Building your dream home is the most amazing thing ever (next to your kids), but like your kids, it requires careful planning and consideration. There are upfront tasks and considerations that may not come to mind, especially if you’ve purchased an existing home before and feel like this isn’t your first rodeo.
Well, if it’s your first building-a-house rodeo, buckle up. We’re about to embark on a wild (but fun) ride!
1. Your Budget
No-brainer, right? Before you embark on home design, sketch out an office nook inside a master bedroom, or find the coolest hands-free light switch, you have to determine how much you can spend. Remember, too, that since we’re dealing with a custom home, those funds—whether out of pocket or through a construction loan (typically both)—will need to cover the entire building process.
You also have to think about the long-term mortgage and your monthly budget for that once the home is completed. To be clear, this has to be considered before construction kicks off…not after the custom home is built and you’re ready to move in.
Not sure where to begin? APM is happy to explore convenient loan options that work with your budget and financial situation.
2. How to Get a Construction Loan
A construction loan typically plays a starring role in your custom home journey. Unless you are paying cash, securing the right construction financing is a critical early step. While it may not be the most glamorous part of building your dream home, it is one of the most important decisions you will make before construction begins.
Construction loans are not one-size-fits-all. One of the first choices you will make is whether a one-time close or a two-time close construction loan is the best fit for your goals, timeline, and comfort level with today’s market conditions.
A one-time close construction loan combines the construction loan and permanent mortgage into a single loan. You qualify once and lock in your permanent financing upfront. This option offers simplicity and predictability, with fewer approvals and less paperwork throughout the process. A potential drawback is that your permanent interest rate is set before construction begins, which may limit flexibility if rates decrease during the build.
A two-time close construction loan separates the construction financing from the permanent mortgage. You qualify for the construction loan first, then apply for permanent financing once construction is complete. This option can provide greater flexibility, particularly in a higher-interest-rate environment, as it allows you to secure permanent financing later and potentially take advantage of improved market conditions. However, it does require qualifying twice and includes two separate closings.
At American Pacific Mortgage, we offer both one-time and two-time close construction loan options. Your local APM Loan Advisor will help you compare the pros and cons of each and guide you toward the structure that best supports your build, budget, and long-term homeownership goals.
3. How to Find the Perfect Build Site
This may seem obvious, but one of the first things to know before building a home is that you have to find a site. Consider the location, neighborhood, and proximity to amenities. Delve into homeowners association (HOA) rules and costs. This initial decision sets the stage for the entire building process.
Remember that not every empty lot is zoned for residential. This is where a real estate agent can really come in handy. You don’t want to get your hopes up only to find out that beachfront space along Main Street isn’t an option for you. First-world problems, right?
You’ll also want to consider whether the chosen lot can accommodate your design plans, which we will get to next.
4. How Involved You Want to Be in the Plans and Specs
Whether you opt for a true custom home or home builders with pre-designed options, you’ll need detailed plans and specifications. Decisions on floor plans like where the master bedroom is located, custom home features like how much storage space is included, and design elements like which lighting fixtures to go with (and where the light switches are located) will all be up for discussion.
How involved you want to be in this process—and how committed you are to building your dream home versus weighing in slightly less on a semi-custom home from one of the expert home builders—will help you determine which route to take.
Consider the time, energy, and cost commitments that come with custom, semi-custom, and pre-planned homes. When building a house, these three considerations will dictate how you proceed.
5. How to Choose Home Builders or Subcontractors
Selecting the right home builders or subcontractors is a crazy important decision. For home builders, you want to research their previous developments, possibly tour their model homes, and get recommendations and references. For a custom home, you’ll need to find a reliable general contractor to manage the building process and all the workers who will construct the home to your plans and specs.
Oh, and no matter how fabulous a custom home builder seems, you’ll want to verify their standing with the Better Business Bureau (BBB) and the National Association of Home Builders before signing a contract. If you think building your dream home is expensive, then you can’t imagine how those costs multiply exponentially if you build a custom home and then find that it’s not to code. Or that the roof is leaking. Or that the retaining wall has already cracked.
Okay, enough. You get the point. We can feel our blood pressure rising at the mere thought, but it leads us to the last thing you should know…
6. How to Prepare for Surprises and Delays
Anyone who’s ever put a shovel to dirt can tell you that building a house can often come with unexpected expenses, including construction delays that are also time-consuming. Expect the unexpected by acknowledging that there are costs, delays, and other factors that can affect your timeline and closing.
When building your dream home, you kind of become a general contractor yourself as you oversee the building process. (Note: This does not mean you don’t need an actual general contractor; let’s be real.) With this in mind, you should be prepared for surprise bumps and the required approvals and funds that often accompany them.
Now that you’re up to date on the things to know before building a home, you may want to ask yourself a few questions. Questions like:
- What is my budget?
- What type of construction am I interested in (custom home, semi-custom home, or pre-planned home)?
- Which home builders or general contractors will I use?
- What location or home style am I looking for?
- What custom home features do I want?
- How much do I want to weigh in on this home design?
- What’s my timeline?
A Bit More on Custom Home Expenses
Custom home construction costs vary by square footage, location, features, and materials. According to Forbes, as of early 2024, the average cost to build a home in the U.S. is about $150 per square foot (minus the land), but this can go much, much higher. In California, for example, custom home costs start around $400 per square foot.
You’ll want to break down costs into categories like pre-construction, land and site work, foundation, framing, exterior work, major systems, and interior finishes to prevent these numbers from becoming too confusing or obscure.
Building a custom home is an exciting journey, and having the right guidance can make all the difference. APM Loan Advisors specialize in construction financing and work with homebuyers at every stage of the process, whether you are just starting to explore options or ready to break ground.
To learn more, connect with a local APM Loan Advisor and access our free resources, including the Construction 101 ebook and Construction Checklist, designed to help you plan, budget, and build with confidence.