How Much Does It Cost to Build a Home?

Cost to Build a Home

Building a new home is the perfect opportunity to get exactly what you want in a home. However, it can be costly. Here is a breakdown of typical costs associated with building your own home.

Custom homes: $350,000 – $1.5 Million+

A custom construction allows you to build a home to meets your exact needs. However, they are costly, both in terms of money and time. To construct a custom home, you will need to hire a residential architect. Hiring such a professional can cost anywhere from five to fifteen percent of your construction costs. Generally, a custom home costs approximately $100 – $400 per square foot, but can vary based on location and materials used.

Modular and prefabricated homes: $50,000 – $300,000

Pre-built homes often cost approximately ten to twenty percent less than a custom-built home. There are two types of prebuild homes:

  • Panel building

For this type of home, premade walls are fastened to the floor of the home. These panels are cheaper to transport than the materials for a modular building. Some builders may even install features such as sinks and toilets before installing the walls. This can speed construction time and reduce costs.

  • Modular building

Modular homes are created in sections and then assembled on site. They offer additional design options to open crowded areas. However, most modular homes do not have the option of porches and garages. Many people opt for a combination of modular and panel buildings to get designs not available with solely a modular design.

Material and machine costs

The cost of your materials will vary based on the type and size of your home. The region of your home can also change the amount you are paying for materials. The professional you hire should be able to provide you with an estimate of how much your materials will cost.

Machine costs will depend on what your hired professional owns and what they need to rent. The size of the home and location will also affect the costs. If you are planning on building on rocky or unleveled land, that will require specialized machinery, which will increase costs. Typically, builders will use backhoes that have necessary attachments. These usually cost between $70 and $90 per hour.

Labor costs

As for much of your home, these costs will vary dependent on the size and complexity of your home. In general, a large custom-built home will have higher labor costs than modular homes. However, a typical cost breakdown is:

  • Architect: $60 – $125 per hour
  • Engineer: $100 – $150 per hour
  • Land Surveyor: $300 – $700

Other labor costs associated with your home are as followed:

  • Foundation: $4,000 – $12,000

This includes excavating, pouring, and backfilling.

  • Framing: $1,500 – $6,500

Framing dictates the size and location of rooms. This includes the overall home frame, trusses, and general metal work.

  • Exterior finishes: $40,000 – $60,000

This includes exterior walls, roofing, windows, and doors.

  • Major system installation: $30,000 – $50,000

Major systems are plumbing, electrical, and the HVAC.

  • Interior finishes: $85,000+

Interior finished include insulation, drywall, interior trim, lighting, appliances, paint, flooring, and plumbing fixtures.

Additional factors that affect costs

Numerous items can affect the final cost of your home. Such costs include:

  • Number of stories of your home
  • Shape of your home
  • Type of roof
  • Appliances
  • Design features such as pools, outdoor kitchens, and decks

What Type of Loan is Needed for a Prebuilt Delivered Modular Home?

Loan-for-prebuilt-modular-home

In order to get a loan for a prebuilt delivered modular home, you will need a construction loan. A construction loan is a short-term loan that usually lasts no longer than a year and is paid off as different parts of the house are completed.

After the construction is complete, and an inspector makes sure the house is well built, your home will be approved as livable. After this, you can move forward on applying for a mortgage. A lot of lenders offer a package loan, called a Construction-To-Permanent Loan.

With this program, you get a construction loan while the home is being built, and then, after the home is built, you get a mortgage. This saves a lot of time and reduces the complications of getting two separate loans. Some lenders do not offer this package, which in that case means that you would have to get a new mortgage loan with a different lender after paying your construction loan. This is a longer process, but will still work out for you in the end.

Step 1: Pre-Qualification Estimate 

By providing financial information and credit history to your lender, they’ll be able to give an estimate on what they’re willing to lend. In addition to an estimate, fees and interest rates will be included in this report. Remember: this isn’t a guarantee for a mortgage or specific dollar amount.

