custom home
How to Choose a Lot for a Custom Home
Foundation work for custom home on mountain building lot
There are many variables to consider when choosing a lot for your custom home. Whether you’re basing it on neighborhood, commute to work, or the fact that the particular lot just feels “right”, where to buy is just one piece of the puzzle. The cost of land (from an investment perspective) and the type of lot (from a building perspective) will also play key roles in the process.
A qualified real estate broker should be able to help you with all these considerations. Not only will they be familiar with what lots are on the market – both listed, and unlisted - but they will also have a good working knowledge of things like public utilities and what it might cost, for example, to install a septic system. They should also be able to refer you to experts in these areas. Finally – from an investment standpoint – they will be able to supply you with the data you need to make an informed decision.
Where to buy. Consider how important it is for you to be close to school, work, shopping, etc. You might even want to spend some time testing the drives to, and from, the prospective lot (on different days, and at different times) to get an idea of what the commute would be like. In terms of cost, land further out of metropolitan areas generally cost less. However, not everything about a home is the country is less expensive. During the construction process, there may be extra delivery, material, or labor fees incurred depending on how far out your lot is.
Cost of Land. Generally, the cost of land represents 17-25% of the total value of your home. If your budget is $350,000 a typical breakdown will look something like this:
Land – $70,000
Real Estate Commissions – $20,000
Carrying Costs on Construction Loan – $15,000
Total Construction Costs – $245,000
Total Cost of Home – $350,000
In this example, the land cost is 20% of the full cost of the house. Most experts recommend that the land cost be between 17-20% of the total value of the home. However, if land costs in the area are high, that figure can be stretched to 25%.
Tip: Be aware that construction costs are far reaching. They include everything from preparing the land, to laying the carpet, to covering the necessary permits and fees.
Type of Lot. There are many variables to consider when thinking about lot type. First, what makes a lot more valuable? Location, views, streams, trees; all will contribute to a more expensive price tag. Neighborhood also plays an important role – and on this front, one thing to keep in mind is not to “overbuild” or “underbuild”. If the neighborhood you choose is made of up homes in the 3-4,000 square foot range, you should probably avoid building a 6,000, or 1,500 square foot home in the same neighborhood. The reason being that if your home is – by far – the largest or smallest in the neighborhood, you could pay the price later in terms of resell.
The physical characteristics of the lot are also key when it comes to either avoiding, or anticipating, expensive site work. One thing to keep in mind is slope. A house on a hill may have impressive views, but will also require more site preparation and more work on the foundation – both of which can add to construction costs. Drainage can be a factor too. Other things to consider when viewing lots are their size and shape, and their “setback”. The setback is the amount of space you are required to leave between the edge of your home, and the edge of your property. This is often required in subdivisions or fully developed neighborhoods where space is at a premium. Both the size and shape of the lot, and the setback can have an impact on the kind of house you want to build. Finally, keep in mind the number of trees, or boulders, on the lot. They too will require extra site preparation.
Tip: Be wary of a lot listed at a price that’s considerable less than the other lots in that area, and particularly of the term “no perk”. When used in conjunction with land, “perk” means the ability for the ground to support a septic system. If your land is not connected to a city sewer system, a septic system will be necessary. However, if the ground does not “perk” you’ll be required to use some very costly alternatives. Make sure to get an expert opinion before purchasing a lot with this label.
Financing the Construction of Your Custom Home
Custom home by Brock Builders under construction
You’ve probably already done your research and know there are more good reasons for building a custom home, than buying one. The leading financial one being the considerable equity you can earn – instantly, from the moment you move in. However, you may not be as comfortable with the “ins” and “outs” of how to finance the construction of your dream home.
Firstly, financing your own custom home does not have to be fiscal headache. In fact, you’ll be happy to hear, it’s a pretty straightforward process. The first thing you’ll need to do is obtain financing from either a bank, or mortgage lender. Instead of applying for a conventional home loan, you’ll need to fill out an application for a “Construction Loan.” Generally, the requirements include a minimum FICO score of 650 and a combined income of at least $45,000 for married couples. Also, be sure to ask if the loan can roll over into a permanent mortgage upon completion of the house. Many mortgage lenders offer hybrid loan packages for construction of custom homes. Once you’ve done this, it’s time to consider your requirements, and budget… things like number of bedrooms, baths, etc.
