 months and then a second long-term loan is taken out to pay off the short-term construction loan.

Custom homebuilders, like Hymas, have relationships with banks that can drastically reduce the amount of upfront costs on many projects, sometimes getting rates as low as 3.5 percent on the construction loan. Terms and conditions vary for each person and homebuilder.

Can you really build a custom home in 90 days?

If you’ve ever seen a billboard or advertisement that said something like “Build your dream home in 90 days,” then here’s what it is really saying:

Quoting a 90-day home build is normally from the time you dig to finished certificate of occupancy permit. Generally you get a 90-day time frame with a volume builder doing the same plans over and over.

The variables of a custom job are largely eliminated because a volume builder has built the same plan 25 times and knows that it takes a certain amount of time in every area. Building a custom home in 90 days with any size to it would be very difficult. Custom homes have higher-end trim, cabinets, floors, tile, exterior finishes, etc. that all take more time than finishes in a normal volume-built home.

Adam Torkildson is a graduate of UVU in communications and lives in American Fork with his wife and two children. He consults for small businesses in public relations and marketing, and is an avid reader.