Building a Home Guide

1. Talk to a Mortgage Lender

Knowing how much you can get approved for is a wise decision before looking for a location to build your home. Financing for a newly built home is different from purchasing an existing home.

You will need a construction loan to fund the project if you don’t have the cash to pay for the land and the building. There are alternatives to how this is done, and since this is a specialty-type loan, there are fewer choices.   

You can finance the land and the construction separately and then pay off those loans with a traditional refinance after completion. Some banks will do what’s called a construction-to-permanent loan. This type of arrangement finances the build, and then the loan converts to permanent financing after certain milestones are attained.

Construction loans typically come with a higher interest rate than permanent standard mortgages. There are also strict rules about the timeline for construction and how the funds are disbursed.

2. Room and Spaces: Decide What Your Family Needs

Taking your time to think about what home plan is best for your family requires a lot of research and planning. What are your needs now and for the future? How do you envision your need for a home if you have kids, work from home in a new office, or when you retire? 

Here is a list to start thinking about what you need or want.

 Master bedroom

Other bathrooms

Room Types

• Master bathroom
• Other bathrooms
• Kitchen
• Entry Foyer
• Living room
• Dining room
• Walk-in kitchen
• Laundry
• Playroom
• Home theater

Outside living: According to the National Association of Home Builders, outdoor living has been a top priority for homeowners. Here are some of the top living spaces to consider. 

Outdoor kitchens are great for entertaining and increasing the home’s value. According to Zillow, homes with outdoor kitchens sell for about thirty percent higher than expected. Outdoor kitchens also make it convenient for everyone to help out.

Social spaces: Social spaces for a home could be anything from 

Backyard fire pits: Having a fire pit outside is popular because it’s a great way to gather around the fire and have some hot chocolate. 

Play area: Play areas for kids or adults are popular. This includes having an outdoor gym, bocce ball, swings, tree house, etc.

3. Select a Home Style

Depending on the location, you may want a home style matching your lot. There are so many different house styles out there. 

Styles of home

• Country French-style homes
• Colonial Revival
• Tudor House
• Craftsman bungalow
• Cottage House
• Mediterranean House 
• Contemporary

4. Choose a Location

The location of the site where you decide to build a home is a big deal because if the house is on a top of a hill, you will need to select the right plan that goes along with the location. On top of a mountain can have great views, but what about any potential environmental factors such as mudslides and maintenance? 

You will need to be cautious of the terrain because all this can affect the cost of building the home.

You also have to consider how large you want the house to be. How big do you want your backyard to be? Do you want a swimming pool, a garden, or an outdoor living space?

Depending on your selected home style, you also have to think about where the sun sets. This may be important depending on where you decide to live. 

• Hire a real estate agent: getting a real estate agent to help find a great location to build a home is a great start. Hiring a real estate agent will help address zoning restrictions, land use, and other pitfalls.
• Check out the location home values: You want to make sure the homes nearby are going up in value because if you ever want to sell the house, you want to make sure you gain some profit. If you don’t sell it, but the value increases, you can build some healthy equity.

5. Get a Cost-to-Build Report

A Cost-to-Build Report is a great way to give your home-building project visibility into the general costs. A Cost-to-build home will include the following:

• Foundation: Depending on where you build the foundation, costs can vary. Do you need a basement and retaining walls? How much grading needs to occur?

• Heating, ventilation, and air conditioning (HVAC): This system is responsible for cooling and heating your new home. This unit includes the furnace, air conditioning, ducts, and vents. 

• Rough framing: These costs vary greatly depending on where you are building and the home’s square footage. Will the walls be stucco or brick? How much is the labor to finish depending on what you are using?

• Floor covering: Includes all the flooring and other material needed for floor covering. The cost will vary depending on the floor you want. Hardwood, stone, or vinyl can all have different prices. You will also need to decide what percentage of the house will have carpet to include this cost.

• Exterior finish: Here, you will see the cost of the exterior finish. Think about what you want. 

Here are all the options out there:

• Stone
• Vinyl
• Metal
• Brick
• Board and Batten
• Log Wood
• Vertical Wood
• Wood Shingle
• Fiber Cement
• Stucco
• Imitation Stone/Brick
• Engineered Wood
• Concrete
• Glass
• Steel Log

• Appliances: Find out if the home builder will supply the appliance. This includes a dishwasher, garbage disposal, and range. The Cost-to-Build Report should also include other appliances such as freezers, microwaves, and refrigerators. 
• Windows: Remembering to have present windows that provide lighting in your home will be necessary. The types of windows you select could vary in price because of the variety of materials. 

