Financial Decisions to Make Before Building Your Own Home
Do not let the many types of decisions you will need to make dissuade you from building your own home. Undoubtedly, you will hear from many well meaning relatives and friends who might offer up horror stories that they've heard, but building your own home is not that difficult... providing you plan. Planning can also remove or reduce obstacles and other points of contention sometimes inherent in home building.
Six Important Considerations Before Building Your Own Home
1. Where will you build? Location is everything. You can put up a bad wall, tear it down and build it again, but you cannot move land. You're stuck with what you bought. Heed: the adage location, location, location. Buy the land first and make sure you have access, a road that leads to your property.
2. Are utilities available to your lot? Some remote locations will not have utilities readily available. In that event you might need to rely on a generator, septic tank, propane and well. If so, find out how deep you will you need to dig for a well. You don't want to discover later a well is not feasible.
3. Your credit rating. Many owners take out one loan to buy land and another to build (construction). If your FICO score is not high enough, or you have too many delinquent payments or tight ratios, you might not qualify for a loan. Get pre-approved for both types of loans.
Purchase-money loans to buy land and construction loans are specialties that not every bank offers. Shop around. Make sure your land loan lender is willing to subordinate to a construction loan. When your building is complete, you will probably want to take out a third type of loan, called a take-out loan or permanent loan. This third loan will pay off the land loan and the construction loan.
4. Ability to supervise. If you are uncomfortable managing contractors and sub-contractors, you might want to consider hiring a general contractor or project supervisor. Bear in mind that general contractors should be licensed (with an unblemished record); however, a general contractor will also take a percentage of your home building costs.
This amount can be 20 percent to 30 percent of the cost to build. But if you don't want to be on the phone calling sub-contractors every day asking why they are not on the job, a general contractor might be your answer.
5. Adequate financial resources. Always pad your expenses between 10 percent and 15 percent. Having that extra cushion in the bank or the ability to get your hands on those funds should an emergency arise, will give you peace of mind. If you don't need to touch the funds, you'll sleep better at night knowing you could.
6. Obtain insurance. You will want to manage your personal risk and liability involved in building your own home. Talk with your insurance agent about worker's compensation, personal liability, theft and fire, including cost to rebuild.
Additional Precautions to Consider When Building Your Own Home
When I built a home in Mexico and my ex-husband managed the building process, many things went wrong. From the contractors not following blueprint plans for a sunken dining room to building a spiral staircase that continued unauthorized through the ceiling of our master bedroom up to the roof. Swindlers allegedly demanded payments on the side for various violations. I'm still unsure whether placing sandbags in the concrete foundation would actually prevent the slab from sliding into the sea, even with plenty of reinforced rebar.
It was also extremely difficult to import materials to Mexico. It is much easier to build locally and to source local materials.
1. Hire an architect or choose a standard building template. If you prefer a custom home, you will need an architect to draw a blueprint. Spend time thinking about the type of home that is important to you, and create your own sketch. This will help to ensure the architect meets your needs. If you choose a standard building floor plan from a template you will save money, but if your heart is set on custom, it's worth it to hire an architect.
2. Buy your materials in advance. Consider renting a storage unit or using a couple of empty garages for materials. Begin accumulating your materials 3 to 6 months in advance of building. This way you can take advantage of sales and take your time purchasing. You don't want to find out at the last minute you are missing an essential item.
Some builder's supply stores and home improvement stores will help you to make up a list of the building materials you will need. Most of it is automated. When my husband and I built a garage, our local home improvement store supplied us with all of the materials. We never had to count the number of studs or cement blocks. We had everything on hand, down to extra boxes of nails. Order slightly more than you will need.
3. Create a building calendar. Estimate the time needed by talking to contractors who can create your vision. This will help you to know if you're keeping the job on schedule. You will need a foundation, most likely slab, which will require a cement contractor. Framers will construct your walls. Drywall hangers come after the electricians and plumbers. Followed by roofers, finishers and painters.
Tip: By supplying all of the materials yourself and paying your contractors and sub-contractors directly, you may avoid mechanic liens.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a broker-associate at Lyon Real Estate in Sacramento.