Building a Home Vs. Buying a Home

[parafly]

I am planning on becoming a home owner within the next two years and need some advice on how to go about it. Houses in this area are relatively expensive and it would cost over 300K for a decent home. I am seriously considering purchasing land and building a new home on this land instead of buying a pre-existing house.

I am looking for some pros and cons of going one way or the other. After looking at some new home plans/prices and the prices of land in this area, it seems possible to "get more for less." Are there any kind of hidden fees or costs that I am looking past?

Also, what would be the financial process of purchasing land and building a new house on it? Would it be better to get a separate loan for the land and house, or one big loan that would cover everything? Are these loans similar to a traditional mortgage?

Thank you in advance for all responses and advice.

[Ima saver]

Well, I have never lived in a house, except my first one, that was not built for me. I like having the plans just the way I want them.
My husband is a builder, he does not give contract prices, because prices of materials change every day.
He works by the hour. I get a draw from the customer and pay all the bills. The customer then know, down to the penny, what his house is costing. I give them a copy of their account and all the bills after they have been paid. (of course, I do all this by hand because I don't know how to use a computer)

[PrincessPerky]

I have no real opinion on most hings, but we have a 'new built house' it was built for someone who fell thru on the loan..sorry to her, but good for us, we get the new built advantages, but not the price...

Anyway, old houses have..more matenence, but new houses make sure you get the 'opps's fixed..they had some nail pops, and some baseboard issues, and the garage leaked a tiny bit, now if Imas husband did the work you know it would be good , but I had to pester the company for hte first year for little stuff, then after that I havn't had any problems....

but the walls are painted with more of a primer than a paint, it sucks, and we are slowly changing it to our colors and paint....slowly...ok so one whole room in 5 years....

Newbuild has new energy effecient windows, doors, insulateion whole house air/heat, came with energy efficient stove and microwave...so while others are 'upgrading' we have it already..

I haven't had to fix any plumbing, or anyother typical old home stuff....but then it has only been 5 years....(during that 5, my bils house has had the FIL in it multiple times each year for miscelaneous issues, many that are 'cause of old pipes/wireing/the way the last guy did it)

But, no history, no lawn, no cool old features (like wooden walls..is dry wall...) we didn't plan the house...and many newbuilt houses are built for curb apeal..not interior maximization, so there is a window in the middle of each kids room, hard to put a bed there.....and the livingroom is built to look nice and open when empty..nevermiond that there is no convenient spot for a computer or couch (not for TV either, but that is the least of my issues!) The attic is a waste of stair space, and their is no basement, which is the norm in NC..though old homes have them both apleanty..

Just saying beyond the pure cost, there is other stuff to look at.

[Ima saver]

Well, my husband builds everyhouse as if he is going to live in it, and other than framing, concrete and dry wall, he does everything in the house himself. Agood builder will stand behind his workmanship for at least a year. A manintenance free home (stucco, vinyl siding or brick) is the best way to go. Lots of our customers still want the wood, cabin type, homes, but they have to be painted every few years. A cabin in the mountains is still a popular home style.
Try to build a house that has sellable features. Always plan where the beds will go, the tv's , the phone jacks. We put a tv jack, phone jack, and lots of wall sockets in every room in the house. Ou last spec house had a tv jack so you could watch tv from the jetted tub.

Even tho I never use it, I made sure to put a fireplace in the house, everyone wants one. We put in central vac. also, a switch in the kitchen to turn on and off the hot water heater!
For a little extra, you can put in rope lightening around the ceilings, or the toe kick (under the bathroom cabinets) or around a fancy tub.
Little things help sell and resell a house.
I pick out a stained glass window to put in every house!

[MonkeyMama]

Hmmmm, I would do a lot of research. I would love love love to build a custom home, we have looked into it and I even have a good friend who is an architect. IT is just so crazy expensive where I live. I just assumed it was a pretty expensive option overall, and that this is why it so rare for people to build custom homes. We have been looking into it as land prices have been falling pretty substantially in recent months.

For a house the same size as ours, similar land, we are looking at $750k vs. the current $500k our house is worth. & that is just upfront quotes without all the little things that can really add up and put you over budget. Our house is pretty new, but you figure the cookie cutter houses of course have a huge discount vs. doing it all yourself.

Just do a lot of research and make sure this really is a lower cost option. Maybe there are cheaper options and you are not talking about an entirely customized house?? & I look forward to everyone else's advice. I would love love love to build a custom home.

& definitely think resale!!!! We have been looking to move and have seen some weird stuff out there. A lot of custom homes we have looked at. We don't have a fireplace ourselves (another story for another day) and I wonder how much that will hurt us when the time comes to sell...

The energy efficiency and feautres on newer homes are amazing, and less maintenance by far if it is done right.

Good Luck!!!!

[Ima saver]

Our homes have been running about $110-120 a square foot to build. That does not include the basement ($50) a square foot. Of course, the lot is seperate. It is better to have the land paid for if you plan to build. Otherwise, include it in the mortgage.

[cschin4]

I think you are fooling yourself if you really think you are going to build for less than buying a home would cost!

[parafly]

Originally Posted by cschin4

I think you are fooling yourself if you really think you are going to build for less than buying a home would cost!

Care to elaborate? This may be true in Pennsylvania, but in areas like Bergen Country and Orange County, the prices of homes are through the roof. If I can purchase land for 150K and build a home for 150K, I believe that this would be a cheaper alternative.

Thank you for all the responses so far. Does anyone have any details regarding loans? Would I need to take two separate loans for the land and house, or could I just take one loan for all the combined costs? How does PMI and 20% downpayment work in this situation?

