diff --git a/CHANGES b/CHANGES
index 106c694..74b843a 100644
--- a/CHANGES
+++ b/CHANGES
@@ -2,12 +2,12 @@
 
 > > > Configuration/compatibility changes
   IMPORTANT
-  Custom configuration is now specified in local_options.h rather than options.h
+  Custom configuration is now specified in localoptions.h rather than options.h
   Available options and defaults can be seen in default_options.h
 
   To migrate your configuration, compare your customised options.h against the
   upstream options.h from your relevant version. Any customised options should
-  be put in localoptions.h
+  be put in localoptions.h in the build directory.
 
 - "configure --enable-static" should now be used instead of "make STATIC=1"
   This will avoid 'hardened build' flags that conflict with static binaries
diff --git a/INSTALL b/INSTALL
index ce0637f..7dc4444 100644
--- a/INSTALL
+++ b/INSTALL
@@ -3,6 +3,8 @@ Basic Dropbear build instructions:
 - Edit localoptions.h to set which features you want. Available options
   are described in default_options.h, these will be overridden by
   anything set in localoptions.h
+  localoptions.h should be located in the build directory if you are
+  building out of tree.
 
 - If using a Mercurial or Git checkout, "autoconf; autoheader"
 
diff --git a/default_options.h b/default_options.h
index 3b75eb8..86fb25a 100644
--- a/default_options.h
+++ b/default_options.h
@@ -6,8 +6,8 @@
 default_options.h  documents compile-time options, and provides default values.
 
 Local customisation should be added to localoptions.h which is
-used if it exists. Options defined there will override any options in this
-file.
+used if it exists in the build directory. Options defined there will override 
+any options in this file.
 
 Options can also be defined with -DDROPBEAR_XXX=[0,1] in Makefile CFLAGS
 
diff --git a/options.h b/options.h
index 7d6087c..c12cfc9 100644
--- a/options.h
+++ b/options.h
@@ -5,6 +5,7 @@
             > > > Don't edit this file any more! < < <
             
 Local compile-time configuration should be defined in localoptions.h
+in the build directory.
 See default_options.h.in for a description of the available options.
 */