Types of Window Material:

• Wood Windows
• Vinyl Windows
• Aluminum Windows

Window Styles:

• Casement Windows
• Awning Windows
• Slider Windows
• Bay and Bow Windows
• Picture and Geometric Windows
• Garden Windows

Once you have decided on the details of your windows, make sure you choose an energy-efficient glass option. The glass options include gas fill, Low-E, double pane, or triple pane. 

• Interior Finish: This includes drywall finishes, sheetrock, kitchen and cabinets, and all paint. 
• Roofing: This includes any material used on top of the plywood sheeting. The material could be metal panels, shingles, copper, and gravel-style roofs.

Here are some types of roofing materials to compare:

• Electrical: This includes all wiring installed, including an outlet and lighting fixtures and the main connections from the available power source to the home.

• Plumbing: This includes all plumbing installed. For the bathroom, kitchen, and utility rooms, a water heater and the main connection of the water and were lines.

• Special features: This includes things such as water filters and softeners, central vacuum systems, alarms, programmable thermostats, fire sprinkler systems, solar panels, swimming pools, hot tubs, fountains, home theater systems, and anything that is considered special. 

6. Hire a Contractor

If you have never dealt with contractors, you want to get familiar by interviewing at least three to six licensed contractors before you hire them. Even if your realtor gave you a recommendation to a contractor, it is still a best practice to talk to other contractors. 

Here is what you want to do before hiring a contractor

• Check their reference and license number: Ask the contractors for references and talk to those individuals to see how satisfied they are with the work. 
• Interview contractors: 
• Have they taken projects of your size? How long have they been a contractor?
• Are you licensed?
• What type of insurance do you have
• Are you familiar with your local building code requirement and the permitting process?
• Can you provide a list of references?
• Do you hire sub-contractors for your projects? 
• Who will be onsite to supervise my project?
• What kind of written warranty do you have?
• What are your payment terms?
• Do you see any challenges with this project?
• Do you handle all required building permits?
• Once you have interviewed your contractors and narrowed them down to the ones, you would like to work with, investigate their work, and see if you can go check out a current job site. 
• Get Bids: Once you have your list of contractors, have them bid on your project. You will need to give them as much information as possible. Make sure everyone has the same information to provide you with a close estimate. 
• Communication and Ethics: Make sure that the contractor you are working with has great communication and is ethical. Sometimes the contractors who give you a cheaper price could be a sign of a bad contractor. 
• Sign a contract: Make sure everything you and the contractor agreed to is written down so you can have a successful project. Have milestones in the contract as much as possible to ensure they hit the deadlines and that things aren’t delayed. 

7. Think About Customization

If you have a vision for your dream home with unique customization features, then you need to think about what those are and have them planned out to be reflected in your Cost-to-Build Report. 

Here are some of the most popular custom home features

Outdoor living areas:

• Wine room
• Custom swimming pool
• Laundry chute
• Bowling alley
• Mother-in-law detached house
• Home gym
• Library
• Spa-style master bathroom
• Oversized garage

8. Get Blueprints

Your contractor will want to see the blueprints before committing to your project. One of the best ways to get one is to shop online. Some sites, like eplans, have various styles and sizes, including a cost to build a report.  

Other websites that offer home plans

There are countless sites you can visit for home plans. Here are some of the best, most popular sites.

1. Architectural Designs: An award-winning company that features home plans from more than 200 architects and residential building designers.
2. Builder House Plans: This site lets users customize a plan and provides building cost estimates based on zip code, foundation type, and other considerations.
3. Dream Home Source: Along with its home-plan search function, it’s easy to search by individual designers who feature their work on this site.
4. House Plan Shop: Allows you to save favorites for later purchases by providing your email address to register for a free account.
5. The House Plans Guide: This site lets you create a full set of blueprints for hands-on homeowners.

Floorplanner: For homeowners who want some control without having to create the actual blueprint. You can recreate existing floor plans and drag furniture and other items into the floor plan for more interactivity!

9. Select the Materials

When selecting the material to build your home, consider the cost and life expectancy of the material. Also, think about energy efficiency and aesthetics if you’re planning to have this as your forever home. 

Here is a chart of the material to consider:

10. Home Building Process

Once you have made all your decisions on what you want and have everything in order, it’s time to start building the home. Here are the typical phases of the home-building process you will see.

