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Building your own home from the ground up is an exciting yet complicated process that can help homeowners in achieving the home of their dreams. It is a very different process than purchasing a pre-existing home and can be daunting at times, but the end result is the pleasure of owning something that you designed to fit your every need.
There are many factors to consider when building your own home such as location, your builder, and budget. With this list of factors to consider, assistance from your loan officer, and suggestions from your builder, building your dream home can be more fun than stressful.
Location
When deciding on a location on which to build your new home, traditionally, you can choose between a lot or land. With a lot, it may be in a new or established neighborhood and usually closer to things like shopping, highways, and your neighbors. If you prefer to be further away from your neighbors and want a large amount of space, the drawback is that you are further away from amenities.
This is one of the most important factors to consider as your location is permanent. Take some time to explore the areas that you will take into consideration. Think about traffic, distance to landmarks, and your desired amount of outdoor space.
Before committing to a space, it may be a good idea to bring a builder to discuss how complicated it may be to get what you want from your property and home. Needing to make extensive changes to the property's topography and landscape can significantly impact your budget.
Builder
It is critical to choose a builder that is trustworthy, reputable, and easy to work with. Remember that you will be working with this builder throughout the entire process, so selecting somebody that focuses on providing excellent service and quality workmanship is key.
Based on your specific needs and budget, there are three different types of builders to consider: track builders, semi-custom builders, and custom builders. Take time and care in your selection process: research which type of builder best suits your needs, along with their reviews, warranty, financial stability, and what services they offer.
Budget
Another key factor to consider is your budget. When determining your budget and allocations, it is a great idea to meet with a loan officer to discuss what you can comfortably afford, if you need to sell your existing home first, and how much to allocate for each part of the process.
Some budgetary items to think about are cost of construction in your desired location, tax benefits, down payment, and a slush account (money set aside for unforeseen costs.) There are quite a few online house planning services that offer a calculator to help estimate the cost to build. Often presenting this plan to the bank will make arranging financing a less confusing process.
Construction Finance
Financing your home build is not the same as obtaining a regular mortgage for a preexisting home. In order to get started, a construction loan or line of credit is necessary to fund the purchase of your lot or land and to pay subcontractors and suppliers for supplies and labor.
Once your home is complete, typically a mortgage or new loan is needed to pay off the construction loan or line of credit. With the completed home as collateral, often the interest rate for this mortgage or second loan is lower than the construction loan or line of credit.
Another option is to obtain a construction-to-permanent loan which only requires one loan from building and beyond. Just like with a construction loan, this loan type also requires a down payment, typically 20%, that only requires payments on interest on the balance. Oftentimes, the interest rate is variable during the construction period. When construction is complete, the loan is converted into a permanent mortgage with 15- or 30-year terms and fixed and adjustable rates. Speak with your loan officer to determine which type of loan is best for you.
With proper planning and a solid relationship with your lender and builder, building your own home can be a fun and rewarding process. Designing every aspect of your home to your exact needs is every homeowners dream. Contact one our expert local loan officers at First Savings Mortgage to start building your dream today.