IMPORTANT THINGS TO CONSIDER WHEN BUILDING YOUR NEW HOME
Many people dream of building a new home. There are so many things to consider!
Building a new house is complicated and quite involved. In this article we review some important things to consider when building your new home which is also basic ideas you should consider when building a new house. This post does not assume to cover every possible issue or circumstance, but provide a general overview.
Building a new home – It’s something that many couples dream of. It can be an exciting, stressful, joyful, crazy time period that many walk away from saying “never again” or “bring on the next one!” We scoured the internet and sorted through our own experiences to bring you the important things to consider when building your new home.
1) Be prepared for planning
Entering the planning stage can be daunting for any self-builder, so make sure you’re doing everything you can to give yourself the best chance of success.
For big projects like this, we would recommend going for a pre-application, in order to give yourself and your architect a good idea of what’s possible in your space. This will also help you establish a relationship with your planning department early on and gauge the way they work.
Unfortunately, planning permission is rather subjective, so what may get the green light in one area, might not in the other. That’s why getting to know your planning officials is so important. For a little extra help, ask your architect if they’ve worked with the planning department before. They’ll likely have a few tricks up their sleeve for dealing with them.
Just like house-shopping, building a home from the ground up requires you to know what you can afford. Most house plans offer a cost to build tool (usually for a nominal fee) to give you an accurate estimate of construction costs based on where you’re building. The numbers include the costs of construction, tax benefits, funds for the down payment and slush account, and other related calculations.
Once you have determined what you can and are willing to spend, call us to discuss how much you wish to borrow for your home.
Renovations and the actual building portion aside, we often are asked on what a mortgage looks like for an unbuilt home. This is where a “construction” mortgage comes into play. The budget you give your broker should include your hard and soft costs as well as the reserve of money you plan to have set aside in case you run into unexpected events.
It’s this initial budget that a lender will determine how much you qualify for.
For example, based on the lender loaning up to 75% of the total cost (with 25% down):
Land purchase price (as is) Total soft and hard costs Total Cost (as complete)
$600,000 x 75% = $450,000 available to loan
Keep in mind, the lender will also consider the appraised value of the finished product. In this example, the completed appraised value of the home would have to be at least $600,000 to qualify for the amount available to loan. The appraised value is determined before the project begins.
As well, the client will have to come up with the initial $150,000 to be able to finance the total cost of $600,000. A down payment of $150,000 plus the loan amount of $450,000 = the total cost of $600,000.
2) Choose a Reputable Builder
Builders are a dime a dozen, but not all of them are qualified or will be the right one for your project. Careful research is needed when determining who will be the head contractor of your home-building project. Alternatively, one of the best ways to find your perfect contractor is by asking friends and family who have gone through the process. Another great source is your mortgage broker! They often have many industry connections to some of the most qualified contractors and builders. Ask them if they know of anyone—we can almost guarantee they can will have at least one or more referrals for you.
3) Build a Home for Tomorrow
It can be tempting to personalize your home to the tenth degree—after all you are building it to meet your unique, customized wants and needs. However, keep resale value and practicality at the back of your mind at all times. Life can often throw a few curve balls that lead to you-for one reason or another-having to place the home for sale. If that time should ever come, you 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 features suit the neighborhood you are building in as well.
4) Go Green!
Now more than ever before energy efficient upgrades are easy to add to your home. When you are in the design stages, selecting 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 example, the CMHC green building program rewards those who select energy efficient and environment friendly options.
5) Understand the Loan
As a final note, once construction is done it’s crucial to understand how a Construction Mortgage Loan repayment works. To make it easier, we have a list of points that you should know:
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.
A lender will always take into consideration the marketability of a property. They will look at
not only the location based on demographic but also the location based on geography. For instance, a lot that is in a secluded area where no sales of lots have occurred in the last five years and mostly consisting of rock face may not be a property that they are willing to lend on.
Depending on the lender, you may have a time frame within which you need to complete construction (typically between 6 and 12 months).
There are a lot of things to consider when you build a home but a few things 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, call us, we can help you get the ball rolling and can guide you to the first step of breaking ground on your new home.
There is no denying that a lot of time and effort goes into getting a new home constructed. But with a detailed blueprint and the help of a knowledgeable builder, you can bring your dream home to life.