Everyone dreams of building the perfect home. Unfortunately, when new homeowners aren't prepared for what's involved in building, that dream can turn into a nightmare. From financing concerns and added paperwork to building permits and zoning laws, it's easy to feel lost. Here are five major considerations to understand when you feel ready to embark on the construction of your new home.
Cost and financing options
The first thing you should know is how much your new home construction will cost and how you will finance it. Financing a new construction is different from buying an existing home.
Rather than a traditional mortgage, you will need a new construction loan. This will cover the cost of the land (if you don't yet own it), as well as the construction of the home. Your builder will draw from the loan in installments throughout construction to fund construction.
However, unlike a traditional mortgage, both you and your builder will have to be approved by the lender for financing, and there will be more red tape to go through.
A few things to keep in mind when pursuing a construction loan:
- Most lenders require a 20 percent minimum down payment for new construction loans.
- Banks require more paperwork and documentation for a construction loan.
- Most lenders won't finance unconventional homes (e.g., yurts).
Because financing a new construction is a longer and more expensive process, you'll want to get started early and plan ahead to cover those costs.
Condition of the lot
The condition of the land is another important thing to consider when building a home. The location, orientation, slope, access and natural features will all affect how and where you can build.
If you haven't purchased land yet, work with a local real estate agent like those at Trumm Team. Your real estate agent can help you find a property that will best accommodate your building plans in a location suited to your needs.
Consider asking the following questions when speaking with your agent:
- Will I need to maintain the road to your property or will the local government or HOA manage it?
- Are there natural features that would be desirable to preserve (e.g., old trees, a beautiful view)?
- Does the lot come with water and sewer connections or will I have to add them?
- Is the property at risk for flooding, earthquakes or other damage that could increase construction and insurance costs?
The answers to these questions can help you evaluate costs and determine exactly how your home will be laid out.
Local building codes and permits
Before you break ground on your dream home, be sure to check and double-check your local building codes. Zoning laws, home size restrictions and development plans can affect your proposed build as well as your future satisfaction with the property.
Visit your local building department representatives to discuss your construction plans and vision for the property. They can identify any restrictions or considerations you need to be aware of before moving forward.
Once your construction plans are finalized, you will need to submit them to the building department for review and approval. If your plans are approved, the city will issue you a permit, giving you license to move ahead with construction.
Similar to building codes, your local homeowners association may have restrictions and covenants regarding where and what you build on your property.
Restrictions can range from the type of shingles you can use on your roof to the number of pets you can have and whether you are permitted to lease your property.
Pay special attention to rules regarding fines and whether the HOA can foreclose on your property for nonpayment or violations, advises Investopedia. If you have trouble finding this information, ask your real estate agent to get the documentation for you.
Many prospective homeowners purchase pre-made building plans. These are often more affordable than building a fully customized home, which requires the added cost of an architect or designer and can cost anywhere from 5 to 15 percent of construction costs, says The Bungalow Company.
But budget-friendly building plans can still have plenty of room for customizations. If you decide to customize parts of your building plans, consider this:
- Your lifestyle
- Your long-term needs
- How your furniture will fit
- Resale value and marketability
If you are recently married, your lifestyle and long-term needs may look quite different from an empty-nester. Consider how you want to use the space and make choices based on a long-term vision.
Additionally, keep in mind that any customizations are going to add cost to your bottom line. To get the most bang for your buck, focus on customizations that add value to the home and that have a high marketability for prospective buyers.
Building a house can be a daunting process, but with help from real estate professionals like the Trumm Team, you can rest assured you will be building not just a house but a home.