Whether you need a credit card to cover college expenses or a mortgage to buy a home, a high FICO score can help to lower costs.
If you want to not only own your own home, but own your dream home, it’s time for you to think about building your own home. After all, it will be easier to get what you want out of a home when you are the one to design it.
How to Make a Budget for House Construction
The first thing you need to budget for is a lot for you to build on. Remember: there is the cost of buying the lot itself and the costs of preparing the lot for building. Clearing away trees, blasting rocks, improving drainage, and similar tasks all cost extra. If your lot has no water or sewer hook-ups, you’ll need to pay to have those put in as well.
The cost of building your home depends on the area you are building in and the materials you use, but typically should cost you between $100 and $200 per square foot, or up to $300 per square foot if you want a basement. If you use expensive materials or build in a pricey locale, you could pay more than $400 per square foot.
Also, if you use an unusually shaped design then your price could increase. Unusual shapes require more labor and more unusual building materials, so they cost more.
Posts or a Basement?
A basement increases the cost of your construction by as much as $100 per square foot. Building on posts instead of a basement foundation eliminates most of this extra cost.
Furthermore, using posts allows you to build on steep slopes and over rocky ground. Having those options allows you to buy a cheap lot that would need a lot of expensive preparatory work for a traditional house and basement to be built.
A Typical Construction Timeline
Assuming that the work is done by professionals who have sufficient resources, a typical construction timeline should be similar to this:
- Breaking ground: 1 or 2 weeks
- Digging and pouring the foundation: 1 or 2 weeks
- Putting up the framing: 1 or 2 months
- Installing the siding, roofing, plumbing, wiring, insulation, and other such details: 2 or 3 months
- Putting in the floors: 1 or 2 months
- Adding the finishing touches: 2 or 3 months
Getting a Loan for Building Costs
You need two loans for construction. The first loan is actually called a construction loan, and it is a short term, interest-only loan that will finance most, though not all, of your construction costs. When the house is almost complete, you will then refinance the construction loan into a traditional mortgage. The construction loan has high interest rates but also has good terms for your construction needs. The mortgage has lower interest rates and is easier to manage over the long term.
Most lending institutions consider construction loans to be high risk loans. You need good credit to qualify for one. You will also need a down payment that is between 20% and 25% of the total.
House Building Tips
- Make detailed plans before doing anything else.
- Get good estimates for what every step will cost you and then budget more for each step than that amount.
- Be careful in choosing your contractors.
- Read all contracts before signing them.
- Don’t try to cut costs by using inferior building materials.
- Arrange all of the necessary financing before you start building.
- Research the local building codes and ordinances before you start building.
- Set up an emergency fund before you start. You will eventually need it.
Is building or buying cheaper?
If you keep your costs low, you can build your own home for less than the price of most of the homes you could buy. If you don’t keep your costs low, buying could be cheaper. The answer also varies depending on building laws and housing prices in your area.
A Final Word
Before you do anything else, talk to some local contractors, asking them what you should expect when building in the area. You should also ask this of people who have built their own homes before. The more you know at the start of construction, the easier the process will be.