Introduction

It is the American Dream to own your own home ... and many people think they will save an enormous amount of money by building their own. This could be a costly mistake financially, emotionally, and physically. Many aspects need to be considered and the purpose of this brochure is to help you think about avoiding some of the pitfalls and what you can do to make this a successful undertaking. There are several questions you will need to answer. Our hope is that you will be helped by this publication. Ask yourself....Do I really have the time to undertake a project so time consuming? Is it worth the time? How stressful will it be on my family? Do I really have the skills to build a home properly? Do I have the correct tools for those jobs I plan to do? If not, how much money will I spend on those tools? Will I use them again once the home is completed?

Your home is the single largest investment you will make in your lifetime. Do you have the expertise to make sure this home will last you a lifetime?

Arranging Financing

Arranging and applying for a home loan can be quite involved and should be one of the first orders of business. Even if you feel that you have enough cash to do the job, applying for a home loan to allow for inevitable overruns due to increased material and labor costs or upgrades is always advised. Most mortgage companies will not lend money to cover the unanticipated costs on a home on which construction has already begun. As a self-contractor, some lenders will not lend you more than 80% of the projected cost of your home. House plans, specifications and an itemized list of documented costs and bids must be provided to the lender. In calculating costs, do not allow for "sweat equity" as most lenders do not recognize this as a legitimate cost. (Top)

Bookkeeping Responsibilities

IRS: The IRS requires that you send any sub who earns $600.00 or more a 1099 form at the end of the year. In the event you are audited, be prepared to prove that the sub is an independent contractor - that is, you did not have to supervise his work and you did not dictate what time he reported to the job.

Tracking Materials Purchases: It is very important to be on the site or have someone you can trust to document delivery slips. Returns must be accounted for since inaccurate billing can run up costs. You will need to check all invoices and account for all materials. Waste can add hundreds if not thousands to the cost of your home. (Top)

Construction Management

Do not take this area for granted. There is much more to building a home than meets the eye. Be realistic about your level of skill and the amount of time you can spend on the jobsite. Base your decision to put "sweat equity" into your home on your experience, skills, available time and the amount of stress you and your spouse are able to manage. Your ability to handle long-term disruption of schedules is just as important as your ability to swing a hammer.

And there's more! (Top)

Deposits

Deposits will be required by all utilities before construction can begin. Make deposits early as some may take weeks to get their services connected. (Top)

Insurance

Do you know why builders carry Builder's Risk, General Liability and Workman's Compensation insurance on all of their building projects? Because they know what their liabilities are and YOU, as a self-contractor, may have to assume the same liabilities. (Top)

Builder's Risk

The mortgage lender will require this type of insurance which covers the home materials only (no bodily injury, etc.). Upon completion of the home and closing the loan, you will want to convert this policy to a homeowner's policy. Your lender or insurance agent can explain this to you. (Top)

General Liability

Your lender may or may not require this type of insurance, but as a self-contractor, the permit purchaser and the property owner, YOU are responsible for any third party injuries that may occur on your property. Without the proper general liability protection, YOU will be held liable if anyone gets injured on the project, including children injured while playing on the job site.

If you are not in the business of building homes, you may not be required to carry workman's compensation insurance; however, it would be prudent to require any subcontractors you hire to provide certification of their workman's compensation coverage. Also, it is important to know that any subcontractor who employs any number of workers is required by law to carry workman's compensation insurance. (Top)

Friendly Warning

Do not accept a release of injury in lieu of a sub having workman's compensation insurance as the release may not be binding in a court of law. (Top)

Licensing

A homeowner is exempt from licensing to build his own home. But remember YOU must act as the contractor and you MUST occupy the home for one full year upon completion. Other than this exception, any person or firm who is the prime contractor on any residential construction must be licensed when the total cost exceeds $50,000. (Top)

Workman's Compensation

There is an issue which has been of increasing concern to property owners ... there is a fine line between being an employer and a do-it-yourself minded builder. A recent case in Oregon ruled that, since the property owner was serving as their own general contractor and had the right to control the worker, they were employers and therefore liable for workman's compensation insurance. This presents a legal issue about which property owners should be knowledgeable. Your attorney or insurance agent can explain this exposure to you. (Top)