There are a few advantages to building your own home instead of buying one you find for sale on the market. One of the most significant benefits is that you’re able to create your dream home and design everything just the way you want it. While this can be an incredibly enticing idea, you may feel overwhelmed by the process and unsure about where to begin or what will be involved. By dividing the process up into separate goals, it can be a more manageable objective.
Consider Where Your Land Will Be
This is something you’ll want to consider early if it’s not the first goal you tackle. It may be desirable for you to buy the land out of pocket, depending upon your resources and the size of the plot you hope to purchase. Whether you buy outright or seek financing, there are a few points to consider in selecting the right piece of land.
First of all, you’ll want to ask questions about zoning and the area subdivisions. Some areas may not be zoned for residential construction or may have certain stipulations for building a new home. Such as requiring that the structure consists of a minimum square footage. Additionally, the land may be subdivided in such a way that there won’t be road access. These types of property are often priced to seem like a steal and, unless the borrower asks, he or she may not realize the problem of accessibility.
You will also want to take environmental considerations into account. If there’s a farm nearby, can you and your family tolerate the odors and sounds of live farm animals? Remember that this may be a permanent condition of living in the area. You may also want to have the soil tested for hazardous elements. For example, asbestos is naturally produced in the soil and rocks of certain areas. These are all critical points to consider when buying land for your home, and they can determine whether or not you’re getting a good deal.
Financing Your New Home
Getting a loan to build a home is entirely different from getting a traditional home loan. In fact, there are two types of home construction loans, and it’s wise to understand what each type entails. Your precise circumstances will dictate which loan type is best for you.
Construction to Permanent Loan
In this type of loan, there’s just a single closing, because of this you will pay fewer fees. However, throughout the construction process, the interest rate is variable, so your monthly payments may fluctuate, depending on the practices of the Federal Reserve. While your home is being built, you’re only responsible for making interest rates. After the house is completed, the lender will convert the construction loan to a traditional mortgage and you will have the option to switch to a fixed interest rate.
Stand-Alone Construction Loan
This process requires you to take out two loans, which means two closings and two sets of closing costs. First, you will take out the construction loan, which pays for the home to be built. Once construction is completed, you will take out a second loan, a traditional mortgage, which goes to pay off the construction loan. The advantage to this loan is that you can live in your current home, during construction, and you may not have to make the full 20% down payment. On the downside, you’re obligated to pay fees on two closings and, if your financial circumstances change, you may not qualify for the second loan.
Building Your Dream Home
Once you’ve bought the land and obtained financing, it’s time to design and build your dream home. You can take one of two routes, as far as designing the home. Traditionally, it has always been the practice to work with an architect to design your home and pass the construction onto a general contractor. However, in more modern times, general contractors can assist in the design of your home with just as much competence as an architect. Working solely with a general contractor can help you save a small chunk of money by cutting out the architect’s fee.
Often, general contractors can perform the functions of the architect, civil engineer, land surveyor, and landscaper. You will have to ask your contractor what services he or she performs and what jobs his crew can perform. Additionally, you may have to hire electricians, plumbers, HVAC technicians, roof technicians, drywall experts, and other utility service personnel to work alongside the construction crew. You should have already considered the cost and ability of bringing utilities to your home before you bought the land, so these additional costs shouldn’t come as a surprise by this point in the process.
When building instead of buying, it’s crucial to select professional and reliable contractors and builders. Customer reviews and word of mouth are useful methods for finding the most reputable companies. Experts in the field also recommend speaking with several contractors within specific industries and getting estimates so that you have a more clear picture of what it should cost. For example, a roofing contractor will be able to get you a more specific quote and understanding of what is needed rather than a general contractor, so it is critical that you do your research.
Something to keep in mind is that this entire process can take two years or more, depending on your plans for the home. Planning and financial strategizing are especially important when you choose to build instead of buy. While there are many advantages to this option, it also requires more patience and a talent for personal finance management.