When buying a new home, the NFI Management team explains there are three options for the kind of home you can buy: a resale home, a spec home, or a custom home. Most homebuyers take the first option; purchasing a resale home – a house someone else has lived in.
Spec homes are new homes that have not had any previous owners. Property developers build them on the speculation that they will be able to find buyers. These properties commonly involve party walls, meaning two or more houses are combined together and divided by walls.
So, when you are planning to renovate a spec home, you might need to hire a party wall agreement surveyor to issue a party wall notice. This will help avoid future disputes and complaints with your neighbors.
Why would anyone forgo the convenience of buying a resale or spec home and choose instead to go through the trouble of building their home from scratch? A custom home gives buyers total control: you have complete freedom to determine every aspect of the house.
Unlike a resale or spec home, where the buyer must accept the design choices of the previous owner or builder, custom homes meet the buyer’s unique needs. However, this is only if the buyer has done their homework before building a custom home.
Most people who build a custom home have never done it before. They often don’t know what to expect or where they should start. As a result, custom home projects have a high abandonment rate; many custom home builders give up midway into their build.
But you can avoid this if you follow our list of the five most important things you should consider when building a custom home. The outlined process will ensure that you have a custom home that meets and exceeds your expectations.
What you should know when building a custom home
1. Your budget
The first thing you want to do is determine your budget. The budget is the foundation on which all other decisions you make during the building process stand. What are the costs you need to factor in when making your budget?
- The land/lot: You must know the price of the land plus the closing costs in the area where you want the house to be. A realtor can give you this information.
- Construction: Your builder should give you the high-range/low-range cost for each home square foot. You can calculate construction costs based on the size of the house.
- Services: These include the fees you pay to the architect (for the drawings), the engineer (for the structural components of the house), and the interior designer (for the finishing).
- Financing: You need a construction loan for your building, and you must know the required down payment and the lender’s interest rate.
2. Building your team
The next most important thing after your budget is team selection. But most buyers prefer to finish their architectural design before they talk to a builder or interior designer. If you do that, your project will likely go over budget because the architect needs to synergize with the builder and designer to create the design.
To avoid problems later in the construction process, it is best first to find a builder with experience with the kind of house you want to build and then have that builder recommend an architect and interior designer they have used before.
3. Decide on the area and select a lot
Only choose an area if it agrees with your budget. You don’t want the value of your home to be too far above or below the average sales price of homes in the area. That would hurt your resale prospects. You also want to look at commute time, schools, and amenities.
Having your builder look at the land before you pay for it is vital. They can see things you might overlook; overhead power lines, deed restrictions, nearby commercial properties, the slope of the land, and lots more.
4. Design your house
This is the part buyers are most excited about, but it is also where many first-time custom homeowners make mistakes. When designing your house, the first thing is to determine your style. You can get ideas from websites like houzz.com and pinterest.com.
A helpful trick is to list your wants versus your needs and make sure to prioritize your needs. Also, consider your life 5-10 years from today and factor that into the design. It is important to design the house with the mindset that you might want to sell it one day; make sure the design appeals to future buyers.
5. Arrange Financing
Your custom home project will not qualify for a standard mortgage. Lenders view custom home construction as risky and will not give you money for the build.
However, you may apply for a construction loan, which you can convert to a regular mortgage after completing the project. Note that you will need to pay for your lot and the closing costs for the land before you can qualify for a construction loan.
Having an experienced builder by your side can help you navigate this financing process safely.