• Phase 1:Plans and permitting
• Phase 2: Site Work and Masonry Phase
• Phase 3: Framing
• Phase 4: Plumbing
• Phase 5: Electric
• Phase 6: Insulation, Drywall
• Phase 7: Flooring
• Phase 8: Landscaping and Exterior Aspects

11. Buy Your Furniture

Once your home is completely built, it is time to buy it and decorate it.

Now that you have learned how to build a home, you may have questioned whether you should buy or build a house. 

Here below, you will find some answers to questions that you may have.

Should I Build or Buy an Existing Home?

Many homebuyers wonder if building a home makes more sense than buying an existing one. The thought is it should be cheaper to build your own, but in most cases, that’s not true.

When you compare the average building price compared to buying an existing one, building your own is generally more expensive. There are many variables that can influence this, and each case is different.

Is Building a House Cheaper Than Buying?

On average, in 2022, building your own house was 10% more expensive compared to purchasing an existing one. The cost of building a new house includes buying the land, excavation, permits, inspections, current material costs, and other costs associated with building a home.

What can change the math is if you already own the lot you want to build on. You want to build it depending on how long you have held it and if it’s already properly zoned for the home. So, if you own the lot and know it is properly zoned, it could be up to 20% less to build than to buy.

Let’s compare some of the factors and look at the benefits of building versus buying.

What Goes Into The Cost of Building a Home?

First is the acquisition of the lot you want to build on. Depending on the area you want to build in, how much grading the lot will need, among other things, can greatly affect your costs.

Secondly is the cost of construction. This can vary a lot depending on your contractor, the actual labor, and the costs of the materials you plan on using.

Suppose you have the skill and the time; you can do some of the work yourself, saving you a percentage of the costs. Be sure you understand the building codes so that you don’t have the work redone after an inspection.

Other costs:

• Site Fees: Home builders have many site fees, including permits, water/sewage inspections, architect fees, engineering, and other various fees.

• Overruns: Constructing a home is never an exact science when figuring costs, and it’s common to go over budget. You should build in a 5 to 10% contingency to make sure you can cover unexpected building costs. 

What is The Timing of Building a New Home?

If the building is what you are convinced to want to do but aren’t ready to fund the build fully, maybe look at buying the lot you want in the area you desire and then build years down the line. This locks in some of the costs now and becomes one less variable you have to worry about.

Buying an existing home

If you dream of building a home you have always wanted and can’t find an existing one that fits your needs, you have many decisions to consider.  

Buying an existing home has lots of benefits over the building, such as:

• Fixed costs, you know how much the home is going to cost you without the worry of overages and delay
• Financing is easier to get, and usually, many more choices of programs
• Seller/Builder may help with financing and other upgrades if its new construction
• More choices of where you can live as finding a buildable lot in your desired area maybe hard

The market, in general

When deciding what and when to build or buy, many variables drive the cost and choices you have.

• Inventory shortages:  There has been for years an inventory shortage of new homes on the market. Builders constrict the number of homes they build to ensure demand and defend against downturns that could stick them with inventory they cannot sell.
• Shortage of labor:  Finding skilled construction workers has become harder and harder. This raises the price and the timing of building new homes.
• Material costs:  Building costs continue to rise as much of what goes into a home is imported from overseas. Supply chain issues have gotten worse, and the price of lumber has seen a dramatic increase over the years.

Rising home values

Home values have seen a drastic rise over the last few years. If you are a first-time home buyer, this has made it difficult to find a home. The good news is from this buyer’s perspective; we are starting to see home values cool and even come down in price. This will help with your home buying power, and we should see more homes on the market.

Building vs. Buying an Existing Home

So, what’s better, building a home for yourself or buying an existing house? Although this article touches on some of the big-picture questions you have to ask yourself, the decision is never easy.

The variables are numerous, and there is no clear answer:

• Construction costs where you wish to build, possible labor shortages, costs of materials rising
• Pricing trends for homes in the area you want to live
• Finding a lot or a home you can rebuild
• Can you do some of the work yourself
• Where will you live as you build your home if you are selling your current home
• Being able to find the correct financing

There is no definitive answer to this question. The only way to find out is to start looking at the options in your area and your financial situation, run the numbers, and think through your options.

If you want to start speaking to real estate agents, lenders, and a contractor is an excellent place to start. See if you can get ballpark pricing and compare it to buying an existing home.

Building a home is a great option but has many pitfalls if you are not prepared and have enough experience and a good contractor you can rely on. Do your homework and make a truly informed decision before moving forward. Ready to see how much you can afford?