6 Key Facts to Understand About Building a Custom Home
This impressive custom home is what we call a Colorado chalet. It has a rustic design both inside and out.
Few understand the custom home building process until they’ve experienced it themselves, and even those who have often don’t understand the aspects they haven’t experienced (e.g. if you haven’t built a custom home in a subdivision you may not understand how lot covenants work). Six key facts are important to understand when building a custom home, and as part of the process to prepare to build a custom home.
Just the Facts!
When building a new custom home, you need a construction loan. Unlike a conventional home loan that is usually written for 30 years at a fixed rate, the construction loan is written only to finance the building of your custom home, and you may only pay the interest while the home is in the building process. After the home is built, you will need a conventional mortgage loan, which will, in turn, pay off the construction loan. This isn’t necessarily a problem for most home buyers, but because some lenders may consider construction loans riskier, not all lenders will approve you (so shop around!) and you may not get approval until all building permits are secured, or you may need more money available upfront. Read more about financing a custom home in our blog Home Building and Remodeling: Finding the Right Lender .
A contingency budget is an important and almost always necessary part of a custom home building plan. The contingency budget includes money set aside to cover unexpected costs during the construction process. These can include weather issues resulting in offsets to the timeline, material changes, design modifications or changes in the cost of materials. A commonly suggested contingency budget is 5%-10% of the total budget. The good news is if you come in under budget, you get the money back! Read about staying on budget when building a custom home in our blog 6 Ways to Stay on Budget When Building or Remodeling a House .
61% of homeowners 55+ plan to stay in their homes indefinitely, yet 78% of homeowners haven’t done anything to prepare their homes to allow them to age in place (Source: Remodeling ). What is “aging in place”? It’s simply building or remodeling a home to fit you and your family at all life stages and circumstances. It includes such features as a zero step entry from the outdoors, the washer and dryer on the main level and curbless showers. Those building a custom home have a distinct advantage in that they don’t have to remodel later but instead can address these issues from the get-go in planning their home’s layout and features. Read more about how to make your custom home livable for many years to come in our blog Study Says Remodeling Prevents Falls; Preparation an Even Better Solution.
Often you should choose the land before the house plan. The orientation of the land and how you position the home on it is one of the most important aspects of creating a house. Understand how the sun moves across your lot and design the home in relation to this to create a more energy efficient home that takes advantage of natural light, the heat of the sun and the cool of the night, to keep the house cooler during the summer and warmer during the winter. Additionally orientating the house well on the land allows you to maximize outdoor views and take any privacy concerns into consideration. For more useful tips about choosing a home plan, read our blog Building Your Custom Home: 10 Tips to Help You Choose the Best House Plan .
Lot covenants are enforceable and limit the type of home you can build. Most newer subdivisions have covenants limiting the size of your home (usually requiring a minimum square footage), and may also spell out what type of roofing or fencing you can use, the paint colors you use, if you can build a two-story home, if you can have a shed or a host of other issues that could conflict with the type of custom home you desire. Covenants are developed by the subdivision developer to protect property values, give the development a uniform appearance and control what occurs within the confines of the area.
Building a custom home might prove the cheaper option over buying an existing home. In December 2016 the median sale price of a new home in the U.S. was $322,500 (Source: U.S. Department of Housing and Urban Development ) and the median sale price of an existing home was $232,200 (Source: National Association of Realtors ). Yet these numbers don’t paint the entire picture. Moving into an existing property comes with hidden costs, often unseen until after you move into the house. Simple remodeling projects cost thousands — the average cost of a major kitchen remodel in 2016 was $59,999 and an average bathroom remodel was $17,908 (Source: Remodeling). Even if you don’t undergo a major remodel you’ll most likely need to invest money in simple changes and repairs such as painting, or installing new flooring and even the costs associated with those improvements add up quickly.