When it comes to building your own home, don't let the many decisions you need to make dissuade you. Although you may hear the occasional horror story from family or friends, building your own home can be very rewarding—especially if you have a plan.
6 Important Considerations Before Building Your Own Home
When building your own home, be sure to consider these six factors before getting started.
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 a plot of land. You're stuck with what you bought. The adage "Location, location, location" rings true. Buy the land first, and make sure you have access—a road that leads to it.
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, a septic tank, a propane tank, and a well. If you need a well, find out how deep you will need to dig. You don't want to discover later that a well is not feasible.
3. Your Credit Rating
Many owners take out one loan to buy land and another to build. If your FICO credit score is not high enough, or if 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, so be sure to 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," which will pay off the land loan and the construction loan.
4. Ability to Supervise
If you are uncomfortable managing contractors and subcontractors, 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% to 30% of the cost to build, but if you don't want to be on the phone calling subcontractors 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 by 10% to 15%. 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 that 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 the potential cost to rebuild.
Other Precautions to Take
There's always a chance that things will go wrong. However, these additional precautions can help you stick to your plan and ensure a smoother building process.
1. Hire an Architect, or Choose a Standard Building Template
If you prefer a custom home, you will need an architect to draw up 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 that the architect meets your needs.
If you choose a standard building floor plan from a template, you will save money. However, if your heart is set on a custom design, 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 three to six months in advance of building. That way, you can take advantage of sales and take your time purchasing. You don't want to find out at the last minute that you are missing an essential item.
Some builder's supply stores and home improvement stores will help you make up a list of the building materials you will need. Most of it is automated. That means you won't need to count the number of studs or cement blocks—you'll have everything you need on hand, down to extra boxes of nails. However, it's always a good idea to order slightly more than you'll need.
3. Create a Building Calendar
Estimate the time needed by talking to contractors who can bring your vision to fruition. This will help you to know whether 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. They will be followed by roofers, finishers, and painters.
By supplying all of the materials yourself and paying your contractors and subcontractors directly, you may avoid mechanic's liens.