Just a suggestion to avoid surprises. Use an architect. An architect will not only do the design you choose, but she will put the specific product types from window frames to doorknobs into the plan, exactly as you specify. Then you get a builder or contractor to bid on the project using the products on the plan. Sometimes we make a mistake of taking a low bid on a job...say it comes to $200.00 a square foot...then you decide you don't like the builder's choice of windows or doors or whatever and you want to upgrade. Then you start making changes and you turn your $250.00/sq ft job into a $350.00 sq/ft. It happens all the time. It happened to me. Know the products you want, specify every detail and put them in the plan for the bid.

I think what the "interest built in" means is that because they will be putting up 90% of the money for construction upfront, they will be charging interest on that money. If you pay them upfront with the mortgage, then they shouldn't need to charge interest because they aren't fronting the money, the bank is.

With any business budget, plan for 10-15% contingency just in case things come up. So if your home costs $500k, make sure that you are able to afford an additional $50-75k just in case.

the area that we are looking to build only uses 8 builders that have been around for many years. i trust that all of them are good and would be around to take care of issues that might arise.

one more question that i have is on the financing of the home. the agent from the companies have told me that the construction company will take on the loan and that they will require a 10% down payment and that we will pay for the house at the end with a traditional mortgage. But what does it mean to have the interest of the loan "built into the price of the home"?

My dad is a builder. The worst PROCESS he ever had building a home was when he did his own! He had to make a gazillion decisions (you will know how many that is once you get started) and he knew this was his "forever" house, so each one was very stressful. For a year, every time I saw him he had samples of something in his truck and he'd beg everyone he knew for input - which siding should I use? He'd ask - and we'd look at the 20 samples he had in the truck, and I'd say "They're all beige, anyone of them is nice." That made him angry. This went on for a year. And, he KNOWS about construction, materials, and had a great builder. You'd have even more decisions to make. As an agent, if I work with builders and a custom buyer, we try to make everything multiple choice - and limit the number of choices. Generally, if we've read them well and they trust us (seems to be the case most times) they go with someone we picked for them. In a few cases, they will say - well, we wanted something different, and they go hunting for those things. But overall, us doing this makes life much easier for them (and us). So, find someone you trust and who you think understands your tastes, lifestyle and budget.

thanks so much for the response. i do appreciate them. i do wonder, how much "padding" should I include? I have set aside a budget and i have been upfront with the two builders that i am considering about the amount. both builders said that it can be done with the lot and the type of home that i want. but i wonder if there are going to large costs that i am not foreseeing that might hit us in the end.

Agree with the previous three folks. Make sure if you do buy a custom home in an established subdivision that it is a builder that has a great reputation so you know they will be around to take care of any issues. If you decide to start from scratch yourself there are so many things to do...be prepared, it can be a daunting project and one that can be a test on a relationship if you are in one. Building a custom home myself, I know what it takes.
1. You have to first select the appropriate LOT to build the home. Make sure you seek someone that specializes in custom home lots. You want to always buy the lot and design the home with selling in mind at all times. From the size of the lot, location, view and available utilities. It can help to buy a lot in a good location that is already in a recorded subdivision, hence less of a worry about available utilities.
2. The DESIGN of the home should try to capture all the features you want, but also capture the benefits of the surrounding elements, view etc. As to Ellen's point, you don't want the interior design to be too individualized or it could hurt your sale down the road.

As far as pros and cons...I think it is a very individual thing for anyone that takes it on. It can be extremely rewarding in the sense you can do everything you want and choose each and every feature you want. Make sure you have a budget and pad the budget! You can, if done right and you know the right people, save a lot of money doing a custom home. It can also be time consuming when it comes to picking out fixtures to door knobs to door casing and moulding, when there are hundreds to choose from. (Go look at other custom homes on the market or open houses with an Agent friend) There is so much more that can be said, I hope this helps.

A lot of newer construction is done quite poorly if you're buying a custom home in a subdivision. You have to be on top of the consruction teams, as they tend to skimp and do sloppy jobs. If you're doing a custom build with an architect, then you may of course find a better crew.

The Pros are that you are getting the home that you helped design and a home that includes all of the custom features that you require. The word "custom" implies that the home is built to your specifications. The only down side may be the cost. Also, on a resale, buyers do not have the same tastes, and if the custom features are too unique, it could be a turn off to a buyer down the road.

The cons would be that you have all up the upgrades and landscaping to do. It adds up quick. With a resale its all in. You may not like everything but it is in.