Cost overruns tend to come about because borrowers have a tendency to change their minds about what they want as construction proceeds.
Do your due diligence on the builder
An important aspect of building your home is choosing the right builder. Find one that has built the kind of house you want in terms of price, style and size. Look into the builder’s credentials with the local homebuilders association and ask for references from previous clients. You could also see if there are any complaints against the builder with the Better Business Bureau.
Typically, your lender will look into the builder’s credit standing, financial situation and licenses, as well as the track record for building similar homes.
Ongoing inspections
Lenders will conduct routine inspections as the home is built. During this period, the lender pays the builder in stages — called “draws” — and usually sends an appraiser or inspector to make sure that construction proceeds as planned.
Cynthia DeLuca, group mortgage manager for BB&T in Raleigh, North Carolina, says, “Our clients could get upside down, where they have 50% of the loan but the house is only 25% done. We look at how much it is going to cost to complete the house to try to stay on track.” Typically, you sign off on each draw request so that you are kept informed how the work is proceeding.
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