Tip: it’s all in the details. Not only does square footage play in an important part in cost, but so do seemingly small things like the number of windows, or type of bathroom fixtures. Also, be aware, most builders charge more per square foot for smaller homes. Meaning the larger the home, the less you’ll pay in labor costs per square foot.
Location, location, location. If you haven’t already found your ideal lot, consult with a real estate broker to find a suitable location. (The broker should specialize in land sales, not just houses). You should also be sure to have a pre-construction appraisal carried out by an experienced appraiser. You need to ensure that the land is, in fact, worth what you’re paying for it.
Next, you’ll need to consult with a good custom home builder to determine a budget. The budget should encapsulate the land purchase, finance charges, materials, and labor costs that will be incurred. Let’s assume that the breakdown looks something like this: land cost $65,000, finance charges $15,000, materials $80,000, and labor costs $70,000. The total budget would come to $230,000 (assuming you qualify for 100% financing).
Tip: it’s a good idea to plan on staying 10-15% below your total budget. This will help you cover unexpected costs, and ensure that you stay on plan. Also, keep in mind time-frame when planning your project. Inflation can rise as much as 6% per year, so if you’re not planning on building for a year or more, be sure to factor it in. Once the numbers have been crunched, you’re ready to break ground!
Finally, once your custom home is completed you’ll want to have a second appraisal done. This will determine the final value, or “fair market value”, of your new finished home. Let’s assume that the appraisal comes back at $285,000. Now, deduct $230,000 from $285,000 and you’ll find you’ve gained an equity of $55,000, or 24% – instantly! Home sweet home, indeed.
Tips for Choosing a General Contractor in Asheville
A few themes come up again and again on a custom home building project. We have arranged them here into a short and useful checklist. Each item can help you avoid headaches during the process of building a custom home.
Asheville Custom Home by Brock Builders
1) Timing. Time is money – and sticking to budget means sticking to schedule. The first question you should be asking the general contractor is how long he thinks the project will take. It is standard practice to provide start and stop dates that account for some weather delays. Also, don’t forget to ask what else your custom home builder is working on; if the builder is spread too thin your project may not get the attention it deserves.
2) Experience and Expertise. How long has the general contractor been building custom homes? Does he have a portfolio he can share with you, and references? Do they specialize in high-end custom homes? Additionally, if you’re building in an area like Western North Carolina you may need someone whose expertise lies in building on challenging lots – our mountains are beautiful, but they don’t always make it easy. You don’t want to find out, after the fact, that your general contractor does not have experience with complex foundations.
3) Supervision. Who, exactly, will be managing the construction of your custom home? It’s preferable to have a Project Manager – or one central point-person – managing the work, resources, and subcontractors. We all know the old adage about too many cooks in the kitchen spoiling the broth. Mistakes can be costly, particularly if they’re not caught until later in the construction process.
4) Collaboration and Communication. Do you already have an architect, or are you looking for one? Is this something the general contractor can help you with? You, the architect, and the builder all need to work well together. And communication is key. To travel from concept to concrete reality, you must all speak the same language. Further, you must speak it frequently – via email, phone, and regularly scheduled, face-to-face meetings.
5) Budgeting. Your home is a big investment, and the general contractor should be qualified for the job. You need to set your budget, and your builder needs to stick to it. Once a final budget is agreed upon, what’s the next step? Also, what does your contract include? Ideally, it should include delivery dates and other essential details. Further, (since he’ll be in charge of the purse strings) what is the builder’s financial experience, if any? Look for a general contractor who will use the industry standard AIA (American Institute of Architects) contract. It includes delivery dates and other essential details.
Use this checklist to narrow your list of builders who have the expertise and experience to help you build your custom home.
We are looking for stories about custom home building – both the glory and the misadventures. If you have a good story about your experience building a custom home, consider emailing us or leaving it in a comment.
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