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.

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.