Step 2: Apply 

When applying for a construction loan, you will want to go to several different lenders and see who offers the best rates and packages. Once you do this, you can get pre-approved for a loan and then look for land to build your new home on.

Step 3: Approval 

A formal commitment letter will be sent to you regarding the loan amount from your lender. This may contain conditions that will need to met before the loan can close and before construction to start. This may need to be shown to your manufacturer or seller of the lot before the final contract is signed.

Step 4: Disbursement Schedule 

Next, you will need to set up a disbursement schedule for your vendors. This basically is a schedule as to when you will pay your vendors that are helping construct your home. This disbursement schedule will also go into detail on what exactly each vendor is doing and how much money they will be paid. (For example: Paying one vendor $2,000 to cut down trees on 4/17 and paying another vendor $15,000 to build a deck on 5/8)

Step 5: Close on the Loan

After the disbursement schedule has been finalized, along with the restrictions and conditions, the lender will sign the final loan documents at the closing of the loan. Once they are signed, you’ll need to pay closing costs.

More fees will apply when you switch over your construction loan over to a mortgage. It’s also a good idea to ensure your local government has given you a building permit. If not, it is recommended that you hold off on transferring between loans.

Step 6: Build Your Home 

Now that you have secured your loan and have the money… It is finally time to start building! You already have a disbursement schedule so there should be no confusion on when each part of the house will be done and how much money you will be spending. Everything is in place financially and now it is only a matter of time before your brand-new home is built.

Step 7: Switch Construction Loan to Permanent Loan 

If your lender only gave you a construction loan, instead of a construction-to-perm loan, you will have to get another mortgage loan with a different lender. If your lender does offer a construction-to-permanent loan option, then you’re all set! Enjoy your new home.

Overview of Construction to Permanent Loans (Construction to Perm Loans)

Construction to Perm Loans: An Overview

construction to perm loan

If you’re having a home built for you, it’s important to understand how to obtain the proper financing. More than likely, it will be worth your while to look into a construction to permanent loan. A construction to permanent (CP) loan is essentially two loans in one: it allows you to combine financing for the construction of your new property— or for major renovations on an existing one— with your permanent mortgage.

With a CP loan, payments will be made by the lender to cover the costs of the construction or renovations. During this time, the borrower will pay interest only on the outstanding balance of the loan. Once construction is finished, the loan will be converted into a permanent mortgage. On the surface, the structure of a CP loan seems fairly simple, but there are a number of steps along the way before the construction loan is converted into a permanent mortgage.

Application Phase

For many borrowers, the application phase will be the most overwhelming stage of the CP loan process. There are a number of steps to complete before construction can begin, which often makes this phase the most hectic. A lender will want you to have a builder already selected, as well as an appraiser to review your property, plans, specifications, and comparable homes in the area to determine the value of your home. Following this, the lender will work with you to create a disbursement schedule to determine how and when construction payments will be made. After a schedule has been finalized, and assuming the builder has received the lender’s approval and signed a construction loan agreement, the lender will contact your closing agent to ensure clear title to your property. Assuming all has gone well to this point, the lender will prepare the final approval and the loan will be ready to close. It’s important to note that it is during this phase that the interest rate for your loan is set. The rate will lock at closing, so even if rates improve (or worsen) during construction, you will still pay this rate on your permanent mortgage.

Building Phase

This period consists of the actual building process of your home that is associated with your loan. Once you have been approved, you will then start to receive the payments from the loans. Here the contractor working on your home will provide multiple invoices to the lender throughout the entire construction process. The lender will then provide the contractor with the funds for both their labor and the projects completed. It is essential to make sure both you and your lender are regularly checking up and inspecting the work area of your home to make sure that the contractor is completing the work accurately and within the guidelines of your loan.

