How to Manage New Home Change Orders

During the home construction process, if you make any changes to your home plans and/or specifications; it is done through a document called a "change order".

The affects of each change order can have a positive (+), negative (-) or zero dollar value change to the price of your home.

Your lender and builder agreed to contractually provide a loan and build your home for a set price. The lender's loan value and the builder's fixed price was based on an appraisal of the original drawings and specifications you contractually agreed upon.

The change order is your means to make design changes during construction; within the original loan value. Remember, the bank is NOT going to increase your loan value.

The added costs of any change order that goes beyond the original loan value; must be assumed by the homeowner (you).

Negative change orders will reduce the cost (value) of the new home. However, a significant decrease must be balanced with an equal valued positive change order. The home value cannot fall drastically below the original loan value.

Your goal is to have the positive (+) change orders and the negative (-) change orders "zero out" each other; while staying equal to your original loan value.

You will have a chance to review the cost affect of a design change. The builder will provide you with a cost (positive, negative or zero value). If you approve the change order; you will sign it. This provides the contractor with the documented means to complete the design change.

When construction is finalized; the lender will perform a final appraisal of the built home. The final appraisal will serve as the basis for converting your construction loan into your fixed or adjustable rate mortgage.