Building your own house can be an exciting process; it allows you to custom-build your home to your preferences. When choosing a layout, the design, and the finishing touches, you are as limited as your imagination and, of course, your budget. The last thing you want is to have your project stall due to insufficient funds. Generally, the costs incurred in construction are classified as either hard or soft costs; hard costs include all costs of materials, labor, and equipment, while soft costs include intangible costs for items such as licenses and permits. It’s important to understand all these to ensure the project runs smoothly. According to the National Association of Home Builders, the average cost of building a typical single-family house is $296,652, which excludes other expenses like applying finishes and the cost of land. Consider the following financial elements of constructing standard houses to ensure your project runs smoothly.
1. Finance The Purchase of Land
Home ownership is a big deal for most Americans. According to Statista, as of 2022, 65.9% of Americans owned a home. Although some people don’t mind buying an existing house, according to Milestone Community Builders, most prefer building their own standard houses. The first step towards building your home is securing a piece of land, and a key factor to consider before investing in a piece of land is location.
Location, Location, Location is a common slogan for many realtors, and with good reason, typically, land prices differ depending on location. Therefore, when scouting for land to build your home, ensure the price fits your budget. Although a new building offers attractive pricing, brace yourself for the hidden cost of maintenance that may include paying taxes and other maintenance costs.
Property valuation is another crucial factor to consider when buying land for construction; it helps determine a fair selling and buying price. Accurate property valuations are essential in securing the right financing for your property. Valuation methods commonly used in the real estate industry include income capitalization, sales comparison, and the cost approach.
2. Get Estimates from Different Contractors
Estimating the construction costs helps determine the overall cost of building standard houses; it’s an important process for the new property owner and the contractor, as it helps them determine how much profit they’ll potentially make from a project. Factors that can affect a project’s overall cost include uncertain labor costs and fluctuations in materials costs. Although these factors may make it difficult to get an accurate estimation, it’s important to ensure that cost estimates are as accurate as possible. The accuracy or inaccuracy of an estimation may result in prompt delivery or delays of a project.
Working with different contractors throughout the project is essential. These include plumbers, electricians, roofers, and many more. Get quotations from different contractors and compare prices to determine which to work with. An accurate estimation is an important tool for keeping your budget in check. Generally, cost estimation helps in planning, identifying issues, risk mitigation, and enhancing efficiency.
3. Secure a Construction Loan
After getting accurate estimates, your next step is determining how you will finance your project; the construction of standard houses requires sufficient cash flow to see the project to completion. Typically, contractors work on one project and move on to the next after completion. Failure to secure enough financing causes the project to drag, interfering with the contractors’ work schedules.
One of the ways to finance your project is through a construction loan; unlike other types of loans, a construction loan is a short-term facility whose sole purpose is to fund construction. To secure this loan, provide the lender with a detailed budget, building plans, and the estimated construction timeline. The disbursement of the loan will depend on the project’s progress; typically, the lender will disburse money after a major project milestone is achieved, for example, after laying the foundation of your house.
As with many different types of loans, you need to be financially stable or prove your ability to repay to secure a construction loan. It’s essential, as Miranda Marquit cautions, that the lender doesn’t finance the entire project. You must make a 20% down payment and have a credit score of at least 620 before the funds are released. In addition, borrowers must repay construction loans by the time a project is completed.
4. Find a Comprehensive Mortgage
If you don’t have the money to repay the loans after construction, consider working with your lender to transform the construction loan into a more permanent loan, such as a mortgage. Mortgage lenders are often skeptical about lending money for construction owing to the risks of constructing standard houses. Moreover, you’ll be asking your lender to dish out money for something that doesn’t exist. In any case, after construction, the building can act as collateral against the loan, which makes lenders more comfortable and willing to finance you.
Regarding loan eligibility, the criteria may vary depending on the lender and the type of loan you need. However, a few standard requirements for most mortgage lenders include variable income, good credit, a down payment, and a low debt-to-income ratio. According to Assurance Financial, to qualify for a change of construction into a permanent loan, your property must be a single-family, one-unit home.
5. Liquidate Your Assets
Another way to finance the construction of your standard houses is liquidating some of your assets. Unfortunately, this isn’t an easy decision for those used to hoarding their assets. But does it make sense to hold on to assets that can potentially provide the funds you need during construction? Don’t allow yourself to bleed when you can turn your idle assets into cash.
Before selling your assets, getting quotations is essential to ensure the money you get is sufficient for the intended purpose. One of the assets to liquidate is a house; if you already own a home, consider putting it up for sale by the time your new house is constructed. Studies show that typical standard houses sell in six or fewer days; liquidating your old home will pay off part of your construction loans or get you out of debt entirely if you get a good sale.
