Before You Build: 5 Steps to Your New Home

Remember the Basics Before You Build

Illustration of puzzle pieces and coins forming the two dimensional image of a house
The Puzzle and Cost of Home Ownership. Photo by and © Andrew Bret Wallis/Photographer's Choice RF/Getty Images

Building a new home begins long before the foundation is poured. In fact, construction is exciting when the homeowner has a good plan and an honest builder. To avoid costly mistakes during the construction process, start with these five important steps. As you move from dream house to real house, be sure to ask questions and share your progress with people who have gone through the process.

1. Plan Your Budget

Begin now to think about how much you can afford to spend and how much building your new home is likely to cost. Chances are you will need a construction loan and a mortgage. It's not too early to find out what size loan you qualify for. Also, knowing the approximate costs will help you modify your building plans to meet your budget. What are some ideas that could save you money?

Money is one of the biggest obstacles and may be the most complex piece to the puzzle of home ownership. Why do prices always go up but never go down? If the price of gasoline goes down during construction, why can't that cost savings be passed on to the owner? Beware of banks who want to lend you more money than you can afford—that was one of the reasons behind the 2008 financial crisis. The reasons for "unexpected costs" can make no sense—isn't that why we make plans and hire professionals? Get a second opinion from a third party—a professional who will not do the project—and ask, How much will it cost?

Hidden Building Costs

A new home is not all home construction costs. It's important to dream, but before you get far into the planning process, be sure you know how much you can safely spend on your new home. Don't depend on the advice of friends or family. And don't count on total transparency from anyone who is selling something—including your banker, who may sell you a mortgage you cannot afford. Talk to your accountant or financial adviser. Most of all, trust in yourself and your own good judgment.

As you plan your construction budget, don't forget the hidden expenses. Your new home may come with higher living costs, so be sure that you budget for estimated utility costs, taxes, and home insurance. Consider "replacement cost" home insurance and even life insurance. You're likely to run into a bundle of costs that aren't included in the building contract. These may include wiring for internet connections, upgraded kitchen and laundry appliances, home furnishings (including curtains, blinds, shades, and window treatments), installation of carpeting, landscaping (flowers, shrubs, trees, and grass), and even ongoing yard care, house cleaning, and annual maintenance.

2. Choose Your Lot

If you have not yet purchased a building lot for your new home, talk with Realtors to get a rough estimate of land costs. Although there may be exceptions to this rule, in general, expect that 20 to 25 percent of your new home project will go toward the land.

Whether you are building your home in a suburban development or a site with sweeping ocean views, you will almost always need to choose the land before you select floor plans or other details. You (and any pros you hire) will need to investigate factors such as soil condition, drainage, zoning, and building codes in the region. Will your house be customized to fit your lot or should you find the right lot that suits your dream home?

3. Pick a Plan

Many new homes are built using stock plans from a printed catalog or an online store. Finding the right plan can take some time. The builder or a home designer may make minor modifications in room size, window style, or other details. Get ideas from the many catalogs available, then have a building plan professional help you choose the best stock plan for your needs.

A custom-designed home, on the other hand, is created specifically for the family who will live there and the location (that is, the lot) it sits upon. In most cases, custom-designed homes require the services of a licensed architect. They ask questions like "Where is the sun in relation to the lot? Where do the prevailing breezes come from? How can the architecture save the homeowner on long-term heating and cooling costs?"

Whether you opt for a stock or a custom design, you will be wise to choose a plan that will meet your needs for many years to come. One place to begin might be deciding on your favorite house style.

4. Line Up Your Team

You'll need a team of experts to design and construct your house. Key players will include a builder, an excavator, a surveyor, and a home designer or an architect. Decide if you really need to hire an architect. Many homeowners begin by selecting the builder or contractor. That pro then selects other members of the team. However, you may also opt to hire an architect or designer first. The big question is this: how involved will you be (can you be) in the process? Some homeowners have opted to be their own project manager. If that's the case, you have more control, but you also have to choose the right builder or subcontractors who have worked this way.

What About Nontraditional Construction?

What your house looks like does not necessarily dictate how the house is constructed. Traditional timber-frame construction is not the only option. Many people have become intrigued with straw-bale houses, rammed earth construction, and even cob houses. But you cannot expect traditional builders—or even all architects—to be experts in everything. Building traditional houses using a nontraditional method requires a team that specializes in that type of construction. Do your homework and find the right architect who can realize your vision—and, unless you have extra money for experimentation, make sure you visit nontraditional projects that are already completed.

5. Negotiate a Contract

Be sure to get a written contract that has been signed and dated by both the builder or contractor and the architect or designer. What goes into a building contract? A contract for new home construction will describe the project in detail and include a listing of all the parts to be included in the house—the "specs." Without detailed specifications, your house will likely be built with "builder's grade" materials, which can be on the cheaper side. Be sure to hash out the specs before the contract is written—as part of the negotiations—and then make sure everything is listed. Remember to amend the contract if you or your team make any changes to the project later on.

Are you having fun yet?

The steps to building a new home can be an exciting time. Not everyone, however, should build a home. The process is a lot of hard work and disruption in your life and the lives of those around you. If you find yourself saying, "If only...." too many times, you might never be satisfied. Know yourself. A new house or a bigger house or a smaller house may not "fix" a troubled life or relationship. The most important first step might be to analyze your motives. Are you building a house because somebody else wants you to? Is it a diversion from some other difficult problem? Can you handle the additional stress in your life? Why do you want to build a home? Self-reflection may bring about self-awareness—and save you from many headaches.