What are the Financial Steps to Building a House? A Guide
Building a custom home is a significant investment, and understanding your financial situation and what works for your family is paramount. At Buildable, we specialize in guiding clients through the intricate process of land evaluation and purchase, ensuring that every step aligns with their budget and vision. Your dream home is within reach, and with expert guidance, the journey can be as rewarding as the destination.
The following are 4 financial steps to consider when building a house.
Create a Budget: Begin by working with a professional to create a high-level estimate for the project. This should include construction costs, land purchase (if applicable), permits, fees, and contingencies for unexpected expenses. Buildable provides a free calculator here.
Meet with Lenders: Explore your financing options, including a construction loan that converts to a traditional mortgage once the project is complete.
Pre-Construction Costs: Allocate funds for pre-construction expenses such as land purchase (if not already owned), architectural and engineering fees, permits, and surveys. These fees can be recouped through a construction loan, but that won’t be funded till a year or so from now.
Contingency Fund: Set aside a contingency fund (typically 10% or more of the total budget) to cover unforeseen expenses, design changes, or construction delays.
Embarking on the journey of building a custom home requires meticulous financial planning and management. A crucial first step, before even considering potential land purchases, is to evaluate if your dream home is attainable within your budget. The following are some important questions to guide your initial assessment:
What is Your All-In Budget?
How Much Can You Afford for the Down Payment?
Which Areas Are You Considering & Will it Work?
What is Your All-In Budget?
A practical approach is to determine the monthly payment you can afford and use a mortgage calculator to estimate the total loan amount at the current interest rate. While consulting with a bank is essential, this preliminary step helps set realistic expectations.
At Buildable, our projects typically start at $1 million all-in, a reflection of the combined costs of land acquisition and construction. You can use our calculator to figure out if your all-in budget maps to your vision.
How Much Can You Afford for the Down Payment?
Construction loans often require a minimum of 20% down. By assessing your all-in budget, you can quickly gauge the feasibility of proceeding with a custom home project. You can get a lot loan, which would help reduce your down payment, but by the time construction starts you will need to be in the project 20%.
Which Areas Are You Considering and Will It Work?
We advise allocating 25% - 35% of your budget to the lot purchase, inclusive of significant improvements needed to render the lot buildable. With Buildable, you have an expert partner to evaluate land through the lens of construction requirements, ensuring your budget remains intact. Utilize platforms like Redfin.com or Zillow.com to explore land prices in your desired areas and gut check what’s possible. While lot prices can often be negotiated, they are usually only about 5% - 20% under ask.
Is it Financially Smart to Build a House?
Building a house can make you a financial genius under the right circumstances. Most of our builds come delivered with significant equity. Here are some factors to weigh when determining if building a house is financially advantageous to you and your family.
What you want without renovating: Building a house allows you to design a home that meets your specific needs and preferences. This can save you money on renovations or modifications later.
Energy Efficiency: New construction often incorporates modern materials and technologies that can lead to greater energy efficiency. This will result in lower utility bills over time.
Lower Maintenance Costs: New homes typically require fewer immediate repairs and maintenance compared to older homes, which can save you money in the early years of ownership.
Potential for Appreciation: If the housing market in your area is strong, a newly built home will likely appreciate in value over time. New construction in San Diego is typically delivered at a price per square foot way above the median because they are highly desired.
Warranties: Many builders offer warranties on their work, which can provide some peace of mind in terms of potential repair costs within the first few years.
Build Your Home in San Diego With Buildable
Building a custom home takes an immense amount of time and effort, but with the right team, the end result will be well worth it. The process can appear overwhelming to those who start the journey alone; however, building your dream home can be simple when you approach the process with experts by your side who can guide you through every step. Buildable specializes in luxury custom home construction, meaning we have the experts on our team that you need to have a stress-free home build, and create the luxury home of your dreams. We have over 40 years of home building experience within our team, and over 1,000 homes built. Read about our team, talk to us, and get the answers to questions you may have about starting the custom home building process in San Diego.
Use our custom home cost estimate calculator to learn more.
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