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.

Plan to Succeed | Your Winning Playbook

Detailed, documented planning will keep your new home project on time and budget.

Maintain and manage your project with;

• a daily pocket size journal for questions and ideas you run across
  
• a To Do list from your contractor meetings,
  
• a letter-size, full year calendar to map out important dates and meetings
  
• letter-size printouts of home floor plans, elevations and site plan for meetings.
• 3-5 color highlighter-pens | use color to designate responsibilities, actions, to dos, meetings
• sort and store documents in colored pocket folders for each team member
  
• a list of email addresses, cell phone numbers and mailing addresses of everyone on the project team.
  
• keep it portable; your documents and planning tools need to fit in a legal-size envelope.
  

These are your battle plans; your team's winning playbook. These plans are destined to keep your new home construction on budget and on time.

Mobile Web Improves Homeowner-Contractor Communications

Today's mobile communications make it easier for homeowners to leave a voice mail message, send an email or text message directly to their contractor's cell phone.

Ask your contractor for their direct office and cell phone numbers. Ask them for their email address or an email address that connects directly to their mobile phone.

Provide your contractor with your cell phone and email address. Specify to your contractor which is the best and the first to use when contacting you.

• If you're at work; should the contractor contact you via email rather than using your cell phone?
• How often do you retrieve messages or email from the cell or email accounts that you provide them?

Contractors have contacted me numerous times when they needed an immediate project decision from me. Each time we avoided costly time delays from playing "phone tag".

Double up and document your contractor communications. After calling or leaving a voice mail with your contractor, send a short email to your contractor itemizing the points of your call or voice mail. If you first sent an email; call and leave a short voice mail asking the contractor to check their email when they return to the office.

Print all emails that you send or receive from your contractor. Place them in your project folder for future reference.

Place a couple test phone calls and emails to the contractor to verify "all systems are working". Ask them to do the same by leaving a couple voice mails and emails prior to construction.

You're both busy. Checking and documenting your contractor communications will improve the consistency of the construction-design decisions that both of you will make during homebuilding project.

Bank's Preferred Contractor Business References

As you shop for home financing, ask the financing institution for a referral to a contractor that has quality reference(s).

Financing institutions will inspect the home construction several times during the construction process. Their inspector will verify the contractor has delivered and built the home based on the original drawings and specifications. Once they have verified compliance, they will release and issue the next check which is drawn from your loan amount.

Bank's will have preferred contractors that have caused fewer or no problems for them during the construction process. It's a WIN-WIN when the lender shares their referrals with you for your review.

Review Builder's Real Homes for Quality

Recent References
Request and review your builder's best quality design references. Ask to see 1-3 homes that the builder has recently completed. These home references should be similar in cost and design to the house construction you can afford to build.

Older References
Next, ask your builder to drive you past the homes the builder has built over the last five, seven or ten years. Reviewing the home exterior may demonstrate the durability and quality of the builder's work.

Veteran quality builders always have a list of quality built homes they built over the last five, ten or more years ago. Consider this a great place to start when reviewing your builders' references.

Builders with less time in the market, will need to demonstrate their experience for delivering durability by their quality materials or homeowner testimonies.

Remember, you're reviewing candidates (builders) to entrust with your investment. Your lender will conduct a final appraisal of the home prior to issuing you a loan. Only quality built homes will meet or exceed the appraisal while steadily accruing in value over the years.

Choose a Home Builder-Contractor Based on Value

A house is an investment. So don't shop for a home builder-contractor like you're buying a car or TV. It may take 3-12 months to interview, qualify the builder's references and hire a contractor to entrust with your personal investment.

On average, it may take 12-24 months working with the contractor to define, design, finance and build your home. This person is going to be part of your life for a while. So find someone you feel comfortable sharing this ride.


The next few articles will highlight major points that you must review prior to choosing a home builder and signing a contract.

Home Builder and Property Developer Financing Alternatives

Property developers, real-estate brokers, large and smaller home builder-contractors sometimes have pre-arranged financing packages available if you build with them.

They may have banks and/or mortgage brokers that assist with home financing approval, construction and home loans that help their clients (property developers, real-estate brokers, home builders) provide a turn-key solution.

Keep in mind this may obligate you to purchase the property in their subdivisions. If you already have a piece of property, this may not be a financing solution for you.

Home Loan Appointments: Beyond Banker's Hours

Home Loan Appointments (After Business Hours):

Many lenders provide "after hours" appointments to discuss and/or service your borrowing needs. This may include home loan appointments that are scheduled for early evenings, weekends, and mornings.

Increased banking competition, provides you with an extended level of customer service. Make sure to ask your lender what level of "after hours" service they provide for their home loan clients.

This is a sale. The lender is selling and servicing your lending needs, for tens of thousands of dollars. They are receiving thousands of dollars per year in the residual form of interest. Expect a higher level of service for this large sale and annual residual compensation.

