Building a home lets you personalize every aspect of where you live. You might also skip the renovations and repairs needed after purchasing an existing property, but the financial aspects of the planning and construction are less straightforward than buying a home. This guide explains the most important financial steps to building a house to know exactly what you’re signing up for before committing to any plans.
1. Finance the Land Purchase
You’ll need a plot of land to build your future home, but most people can’t afford to do that with cash. Land will be more expensive in certain cities, depending on nearby property values and real estate appraisals. Talk with privatized and federal lenders about getting a land loan to cover the initial purchase cost before your dream location sells to another buyer.
2. Inquire About Contractor Estimates
Numerous contractor teams will transform blueprints into a home. You’ll have to find construction experts, electricians, plumbers and more to pull everything together. They’ll each have different fees and schedules, so get estimates to compare prices. You may have to pay an average of $155 per square foot after adding all contractor fees together.
After you have a rough idea of how much you’ll need to pay your contractors, you can get a second loan to cover the labor fees. Keep in mind that you may need to pay multiple loan bills each month while waiting for the project to finish by this point. You should ensure that your income can cover these expenses while the construction lasts.
3. Get a Construction Loan
Construction loans are short-term loans that can pay for your home’s construction. It may cover just the labor or the supplies needed as well. Unlike other lending options, borrowers must pay their construction loans when the work finishes. If you’re unsure that you can pay the entire balance by that point, discuss a construction-to-permanent loan with your preferred lender. After contractors wrap up their work, the loan converts to a standard mortgage and gives you more time to pay it off comfortably.
4. Find a Comprehensive Mortgage
If the idea of handling numerous loans makes you worry, you can always find a comprehensive mortgage towards the end of your home-building process. Use it to pay off the smaller loans and only worry about one primary payment per month in addition to any other traditional mortgages. It’s much more budget-friendly to juggle two debts with fixed interest rates than five or six.
5. Sell Your Current House
When your new home is nearly move-in ready, sell your current house. The average home sells in six days or less and garners more than the asking price. Use whatever money you have from the sale to pay off a substantial part of your home-building loans or get out of debt completely. It’s automatic financial relief that becomes the light at the end of the tunnel for homeowners worried about taking out so many loans.
Consider Financial Steps to Home Building
These are crucial financial steps to building a house, so remember them as you begin your home construction experience. Getting quotes, comparing loans and finding the right financial assistance for your project will make your dream house possible without requiring decades of saving to pay out of pocket.