Conversion Phase

The conversion phase is the final stage of the process, in which your loan is converted into a permanent mortgage. Like any other mortgage, you can choose from a variety of loan options, such as fixed-rate or adjustable, a 15 year or 30 year mortgage, etc (But remember: the interest rate on the mortgage was set at the initial closing). At conversion, the borrower will have a handful of fees to pay. These include the initial escrow of homeowner’s insurance and taxes, prepaid interest for the permanent mortgage, any unpaid interest due from the building phase, and additional title fees if necessary. Following conversion, the CP loan process is complete and you will begin regular monthly mortgage payments.

A CP loan has many advantages over the alternative— a stand alone construction loan. It is important, however, to evaluate all of your options before determining which type of loan is best for you. Below is a quick list of the pros and cons associated with a CP loan.

Pros of a Construction to Perm Loan

CP loans can provide you with many great opportunities and advantages. For example, even though this loan is essentially two loans in one, you only have to close on it once. This does not only save you a great deal of time, but also saves you money. It also is a lot less stressful and complex to only deal with one loan. In addition, you can take advantage of being able to lock in your interest rate with a construction to permanent loan. For example, if you lock in with a low interest rate and during your construction process the interest rate increases, you do not have to worry because you are locked in. Also, should anything happen during the period of construction, such as a drastic drop in income, you don’t have to worry about re-applying for a mortgage.

Cons of a Construction to Perm Loan

Although CP loans are often more affordable than stand-alone construction loans, as a result of saving on closing costs, this is not always the case. CP loans often require a downpayment of at least 20%, whereas stand-alone loans do not. If you do not feel comfortable making a downpayment of at least 20%, you may consider a stand-alone loan the superior option.

The early rate lock on a CP loan, while sometimes a blessing, can also be a curse. If interest rates drop during the time of construction, you will still have to pay interest at the higher initial rate.

Being Prepared for Your Home Inspection: Know Before You Buy

home inspection

The purchase of a home is always contingent on a home inspection. During a home inspection, a professional comes to the property and thoroughly inspects the house, looking for anything that may seem troubling. A house or home inspection is one of the most common parts of a purchase agreement.

Before deciding on a home inspector, be prepared to ask these questions to determine whether or not they are the right person for you.

Home inspection questions checklist:

  • How experienced are you?
  • How do you keep your expertise up to date?
  • What types of properties have you inspected in the past?
  • How long will the inspection take?
  • How much will it cost?
  • Will I be able to attend the inspection?

What happens during a home inspection?

During a home inspection, the inspector may climb on top of the roof, go into the attic, and search along the base of the walls. While searching for issues inside and outside of the home, they may look at these areas:

  • The foundation
  • Electrical components
  • Roofing
  • Plumbing
  • Heating and air conditioning
  • Ventilation
  • The fireplace and chimney
  • The windows
  • The appliances

It’s important to know that the date your home was built may lend itself to certain issues.

  • If your home was built between 1900 and 1950: Knob and tube wiring was used in fuse boxes, and is inadequate to cover the weight of today’s appliances.
  • If your home was built between 1942 and 1958: During this time, Orangeburg piping was used to make a sewer line connection to the main sewer line. The cost of these repairs can cost between $2,000 and $5,000, or more.
  • If your home was built between 1984 and 1990: ABS piping was made out of recycled plastic, which was produced by five manufacturers. This type of piping has a tendency to crack within the glue joints. If this type of piping is used in your home, it can be extremely costly to fix.
  • If your home was built between 1990 and 2000: Your home may have a NOX rod consolidated furnace. This type of furnace has heat exchangers that can crack and release carbon monoxide into the home and potentially cause fires.

No matter when your home was built, the most commonly found issue during the inspection process is moisture and drainage. This is the leading cause of major structural damage, toxic mold, and dry rot. Major indicators that a home may be suffering from these types of damages are moisture stains around the ceilings, walls, or windows, a worn roof, or water pooling under or by the foundation.

