Home · January 14, 2021

Is Building Your Own Home Right for You?

Marcus White

Mortgage Banker

Finding the perfect house can take countless hours of searching. If you're scouring the real estate market and not seeing anything that seems to be a good fit, you may want to consider building your own home.

As an alternative to buying, building from the ground up might bring you closer to what you dream of in a living space. Taking time to learn more about this option and how building differs from buying can help guide your final decision.

Why build versus buy?

Depending on the flexibility of your move date, you may think about building a home for a number of reasons. If you live in a hot real estate market where homes sell quickly, you might have trouble finding something in your price range. Building a home would take away the pressure of competitive bidding situations.

Specific lifestyle wants or needs are also reasons to build a home. Universal design, an in-law suite or a first-floor master bedroom are examples of features that might be hard to find in older homes. If you're hunting for a unique style of home, building your own allows you to incorporate personal design preferences before moving in, rather than needing to renovate or remodel at a later date.

Before making a decision to build a home, you may want to make a list of pros and cons and consider how they'll affect your decision.

Pros of building a home

Building may allow you to live in a preferred location when the market for existing homes is scarce or tight. You can also choose a modern home style that might be difficult to find in your chosen city or town.

When you build your own home, you'll work with a builder or an architect, which gives you greater input into the process. The layout design will function to meet your everyday needs. If you work from home, you can add a private office area. Or if you love to cook, you can expand the kitchen to accommodate your food-related hobbies.

New homes are typically more cost effective when it comes to the need for repairs, while older homes tend to require more upkeep and maintenance. You can also incorporate the most advanced home systems and features. Smart lighting, home security and other high-tech features can be installed during the construction phase. These home automation upgrades may need to be added to older homes, which can be costly.

Potential cons to consider before building

Building a home is a multi-step process that can take months. You'll also need to commit to being actively involved, because the builder will require your input along the way. If you need to move quickly, this might not be the best option for you.

On a cost-per-square-foot basis, building is typically more expensive compared to existing homes. However, it will likely save you money when it comes to repairs, maintenance and energy efficiency upgrades.

The financing process for a construction project differs from the typical mortgage loan process. Because these types of loans are viewed as higher risk, they may be more difficult to obtain, and the terms may not be as favorable as conventional mortgages. Be sure to compare mortgage loans that you are considering and understand the differences.

Financing considerations when building your own home

Financing a custom home is typically a longer, multiple-step process when compared to traditional mortgage lending. If you're looking to build, you'll first need to secure the land. You can purchase land separately or have it rolled into what's known as a construction-to-perm loan. These construction loans may give you the option to make interest-only payments during the construction phase of your home building project. Upon completion of the home, the construction loan would convert to a conventional mortgage. It is important to understand common mortgage terms so that you can make an informed decision.

Construction loans can be more expensive because funds are released in stages as you build your home. The lender releases money for the next stage only after the successful completion and inspection of each defined step of the process. The steps begin with setting the foundation of the home, then move to framing and the following steps, until the home is ready for you to move in.

If this is your first time through the building process, you'll want to partner with professionals who can offer guidance. Custom builders will help you work within your budget to build a home that best meets your needs. Research builders in your area and view their completed projects to get an idea of how they can help you. A mortgage lender specializing in construction loans will help you navigate the financing process when you build a home.

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.