Can You Build in the East Bay of the San Francisco Bay Area?
Yet for some, the dream of building their own home, seeing their own vision manifested, outweighs any inherent risk or frustration.
Is it possible to build such a home? Well, yes. But it helps to be well funded and well informed about issues that can arise.
One of the first issues that can come up is the issue of land. After all, anyone insisting on building in the East Bay will quickly realize that much of the land available already has something on it – another house, a freeway, a shopping mall, or a school. That leaves land that might not look as appealing for building a home.
Real estate attorney Chris Hanson says that land is available – but the buyer needs to be aware of how it might impact the plans, and ultimate cost, of their home. “Let’s say you have land sloping at a 45 degree angle. That isn’t too good for a home. But the land has million-dollar views of the Bay. So, the house is built on stilts, and retaining walls are added to make the land usable.”
Of course, for those building within a home development, the land may already be chosen, and it may merely be a matter of choosing the type of home.
For the do-it-yourself approach, however, land is purchased, and the client hires the contractor to build a home. Hanson notes that often, the person building the home wants a lawyer involved – which isn’t always needed. “If the client has to do a lot of the legwork themselves, them the process becomes overwhelming for many people. Remember, in a new home development, the developer has an in-house staff to take care of various inspections and permits.”
“I tell my clients that I can be as expensive or as inexpensive as their comfort requires,” Hanson says. “People believe that lawyers will make the regulatory process easier. Sometimes that’s true, sometimes that’s not.”
In fact, Hanson says he is more likely to turn away work in this instance. “The person building their own home should be very price sensitive. When it comes to obtaining permits and other paperwork, they often should do it themselves or let their contractor do it, particularly since contractors often have an established relationship with the local government entities involved.”
Hanson says the most likely time a home builder will really need an attorney is if a permit is denied. “This is where an attorney can help the most, if you get into a question of compliance with the regulations,” he explains.
Of course, while the permits are being applied for (and hopefully approved), the house is going up – and money is going out.
But the financial aspect is somewhat different from closing on an existing home, explains Peter Holmes of Sterling Mortgage. “The financing process is a phased process. It begins with a lot loan, for the purchase of the land. Then, the mortgage will roll over into a construction loan.”
Holmes says that the lender, at that point, pays out money as items on the home are completed. “Plans are submitted to the lender first, and they must be approved. Once approved, there is a disbursement schedule, to pay for the supplies and labor, as construction is completed,” he says.
At the end of the construction phase, the loan is “rolled over” again, and becomes “a longer-term, fixed rate mortgage. In other words, the loan terms are much less favorable in the beginning, when the initial lot loan and construction loan are taken out,” Holmes says.
Building through a developer (that is, buying a yet-to-be-built home in a new home development) is very different financially. “The developer will often have internal financing, and it will be offered on-site, right where the home buyer sees the models.”
Holmes says this causes a dilemma for many home buyers. “The developer is only going to give them one financial option, and in return, the home buyer usually receives credits or other incentives to use the developer’s financing.”
Holmes says the dilemma is that the home buyer, at that point, only is provided with one option – the developer’s financing – which may or may not be the best deal. “I would encourage the buyer to speak to a third party lender, to get an idea of their financing options before they even set foot on the new home site,” he says. “Often, the home buyer can find a financing arrangement that is much better for them, in the long term.”
Christopher Hanson can be reached at hansonlawfirm.com.
Peter Holmes can be reached at sterlinghomeloan.com.