6. Preparing the Land to Build
Many procedures are involved in constructing standard homes, some more complicated than others. Land preparation is one of the most complex steps in construction. It requires a lot of hard labor. First, you need to survey the land and secure a proper evaluation. As important as a home inspection is, before purchasing a house, have your land inspected before sealing the deal, as the last thing you want is to be stuck with land that’s difficult to construct on.
Essentially, you’ll incur additional costs when preparing your land for the construction of standard houses, some of which are from hiring excavators and trackhoe rentals, a cleaning service for site clearance, and soil testing (if needed), among others. According to Clearance Homes, you can expect to spend roughly $14,000 to $20,000 to prepare your site for construction.
Another important step to consider when preparing your land is the availability of utilities such as water, power, and sewer systems. If your property has no access to water, liaise with your contractor to see if there’s access to public water in the area or if you’ll need to dig a well. If your property has a sewer system, check to see if you need to hire sewer line cleaning services or schedule septic repairs.
7. Determine the Square Feet and Number of Storeys and Appliances to Install
You have an idea of how you want your dream house to be, the number of rooms it should have, its size, and whether you want to build a mansion or a bungalow. However, note that all these factors affect the construction cost of standard houses; the bigger the house, the higher the price tag. Therefore, hire a qualified contractor to establish the most cost-effective way to implement your preferred design and ultimately realize your dream.
The type of appliances you install in a new house affects the overall construction cost. For example, when installing heating appliances to keep your home warm during winter, either install a heat pump or a heating oil tank. According to Forbes, installing compressors costs about $5500, while installing a heating tank costs about $1200. Other appliances, such as the type of water heater, affect your construction cost and the monthly utility bills.
8. Laying the Foundation
When constructing standard houses, the foundation is one of the most critical phases as it helps to hold up a building and also acts as a stabilizer against movement. A building constructed on a weak foundation may experience structural damage that is expensive to repair. Therefore, protect your building’s integrity by working with a certified contractor with experience constructing houses with a stable foundation.
According to Forbes, the average cost of laying a new foundation is $10,000. The exact amount, however, varies depending on the contractor and materials used. Construction materials for a home’s foundation include wood, stone, brick, steel, and concrete. Your construction material choice depends on the load-bearing capacity required, the type of soil, and the region’s climate.
A building’s foundation holds the entire structure together. Ensure it’s strong and durable, such as steel, which is popular for its ability to construct stable houses. Although relatively expensive, this material is famed for buildings that last, weathering the elements with great stamina. Before constructing your house, choose a steel supply company that can deliver the material to your site.
9. Selecting The Interior and Exterior Finishes
The interior and exterior finishes cost can quickly add to the cost of constructing standard houses. According to Susan Mayer, the average cost of interior finishes is $75,256, while exterior finishes, excluding roofing, can cost $31,736 on average. Interior finishes affecting the overall construction cost include flooring, lighting, cabinetry, countertops, and drywall. Exterior finishes include doors, windows, roofs, and exterior paint. The amount you spend on finishes in your house depends on your budget and taste.
You may customize your house using metal around your home. Metal is a strong and durable material that can be fabricated to make doors, décor pieces, staircase guard rails, and other fabrications. When hiring a metal fabricator, you’re spoiled for choice, as there are 73,315 contractors currently operating in the United States. According to Andres Kuska, the average cost of a fabrication project is $2,140, which can go higher or lower depending on the complexity and size of a project.
10. Hiring Professionals
Working with different contractors throughout the construction process is important. These include plumbers, carpenters, electricians, and many others. Budgeting for the construction of standard houses involves labor costs as well. And while labor costs vary from one constructor to another, on average, it’ll gobble up between 30 to 60% of your entire construction budget.
Hiring a professional guarantees the quality of work and ensures peace of mind for all. Qualified contractors have the right skills and tools to ensure work is done efficiently and effectively. Consider a local general contractor who is conversant with the laws in your state. They’ll help you secure the relevant permits and licenses before construction begins.
When choosing contractors for your project, you have a wide catalog. Choosing the right contractors can be daunting for many people; however, start by reading customer reviews from various websites and platforms or getting recommendations from trusted sources.
Nothing is more exciting than watching your dream house take shape. From securing the land, preparing it, and sourcing the most suitable construction material supplier to breaking ground, constructing a standard home is a feat most only dream of. While there’s a chance you could oversee the construction, hiring a certified, highly effective general contractor with the requisite experience in the industry is the best way to go. Besides the peace of mind, you can focus on other tasks that need your attention. Ultimately, having all your financial ducks in a row means you’ll complete your project on time and on budget. It also gives you an idea of your project’s cost, allowing you to organize resources before breaking ground. Here’s to the success of your next construction project.