April 8, 2021

This paid piece is sponsored by Central Bank.

Building a home isn’t like moving into an existing one, and financing a newly built home isn’t the same as taking out a traditional mortgage.

Just like determining the design and finishes of a home, the loan process includes numerous careful considerations.

“Choose an experienced lender who communicates well and has your best interest in mind,” said Keith Portner, senior vice president at Central Bank.

“They not only can help connect you with qualified builders, but they monitor construction draws in relation to progress, help you navigate your end-loan financing and provide expertise when it comes to locking in a rate.”

Sound a little overwhelming? Julie can relate – and she had already been through the homebuilding process before building her third house last year.

“This time was different; I had to move fast. I had six weeks between selling my home and deciding what and where to build. A friend referred me to Keith. He walked me through the process and made it so easy,” she said.

“I encourage people to go through an interview process. Find an experienced lender you can sit down with and feel comfortable talking to – like no question is a stupid question. You’re starting on a road that’s likely a seven- to 10-month build, and you need a team that is really good at explaining the process. That way, you have a strong understanding of what the steps and stages are going to be.”

While each situation is different, Portner and his team shared some considerations all buyers should keep in mind:

The lot

Think about what is important to you: close proximity to schools, restaurants and shopping, or nature, land, woods or water features. Realtors and experienced lenders will have access to new developments, local subdivisions and lots available to accommodate your preferences and budget.

Land is at a premium in the Sioux Falls market as many land developers are seeing their inventory shrink. The demand for new housing is accelerating with the influx of people moving to South Dakota, specifically Sioux Falls. According to the Realtor Association of the Sioux Empire, Sioux Falls currently has 1.4 months of supply of single-family houses, which is a problem for people looking for housing. That’s only about 25 percent of the houses desired for a healthy market, making it a seller’s market.  Most developers are looking for more land to develop.

The builder

Do your research: Go to the Parade of Homes and open houses for new spec homes, get referrals, check with your local homebuilders association, meet with builders upfront and talk about their style and yours, what you are looking to do and get a feel for your comfort level with communication and trust. Communication is very important in this process.

The design

Some people use a designer to help coordinate the look and style they’re seeking. Many suppliers have designers on staff who can help you with choices within your budget. Making styling boards with pictures, swatches and samples of your choices also can help you visualize how everything will look together.

The costs

The cost of supplies is high right now, and overruns happen, either because you choose something more expensive than the bid or the work is more involved. Your builder will bid out everything and provide you with an itemized form of the cost breakdown. Ask your builder to provide change orders, as well, for you to sign when there are added expenses. This is important to keep yourself updated and aware of your overruns. Many times these type of expenses are paid for out of your pocket.

Then, there is the cost of financing. Check with your lender to get an idea of the loan fees and interest rates for both the construction loan and the permanent financing.  Make sure your lender has extended lock options to cover at least part of the building time in the event you grow concerned with the rate environment.  Mortgage rates can be unpredictable and dynamic, and will be influential on our future payments.

The timing

You might be wondering, is now the right time to build? Are homes taking longer to build, and might it be better to wait for material costs to come down?

It’s true that there is a shortage of subcontractors, such as plumbers and electricians, because of demand, making the construction timeline difficult — not to mention how the COVID-19 pandemic has affected the supply chain of materials for the housing industry, causing many shortages and delays, and further price increase. At Central Bank, we are fortunate to work with several reputable and dependable builders we could refer to potential buyers.

Much pressure is being applied from the National Association of Home Builders and other construction affiliates asking our legislators for help on pricing of lumber and other construction, but we don’t know what will result from that. Speculation on lumber prices is all over the board, with the consensus that at some point they will come down but most likely not to the level we have had in the past.

The check-in

Once your home is under construction, check the site regularly to ensure the building is progressing to meet your timeline if you have locked your interest rate.

Also, check to ensure that the French door you picked out doesn’t have a sliding door sitting in its spot to be installed, that the tile for the fireplace surround isn’t what is supposed to go in the bathroom, etc. As good as builders are, sometimes there is miscommunication with subcontractors.

In Julie’s case, the process led to a home she loves, with financing that works for her.

“Throughout the process, Keith and his team made sure I could see the draws and bills the construction company wanted paid. This allowed me to verify the work was done, then Keith would issue the check. He sent me rates often as we got closer to the end date so we could lock in a rate that made sense. Oftentimes, I sent him an email at 6:30 p.m. as I was leaving work and, most of the time, he’d respond that night.”

Ready to begin your own home-lending relationship? Contact Keith Portner, NMLS #464388, at Central Bank by calling 605-782-0809 or emailing [email protected].