Professional Courtesy

Home loan appointments are business meetings. Lenders review your financial credibility and the business risk for servicing your requested loan. If you miss appointments, your behavior doesn't demonstrate a high level of reliability.

1. Don't schedule an appointment until you are very sure you can keep the appointment.
2. Avoid rescheduling your appointments.
   
3. Use a small pocket calendar to set and ensure you keep your appointments.
   
4. Arrive a little early for all of your appointments.
   
5. Call if circumstances have changed that force you to reschedule. Call as soon as you identify you are going to be late or unable to keep the appointment.
6. Have a series of alternate dates and times available when you reschedule an appointment.
   

Expect the Same Professional Courtesy

As a business person, your lender should be held to this same standard. Stop the wasted phone calls and phone tag. Never leave a meeting; without setting the next meeting (date/time) and what will be accomplished. If your lender can't meet these requirements, its time to look for additional lenders.

Lender's After Hours Phone Number

The lender's phone system may go to an after-hours voice mail system at the end of the business day. Ask for a direct phone number to the lender you are meeting. Try that phone number during regular business hours to verify it works.

Lender's After Hours Entrance

The lender's standard business entrance/lobby may close after business hours. Ask for a direct phone number to the lender you are meeting. Ask if you can use their mobile phone number to contact them in case your schedule changes. If you can't reach them on their office phone number, you can use their mobile phone number to let you in the building.

Bank Building Security

Larger banks may have to register your name with their building security service. Verify your lender has done this for you. Arrive early to make sure you can clear security and arrive on time for your meeting.

Provide Your Mobile Phone Number

Provide the lender with your mobile phone number and home phone number. Ask them to call you if they have a cancellation You may be able to meet with them earlier and both of you can get home sooner.

Time is Money.

You're busy. Lenders are busy. Get on the same page quickly regarding your business communications. When you both maximize the results of every meeting it minimizes the need for future meetings. At this point; you're both interviewing and reviewing each other. Be bold; walk away if the benefits of this deal are not in your favor.

Home Loan Documentation: Your Debt, Assets, Income

Assets, Income & Debt Documentation

Documenting what you owe, the value of what you own and how much do you make (income) will determine the size of your home loan that the lender will consider.

Get three pieces of college ruled lined paper.

• List all of your long-term debts on the first page.
  
• Itemize and place a value on each of your assets on the second page.
  
• Finally, list all of your combined income sources on the third page.

Required Paperwork for Loan Application

At minimum, your lender will need to review your;

• completed income tax forms from the last two years with their respective W2 statements,
• list of all long term debts, loans and substantial credit card balances.
• a list of all income sources,
  
• recent pay stubs from all employers for each person that is signing on the loan,
  

Create a list of all your all assets; cars, homes, artwork, antiques, collectibles, boats, motorcycles, stocks & bonds and other property.

List anything that has value and/or is accruing in value. What can you sell if you lose your job to make the house payment?

Verify and document this information on a spreadsheet or word processor. It will make it easier to update as you work through the loan process. Maximize your time by preparing this information PRIOR to meeting with your lenders.

After all, your time is money. You are also interviewing their ability to service your long term financial needs.

How Much House Can You Afford?

Pre-Loan Approval

Before you start the home design process, home builder/contractor selection review, the land purchase process and/or realtor meetings; you must know how much house you can afford.

In the next few articles, we'll define the steps and information to gather for your pre-loan review. Local banks, credit unions and mortgage brokers are usually the first place to start.

Once your home designer, contractors, realtors and lenders have this information; they can help you define, design and build your new house.

Once you know this number, you can take action to

• select an affordable home design,
• choose property that complements your lifestyle,
• upgrade/fix your credit rating to provide the best home loan interest rate
  
• define the best construction process for your new home
  
• pick a home builder that's qualified to build the home design and
  
• review/choose the best lender and their terms for your financing.

Designing and building a new home is a long process. Everyone needs to know this number to properly serve your needs. So start here first.

Home Financing: "The REAL Free Credit Report"

Financing your home is at the start of the whole design and build process of your home. Verifying your credit prior to review by a bank or mortgage company should the first thing you do.

AnnualCreditReport.com

This is the only consumer credit report website that Consumer Reports recommended and featured in their August 2007 Issue. Why? It's absolutely free.

AnnualCreditReport.com is the official site to help consumers obtain their free credit report without any sales obligation for any trial services or other credit protection services.

This central site allows you to request a free credit file disclosure, commonly called a credit report, once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion.

This free credit report can be requested through this website, by phone or by mail. https://www.annualcreditreport.com

Fight identity theft by monitoring and reviewing your credit report. You may request your free credit report online, by phone or through the mail. Free credit reports requested online are viewable immediately upon authentication of identity. Free credit reports requested by phone or mail will be processed within 15 days of receiving your request.