You Can Build Your Home Like No Other

03-09-2x-Close-ArticleClose your eyes and imagine the perfect home. Everything is exactly as you want it to be. With no unnecessary rooms or wasted space. No closets are too small. The kitchen, dining and living areas are all perfectly located. Plenty of light switches and electrical outlets are in all the right spots. There is the perfect number of bathrooms.

With today’s low interest rates, it’s not unreasonable to consider building your own custom home. But when it comes to planning and financing the project, you should expect a very different experience compared to buying an existing home, or even a new home from a developer.

  • Expect additional costs and a slightly higher mortgage with a custom home. Design plans alone can cost $15,000 or more.
  • It’s not a fast process. It can take up to a year to build a single custom home.
  • After agreeing to a quote and estimating all your costs, we recommend having at least an extra 10% in cash as a cushion to cover unexpected costs.
  • Find the best contractor possible. Choose someone with a good reputation, who is happy to show you references, examples of their work, and who you get along with – almost like a close friend. You’ll be spending a lot of time together; you’ll want someone you can trust.

Building Your Custom Dream Home Can Be a Blast

You’ll have a lot of work to do, but it can be fun, satisfying work. Everything from colors to wall textures and types of drawer handles are up to you! You can create dedicated rooms or storage areas for your hobbies and supplies. How about a game or exercise room, or wiring the entire house for a sound system? A little daydreaming can actually be quite productive during your early planning stages. As you compile your list of must-haves, it’s equally important to make a list of what you don’t want. Your contractor will have good ideas. Consider using a professional home designer. Don’t let yourself get overwhelmed. Look and ask for help when you need it.

Building Your Custom Dream Home Requires Patience and Discipline

This can’t be overstated: plan ahead, expect delays. Keep in mind everything on your dream list above comes with a price tag. Increasing the quantity and complexity of what’s on your list can drive up costs. Remind yourself to make practical decisions on things that won’t go out of style, and that you can live with for a very, very long time.

You also need to consider the building process itself. With such a long time frame, a lot can happen. Weather delays and building material shortages are common. Supply costs can go up as well. It’s also not uncommon to get new ideas and request changes during construction, which can create additional costs and delays. Plan head. Stay disciplined.

Financing Your Custom Home Step One: The Construction Loan

Building and financing your home from the ground up is different than getting a regular home loan. It’s essential that you work with a loan officer experienced with lending for single, custom home construction.

A very common financing program is a two-step process where you first obtain a temporary loan to get your project started, and when construction is complete, paying off and replacing that loan to get a standard mortgage at the most favorable terms possible. Advantages of this type of financing include:

  • You can lock the interest rate for your final mortgage early, for up to nine months to protect you against an increase. There may be a fee, but that fee is refunded when the loan closes.
  • The first construction loan is a simple fixed-rate loan that’s much like a line of credit for the builder. You only pay interest on money as it’s used, not on the full amount.
  • When you get your regular mortgage and pay off the first loan, you’ll receive closing cost credits that give you low or no-cost refinancing.

There are one-step loans out there, with the convenience of only having to close once. But they often come with a higher rate, and you could be stuck with that rate if it goes up during construction. They also don’t offer as much flexibility to accommodate cost overruns, delays or other changes along the way.

Financing Your Custom Home Step Two: Getting Your Mortgage

Once your custom home is complete, you’re free to choose whatever mortgage works best for your financial situation. That includes conventional fixed- or adjustable-rate loans, jumbo loans, or FHA, VA and USDA programs that may offer additional savings. Your loan officer will be able to discuss all your options, and work with you throughout the process to keep things simple.

Ready to get started?

It’s a long process with a lot to do but it doesn’t have to be overwhelming. You can talk to a PrimeLending mortgage loan expert with experience in custom home financing who will walk you through the steps involved and offer additional advice.


From the PrimeLending blog, by Mandy Jordan