Building a new home is an exciting adventure that requires very different considerations. To help you have the best experience building a home, here are the 5 most important considerations.
1. It’s all in the numbers
Regardless of whether you are shopping for a pre-built home or are looking to create your own from the ground up, it is vital to know what you can afford and stay within budget. This is the key to building a home that you will be able to enjoy for the next 20 or 30 years, while still maintaining your financial stability.
When calculating the cost of building your home, there are many components to think about, such as construction materials; contracts; tax benefits; funds for the down payment; and a slush account. In Calgary AB, the typical cost to build a house is between $185 and $400+ per square foot. In some cases, it could cost as much as $500+ or more per square foot.
Overall, the average cost to build a house can range from $300,000 to $350,000 for 1,000 square feet to double or triple that amount. For example, an average 2,500 square foot home could cost between $500,000 and $875,000 to build, depending on materials, design, etc.
2. Choose a reputable builder
This one seems pretty straight forward, but when you start looking it can quickly become overwhelming when you realize how many options there are. When it comes to determining the head contractor for your project, careful research is needed. Another option is to consult friends and family members who have gone through the process or ask your realtor for a referral.
3. Build a home for tomorrow
As tempting as it can be to personalize your home and include every cool little feature you can think of it is important to always keep resale value and practicality in the back of your mind. Life can often throw a few curve balls that, for one reason or another, may result in your having to sell your home in the future. If that time should ever come, you will want to be able to appeal to all buyers easily and not have to hold the house longer than necessary. Ask yourself if the features you are putting into your home will appeal to others, and if the design suits the neighborhood you are building in as well.
4. Go green!
Now more than ever energy efficient upgrades are easy to add to your home. To make your home as efficient as possible, it is important to incorporate these options into your design BEFORE you start building. Options such as energy efficient appliances, windows, HVAC systems, and more can save you money in the long run and may also make you eligible for certain grants and discounts. For instance, the Canadian Mortgage and Housing Corporation (CMHC) green building program rewards those who select energy efficient and environment friendly options.
5. Understand the loan
Aside from the costs of building a new home, what does a mortgage look like for an unbuilt home? In many cases, this is where a “construction mortgage” might come into play. To properly qualify for financing on an unbuilt home, I need to see a budget that includes both hard and soft costs, as well as the reserve of money you plan to have set aside in case you run into unexpected events.
For example, based on the lender loaning up to 75% of the total cost (with 25% down):
- Land purchase price: $200,000
- Total soft and hard costs (as complete): $400,000
- $600,000 x 75% = $450,000 available to finance
It is also important to note that the lender will also consider the appraised value of the finished product. This value is determined before the project begins. In this example, the completed appraised value of the home would have to be at least $600,000 to qualify. The buyer would have to come up with the initial $150,000 to be able to finance the total cost of $600,000.
Depending on the lender, you may have a timeframe within which you need to complete construction (typically between 6 and 12 months).
When it comes to construction loans, there are a few other key points to remember with regards to repayment:
- Construction loans are usually fully opened and can be repaid at any time.
- Interest is charged only on amounts drawn; there are no “unused funds.”
- Once construction is complete and project completion has been verified by the lender, the construction mortgage is “moved over” to a normal mortgage.
In addition, a lender will always consider the marketability of a property. This includes not only demographic aspects, but also looking at the geography. For instance, a lot in a secluded area with minimal market demand may not be a property that they will be willing to lend on.
There are a lot of things to consider when you build a home, but a few focus areas that can keep you on track and on budget are to have a solid plan in place, work with a builder you trust, build a strong team around you that can be there from start to finish, and to do your research.
Once you have decided to build, give me a call! I can help you get the ball rolling and guide you to the first step of breaking ground on your new home.