With home prices soaring in most of the United States, more buyers are looking to build homes instead of buying. The process is longer, more difficult to finance and offers its own unique set of challenges, but for many, it’s the only viable option for the foreseeable future.
While building has its challenges, it also has its perks. You get the home you want and it’s brand new, which means you’ll have fewer emergency repair surprises.
If you’ve decided that building is the right option for you, you may be wondering how the process works. The good news? It’s not as complicated as you thought.
The first and most important thing to figure out is how you’ll finance your build. Most people go with a construction-to-permanent loan, which transitions to a regular mortgage after the home is complete. With this type of loan, you have one closing.
FHA and USDA loans may be available in your area, but securing this type of financing for a new build can be tricky.
Lenders will typically require at least 20% down of the expected mortgage amount as a down payment. Construction-to-permanent loans are riskier because the home does not exist yet. If you walk away, the lender could lose a lot of money.
If you don’t have the cash, you may be able to use your land as down payment – if you own the land outright.
Find Your Piece of Land
Once you know how you’ll finance the build, you can start looking for your piece of land if you haven’t done so already.
If you own the land outright, you can move right to finding your dream home plans. Otherwise, you’ll need to start searching for land for sale in your desired area.
If you don’t have the cash for your land, financing can be tricky. Most banks won’t finance undeveloped land. Owner financing is an option, but make sure that you do it right.
Find Your Dream Home Plan
You’ve secured financing and found the perfect piece of land. The next step is to find your dream home plan.
Make sure that you understand the restrictions on your land. You may be required to build a home of a certain size and/or style. There may also be restrictions on the home type. For example, you may not be permitted to place a mobile home on the property.
Site Prep and Building the Home
The next step is the fun but challenging part. Before any building can begin, your land needs to be prepped for your new home. This can include:
• Grading and clearing
• Installing a septic and well
• Connecting to the city sewer and water line
• Running utilties, including electricity, phone, cable, gas, etc.
• Building a road to the property
Once the home site is ready, workers can come in to start building the home. Throughout various stages of the home-building process, inspectors will come out to make sure everything is up to code.
Inspectors will check:
• Rough framing
• Plumbing systems
• Electrical systems
• Mechanical systems
• Final inspection
Once the final inspection is complete and if everything is in compliance, the inspector will provide a certificate of occupancy. You’ll go through a final walk-through, and if the home meets your standards, you can move in.