The process of building a home can be both exhilarating and terrifying at the same time. If you've never built a home before, you'll need to make sure you know what to expect during the home building process. In simple terms, you'll have to decide where you want to build a home, decide what floor plan you want, which builder will build your home, how permits can influence the process and what type of loan you'll need during or at the end of the home building process.
Selecting Your Home Site
Picking where you'll build your home is one of the more important decisions you'll have to make. You can buy an individual lot just about anywhere or you could select a lot in a neighborhood that a developer is building. If you buy in a neighborhood, be aware that you may be limited by what building contractors you can use. You could have to deal with a homeowners' association, too, which could limit what type of home you build and what you do on your property if there are covenants and restrictions.
Location can make or break the home you will build. If you pick a great location near your work and the areas you enjoy visiting, you won't feel like you have to travel long distances to accomplish everyday tasks. Pay close attention the schools your future home would be zoned for as well as the location of any amenities that you must have near your home. Unfortunately, land in an ideal location often costs more. You may have to compromise in order to balance your budget with your perfect location.
Picking Your Building Plans
After you pick your land, you'll have to pick the home you want to build. As far as building plans go, you can buy a generic set of plans, hire an architect to make a set of custom plans or pick a pre-approved plan from a developer of a neighborhood. Each option comes with both benefits and drawbacks. The cheapest option, picking a plan from a developer of a neighborhood, is likely already included in the price of your home. However, you won't be able to make many, if any, changes and your house may be an exact clone of a house just a few doors down. Generic plans can be used by any builder and are less expensive than custom plans, but you won't be able to make any major changes without consulting an expert, which can be costly. Completely custom plans can allow you to do almost anything you can dream up, but hiring an architect to draw up the plans can cost tens of thousands of dollars.
Choosing a Builder
After you've selected your plans, it's time to find a builder for your home. The builder or general contractor you choose to complete your home will be responsible for completing one of the largest purchases of your life, so make sure you do a ton of research. Get references and interview several builders before selecting a couple finalists to bid for your job. Make sure to ask for detailed bids that will contain every cost of the project. After reviewing the bids, choose your builder or general contractor and get started building your home.
When your house is being built, someone will need to deal with the local municipality and pull the necessary building permits. Most of the time, your builder will take care of this, but if you're building your own home or acting as your own general contractor, you may have to deal with the permit process yourself. Building permits exist to ensure that new houses are built to the proper building codes. Those codes protect the current and future owners of the home both from a safety and an investment standpoint.
Pulling permits can be a burdensome process that can add significant delays to the building process if your builder doesn't have their act together or if your local municipality is understaffed. Talk with your municipality or your builder before you start building to see what you should expect with the permit process.
Know What Type of Loan You'll Need
When building your home, you'll have to pay for supplies and pay the contractors as the home is being built. If you don't have the cash to pay these costs up front, you'll need to take out a construction loan. Construction loans are short term loans that allow you make payments, called draws, to the builder as needed to complete the home build. You'll likely only pay interest on the balance borrowed during the home build process. You'll have to take out a mortgage after the home is completed to pay off the construction loan.
A variation of a construction loan, the construction to permanent loan, will pay the builders like a construction loan but will turn into a mortgage when the house is complete. Construction to permanent loans are riskier for banks, so expect to pay a higher interest rate or a higher down payment to obtain this type of loan.
Finally, if you're building in a neighborhood with a developer, you may just need a standard mortgage. Many developers will pay for the construction costs until the home is complete, at which time you buy the home with a mortgage. The developer likely includes the cost of this arrangement in the price of your home.
Only Get Started When You're Ready
The process of building a home involves making many important decisions. Make sure you can afford the home you're considering and spend plenty of time researching each step of the process. Don't move forward until you're comfortable with every part of the process or you may run into problems with one of the largest purchases of your life.