A list of issues an inspector may find:

  • Roof issues
  • Plumbing issues
  • Inadequate isolation and ventilation in the attic
  • Faulty wiring
  • Heating/Cooling system defects
  • Poor drainage around the structure
  • Minor structural damage
  • Air and water penetrating cracks and window perimeters
  • Potential environmental issues
  • Poor historical maintenance

Home inspection not only important, but it’s a necessary step in the home buying process. Always make sure that your home has been inspected and that everything in the house is up to par with current standards.

Why Flipping Houses is the Hottest Thing to Hit the Market

flipping houses

The newest trend in the housing market is flipping houses. Just look at all the shows on HGTV that are based on this very premise. There has been a recent fascination with fixing up houses to resell, and it is amazing to watch the final product come through. If you’re in the market to flip a house, here are some things that you should know.

First-time Flippers

One thing that first-time flippers, or flippers in general, may underestimate are the costs associated with flipping houses. The obvious first expense is the property acquisition cost. Paying cash eliminates interest, but there are still other costs associated with the purchase, such as taxes and utilities. If you are unable to pay with cash, you need to research your different borrowing options and find a lender that offers low-interest rate mortgages. In addition to the costs of acquiring of the house, flippers should also consider the costs of renovating the project, as well as any hidden costs they may occur, such as any issues in the house that may not have been noticed before renovation started.

More Things to Consider When Flipping a House

Another thing that flippers might not take into consideration is the knowledge it takes the carry them through a flip. A lot of already-skilled professionals do flip work on the side. If you do not already have the skills as a handyman or for home improvement, you’ll have to endure the costs to hire these professionals. If you plan on flipping a lot of houses, consider building a team of people that are familiar with all aspects of flipping houses, such as legal, accounting, and construction information. One thing that a person should do before flipping a house is to get a good lay of the land surrounding the possible property. Knowing what characteristics people most look for in these types of houses and what they usually sell for can help you to understand more of what should, or can be, done.

Taking Your Time

Patience is a key ingredient in flipping houses, and finding the right property takes time. Finding the right team to help also takes time. Finding the right decor for the house takes time. Selling the finished home takes time, too. Notice a pattern? Like anything, if you want the flip to turn out right, you’ve got to take your time with it, making sure you are making the right decisions when and where possible.

Finally, make sure that you have a plan! Seems fairly basic, but very important. Know your budget and where and how you want to spend the money. Know your after-repair value of the house you are going to flip, which is the amount the house will sell for after everything is done, and buy and rehab the house for 70% or less than what you believe the final selling price will be.

Flipping houses seems to be a “trend” that is here to stay. Before you start a flip, make sure you understand everything that is coming your way.

New Construction? Forget FHA 203k.

construction loan

Home buyers looking to purchase new construction using FHA financing will have more hoops to jump through than those purchasing through conventional (Fannie Mae/Freddie Mac) financing. If you want to use FHA financing to purchase new construction, you need to be aware of a number of issues that can trip you up.

First, you must have a certificate of occupancy (C.O.) certifying that the property is complete and move-in ready. If you do not have this, then you typically cannot use FHA. You’ll need a renovation loan, but an FHA 203K will not work in this case.

You’ll need to employ the Fannie Mae HomeStyle for a property without a C.O.

In addition to the C.O., you’ll need some combination of the following documents, as dictated by your lender and your unique situation:

  • Builder’s Certification
  • One Year Builder Warranty (10 YR Warranty may be required)
  • Termite Inspection (when applicable)
  • Septic Inspection (when applicable)
  • Well Test (when applicable)
  • Construction Permits

There are a number of factors which go into exactly what combination of documentation will be required to satisfy your lender and FHA, so it is best to work with an experienced loan officer when purchasing new construction with FHA financing.

If you plan on using conventional Fannie Mae/Freddie Mac financing, you’ll still have hoops to jump through, just not as many as FHA. You’ll also have a higher down payment requirement and the credit qualification guidelines tend to be stricter.

Whether FHA financing, conventional financing, or renovation financing, it’s important to have a qualified home-buying team in place that can lead you through the maze of paperwork and negotiations.