How To Protect Your Custom Home Against Liens
Kentucky is one of the least expensive states in the country for construction costs.
- The average cost to build a house in Kentucky is $168,134
- The average cost of land in Kentucky is $4,350/ acre
- The average price of buying a home in Louisville is $279,169
With this type of price differential, it’s worthwhile to consider building, especially when your new home will be designed specifically for your tastes. Keep in mind though, building a house takes longer and is more complicated than simply buying your home.
Should I build a Custom or Production Home?
A production home is built within a neighborhood of homes owned by a developer. Typically the developer has a set portfolio of house plans and builders you can choose from. Land and construction are often bundled together in your purchase. This type of build is usually less expensive than a custom home.
With a custom home you buy your land outright then assemble your team of architects and builders to complete your build.
Production homes are typically a package deal. All of the information and resources you need are provided by the developer. Since custom builds are less straightforward, this article covers the entire process.
Step 2: Secure financing and purchase your land
Acquiring a land loan is a lot like securing a mortgage but it’s important to note that land loans are not mortgages. There are different loans for different types of land:
- Raw land loan— Raw land is completely undeveloped with no electricity, sewers, or roads. Raw land is typically the cheapest but is harder to secure financing through.
- Unimproved land loan— This is similar to raw land but is a bit more developed. It has some utilities but not all. For example, it may have roads and a sewer but no electric or natural gas meter.
- Improved land loan— improved land has access to all utilities. It’s the most developed type of land. For obvious reasons, improved land is the most expensive type of land to buy, but it’s also the easiest to secure financing.
When building a custom home you’ll also need to secure a construction loan. Not all financial institutions grant land and construction loans. Check with local banks, credit unions, and private lenders.
Step 3: Buy title insurance for your land
Buy title insurance for your land as soon as possible. This will set you up for success during your build and if/when you ever want to sell your property. Title insurance ensures that the land belongs only to you and shows that you have a reputable company supporting your claim. Once you insure your land title, you can feel secure investing in a custom home build.
Typically, title insurance is offered during the purchase of your land, but if you didn’t get it when you purchased, we definitely recommend getting it when your home is completed.
Step 4: Choose your builder
Select an architect or builder that aligns with your vision and values. Be sure to ask your prospective builders for a list of their suppliers and subcontractors. Check references thoroughly before making a final decision.
Step 5: Design & Budgeting
Work with your builder to draft a construction schedule, draw up blueprints, develop your budget and timeline. You can expect to make dozens of decisions regarding finishing, colors, and design elements. If you start to feel overwhelmed, you can always have an interior designer join your team.
Step 6: Construction
If everything is done correctly in the design & budgeting phase, the construction phase should be easy for you. The construction process can take anywhere from 6-18 months. You can sit back and let the pros do their work.
Be proactive about protecting your custom home against liens
Keep track of all the payment documentation related to the construction of your home. The contractor should give you a detailed statement that includes:
- The names of all subcontractors
- Work performed
- The names of all material suppliers
With this document, you can make sure all proper parties are getting paid, what they’re entitled to and waive any lien claims on your property.
You can further protect yourself from liens by doing these two things:
- Insist on knowing who performs work and delivers materials to your construction site.
- Have each vendor sign a lien waiver stating that they were paid in full.
Q: I didn’t hire a contractor to build my custom home. I built it with my own two hands. How do I legally prove it’s mine?
Good news! If you built your home yourself on land that you own, you don’t need any additional documents to verify ownership. Your land deed, construction permits, and land title insurance will suffice to prove ownership.
If you have any questions about building custom homes and protecting your investments from liens, don’t hesitate to contact us. The Collier Title team has years of experience. We’re experts in more than just securing your title insurance (although we do that pretty well, too!).