9 Financial Pitfalls of Building a New Home
Owning a home is a pillar of the American dream, but buying one that is ready to go can be prohibitively expensive. Home prices swelled by 16.9% in 2021, the highest on record. Though we can expect interest rates to heat up and cause a slight cooldown in the market, that doesn’t mean houses will become more affordable or even less expensive. In fact, home prices could keep rising by as much as 12%, according to some forecasters.
See: Pros and Cons of Locking Your Mortgage Rate
Learn: 6 Vital Questions for Buyers To Ask a Home Inspector
To cut costs and to see their dream home fully realized, one may turn to the method of building their own house. If you have the time and the resources, creating your own domicile from scratch could be the most budget-friendly path. But builder beware — constructing a home from the ground up isn’t without its expensive caveats.
Avoid these common financial pitfalls by planning ahead, doing your homework and investing in extra help when needed.
Not Using a Licensed Architect
“Building your own home without an expert architect leading each infrastructure, design and construction phases from start to finish is akin to flying around the world without a trained pilot,” said Baron Christopher Hanson of Echo Fine Properties.
“Style, creativity and paint colors aside, professional architectural drawings are the primary roadmap and expert order of operations required to complete your new home’s build on time, on budget, and according to strict materials and mathematical planning. What’s more, architects know how to help hire qualified general contractors, niche contractors and artisans capable of doing every little project on time, on budget, and perfectly executed every time,” Hanson added.
Be sure to research licensed architects and/or reputable home construction companies before you begin any project.
Not Getting Everything From Your Local Government in Writing First
“Yet another reason why you must use an experienced local architect is because they know every crooked clown on your local town payroll, and how to get all the exact building codes, tax costs and construction quirks exactly right and in writing upfront before construction begins,” Hanson said.
“People who don’t get 100% of everything in writing from their local government upfront first — before breaking ground — soon find themselves surrounded by local officials smiling all the way to their banks.”
Related: 10 Hidden Costs of Buying a House
Building Too Big
Bigger isn’t always better — at least, not when you’re building your own home.
“The average cost of constructing a custom home in the United States is $105 per square foot,” said Corey Tyner, founder and president of Buy Yo Dirt. “That implies that simply removing 500 square feet of unneeded space in a home may save you over $50,000.”
Skipping Contracts and/or Signing Dud Agreements
“Avoid skipping signing contracts or signing inadequate agreements since this has severe ramifications,” said David Bitton, co-founder and CMO of DoorLoop. “When building your home, you must be cautious with any contract you sign to ensure that it satisfies all requirements and conditions.”
If you’re not confident in your own ability to read the fine print (or honestly, even if you are), consider employing a qualified lawyer. They can “analyze each contract you sign to guarantee its sufficiency and provide you with protection in case any stage in the process goes wrong,” Bitton said.
Incorrect Custom Orders
“Incorrect custom orders are another potential stumbling block that could cost you a lot of money,” Bitton said. “You must create construction requirements before the start of the project to guarantee that all specifications for unique materials to be utilized are clearly defined and spelled out. This document might help you receive a discount or an enhanced exchange for the incorrect custom material delivered to you.”
Explore: 10 Fastest Ways To Pay Off Your Mortgage
Conservation Laws
“One of the greatest pitfalls of building a home is any law related to conservation,” said Omer Reiner, a licensed real estate consultant with Florida Cash Home Buyers, who notes that this problem is particularly rampant in Florida. “Many times people purchase some land and hope to build a house on it; however, there can be issues like endangered species or even general land conservation laws that prevent people from building on the land in the first place. When people find that out, they realize they purchased a few acres of hiking grounds where at most they can pitch a tent. Many clients of mine served people to try to build on land only to abandon the project, sometimes wasting hundreds of thousands in the process.”
To avoid this financial trap, Reiner recommends that hopeful homebuilders pay for a land inspector. “[They] should survey the land before purchase and declare the land clear for construction. This will cost about $500.”
Not Checking on the Construction Progress
“Don’t be fooled into thinking it’ll be enjoyable to have someone blindfold you and take you up to your new property for a surprise reveal (as you may have seen on home improvement reality TV shows),” Tyner said. “Because you don’t want to be trapped with a large mortgage on a home you don’t like.”
To prevent a terrible surprise, visit the construction site as it’s being built. “Make sure everything meets your expectations, and if it doesn’t, ask questions,” Tyner said. “The worst option is to keep silent and wind up with something you don’t like or will have to spend to [fix] later.”
Read: Will Mortgages Be Impacted by Fed Interest Rate Hikes?
Cost Overruns Due To Supply Shortages
“Due to supply chain issues from the COVID-19 pandemic aftermath, costs are volatile,” said Darren K. Proulx, strategic financing advisor at Real Estate Bees. “Ensure that you are leaving a minimum of 25% contingency money in your budget for cost overruns until the supply chain issues return to normalcy.”
Making Changes Along the Way
“Random changes cost exorbitant amounts of time and money and materials waste that you can never get back,” Hanson said. “Do not break ground or even look at a single hammer and nail until your architectural plans are 100% decided upon and etched in stone.”
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 9 Financial Pitfalls of Building a New Home
