Planning To Build My Own Home

Q: How do I know how much I can spend towards a building project?

A: Take all the available cash you have, or will have if you sell any assets, including perhaps, your present home. Add to that the amount of money you can borrow on a construction loan or mortgage. This total equals your total home building budget. From this total, first subtract land cost. The balance is what you have for actual construction costs.

Q: How do I know how much I can borrow on a mortgage or construction loan, and what's the difference between the two?

A: The difference is clearly explained in my books. An easy, quick way to determine how much you can borrow is to contact any mortgage lender. They can qualify you as to the amount you can borrow over the phone in about five minutes with no cost or obligation.

The qualifying factors will be your income (all sources) versus your fixed long term debt (over 12 months to repay). This is just a preliminary qualification. An actual one will come later on when you are ready to actually apply for the loan, and then you will be asked to verify information.

Also at that time, the lender will have a real estate appraisal ordered from your blueprints to determine what your house will be worth after you build it. This is because lenders can't have the loan exceed a certain percentage of the home's value (usually 75-80%).

Q: Do I buy the land first, or do I decide on a house plan first?

A: The land comes first. Where you live is more important to most people than what you live in.

Where you live is more important for resale than the house itself. Remember that three things determine real estate value: location, location, and location. Resale is important to you because it will determine the value of your home for not only your peace of mind, but also for your lender.

Lenders base their loan decisions on the resale value of your home. They want to know that if you fail them financially, they can sell your house and recover part, if not all, of your debt. Makes sense.

The price of land will vary more than anything else in construction. It will also consume more of your budget than any single item in most cases, therefore, in order to know how much of your budget will be left over for the house, you have to find out how much the land where you want to live will cost. You may have to make some adjustments very early in the game.

For example, if your total budget (cash and construction loan borrowing power) is $200,000, and you find a piece of property for $150,000, that only leaves $50,000 for the construction of the house. This is not good.

This is why people keep moving further and further from prime costly land areas (big cities, lakes, rivers, mountains, and resort areas). The further out (or away from these areas) you go, the cheaper land becomes.

It's a numbers game where you have to shop, sacrifice, and compromise until you feel that you can afford both the property and a decent sized house (see topic 3) that falls somewhere close to your original dream.

Q: Where do I find, or how does one get, house plans? Where do you start?

A: Start by visiting open houses near where you live, and preferably, if possible, near where you plan on building.

You cannot begin to hope to understand house plans on paper (or on a computer monitor) until you become an expert at what they look like in reality.

Carry a tape measure with you (the only tool besides a cell phone a builder needs, with the exception of maybe a broom); measure the actual sizes of rooms you like while visiting these open houses.

Thanks to technology, you can now buy an electronic measuring device (for under $100) that allows you to measure more quickly, easily, and discreetly.

After you have a feel for room sizes and room flow, you can more intelligently look at these features on paper (or on your computer). Sample house plans are available in a myriad of places - magazines, plan books, home building centers, kit manufacturers, log home companies, home design computer software, home designers listed in the Yellow Pages, and architects.

The cost of these plans will vary tremendously from almost nothing - if you design your own on your home computer - to a few hundred dollars from some of the other sources, to thousands of dollars if you hire an architect.

Personal taste and budget will influence where you get plans, but one thing and only one thing will determine the most important thing to look for in choosing house plans. That is, the size of the house.

The bigger the house, the more it will cost.

Other factors do influence cost too, but it is size to watch out for.

You need to study cost estimating before you get too serious about spending your money on what may or may not be your dream house.

Q: Is the cost per square foot to build the same for any size house?

A: No.

Homes are measured in square feet of living area (heated space). More square footage equals more money. That's pretty simple.

However, the actual building cost per square foot can actually drop as the house gets bigger because the cost of certain expensive items is spread out over more square feet.

For example, a 1500 sq.ft house has only one kitchen with all the normal appliances.

A 3000 sq.ft house also has only one kitchen, so if tastes in appliances, cabinets, etc. didn't increase too much with the larger house, the cost per sq.ft of a kitchen in the 3000 sq.ft house is the same as the 1500 sq.ft house.

Let's say a kitchen costs $15,000. That's $10.00 per sq.ft in the smaller house, but only $5.00 per sq.ft in the larger house. (Cost per sq.ft is usually spread over the whole house, even if only speaking of a certain room or item.)

So, as the house gets bigger, the overall costs will rise (more lumber, more roofing, etc.) but the cost for some specific items, based on a cost per sq.ft of building will drop.

Let's take roofs as an example of how to increase size and decrease cost per square foot. Depending on the pitch of the roof (angle), a 1500 sq.ft house will have X sq.ft of roofing costs. If you double the size of the house to 3000 sq.ft, will you double the roofing costs? No. only if you add the extra 1500 sq.ft adjacent to the existing square footage. If you put it under or over the existing square footage, the cost of the roof stays the same.

This also applies to foundation costs. You get the picture.

Other design features to be leery of in shopping for your house plans - features that can destroy a budget in a heartbeat - are steep roof pitches; large (and many) windows; lots of turns and offsets in the shape of the structure; expensive siding; long, long driveways; soils that require engineered septic systems; large room spans requiring more expensive framing or structural steel, to name just a few.

But if certain design features are important to you, to the point you don't want the house if you can't have them, cut back somewhere else (size perhaps) in order to afford them.

Study cost estimating carefully.

Do it carefully. It is a builder's most important job. It is now your job, your budget. After all, you are the builder!