[JBinKC]

With all of these extremely high home prices on the coasts and mountain areas. I would think you would have to have a very high after tax income to justify buying a home there now. Home prices are triple or more than of a similar one in my location but I highly doubt people have triple the income to support them. Personally, I would leave the area and find a another job in a lower cost of living area where a 10-20K cut in salary will actually give you a much higher overall standard of living.

[MonkeyMama]

Originally Posted by JBinKC

With all of these extremely high home prices on the coasts and mountain areas. I would think you would have to have a very high after tax income to justify buying a home there now. Home prices are triple or more than of a similar one in my location but I highly doubt people have triple the income to support them. Personally, I would leave the area and find a another job in a lower cost of living area where a 10-20K cut in salary will actually give you a much higher overall standard of living.

I agree with this point as well - been there done that.

Actually, all I heard was 10 - 20% pay cut when we moved and it turned out to be 0. Someimes those are exaggerated. I got paid the same plus better benefits - all that and houses were 1/3 as much. Not that that is always the case, I could care less of the pay drop when looking at houses we could actually afford.

Because of this I am always telling people to move.

Sorry I don't know much about construction loans...

[Ima saver]

I think I would just get one loan for land and home. If you put down 20%, you can avoid PMI. I know 20% is a lot. I could make my first home a very simple, inexpensive home so you can make a profit when you sell.
We built a very cute new 2 bedroom 2 bath house and sold it for under $120,000, so it can be done. Prices have been sky high the past year, but materials are finally starting to come down.

[cschin4]

There is more to the cost than just the land and the house itself. What about building regulations, sewage, water, landscaping, etc? And, you may not even know what your taxes will be on the home until after it is built. If you chose to build then go for it. But, I am not so sure you will "get more for less" on a new build. But, I have never built a home either. However, we did look into it, researched builders and were going to bid on a lot. But, after we ran the numbers, we decided against it.

[LuxLiving]

cschin4 - on building cheaper than buying -- depends on who does the work. Someone who is building and can do a lot of the work themselves is going to come out way ahead of the pack IF they have the proper skills.

But we do not believe that those custom builders are doing it out of the goodness of their hearts, do we????? Oh Surely not. They have a profit incentive that is passed on to the consumer.

Yes, you are right there are a lot of costs involved - and some like sewage and water depends on WHERE you build. If you buy a lot in town where these services are already at curbside, not that big of a deal. If you have to run pipe for 1/4 - 1 mile or more then yes, you're talking a major expense that must be considered in more detail. I think there is a bible scripture about this very topic - counting the costs BEFORE you begin!

Funny the spouse and I were just talking about pouring a slab and having four (bath, kitchen, bedroom, living) of those little buildings delivered and put in the four corners, and having a metal roof put over the whole shooting match. Viola - two parking spaces and two nice little patio areas all under one major roof....only have to weather a storm when going out from the bathroom over to the kitchen building! hahaha!!

Well, okay, not in our winters here, but in some parts of the world, a very doable and cheaper option than building a McMansion!! Don't worry, I'm not doing it but it was fun to think about!

[Ima saver]

We try to make about 10% on the houses we spec out. What helps is that my dh can do it all, so we don't have to pay for plumbers, electricans, floor and tile installer, cabinet makers. We can make the cabinets for an entire house for usually less than $10,000, labor and materials. go to a custom cabinet shop and get a quote. We are talking about $30,000 more.
We include the grading and septic tank in the cost of $110-120 a square foot.

[boefixepa]

Okay, I am going to give you my two cents. My job is a subcontractor...my company does the drywall, supply, hang and tape. It's almost one of the jobs that is left to subcontractors rather than do it yourself-ers. We do tract housing, small commercial, and lots of basements, remodels. Unless you are in the construction business...DO NOT BUILD THE HOUSE YORSELF! There is a reason there are professional builders like Ima's husband, you don't want your house to be your ginny pig! You don't have relationships with subcontractors to get the best deals. You don't understand the 'norms' that go along with building. You don't understand the codes, laws, and fees. You are always overly opptismistic on the costs, etc. There is a reason that builders deserve the money they earn. I never know what I am getting with a home owner/builder. Sometime they are just fine, but that's the exception! Generally they have unrealistic expectations and have no idea what they are doing and then think I DID SOMETHING WRONG! Then they think that imperfection is worth gold and short me big time! Really I don't make that much! The market here doesn't let me!

I would do one of two things. One, fine a semi custom tract builder. Track housing is less expensive for a reason...I've done the same plan 40 times, I know what it take, the learning curve is over. You get better quality and better floor plans (there is a reason they are similar, they are very functional!). You get the benefit of a custom service deparment...there is NO SUCH THING AS A PERFECT HOUSE! There are always going to be little repairs or things that will need to be addressed.

OR,

Find a smaller custom home builder that you like and can trust. Get reference and talk to home owners he has built for. They may have some plans they have used before or a deal with a designer to get you plans. They have established relationships with dealers and subs and will deal with all the things necessary like scheduling and getting the job done. These guys will take a little longer, but if you want a purly custom house, this is the way to go.

The only good way I see someone to build their own home is if they already work in the industry, know the norms, and have the realtionships. If that's not you, don't go there.

Good luck in whatever you choose to do. This is just what I have seen. Sorry I don't know anything about the loans other than constructions loans have a deadline and people never seem to meet them.

[jmjj215]

In Stanley's The Millionaire Mind he goes into a fair amount of detail about why building a custom home can be a risky proposition. From his survey studies, most millionaires prefer to purchase pre-built homes to mitigate the risk of cost overruns, unknown area, etc. Just a thought to add to your equation.

[greedy4chips]

If you have the time to make 1000 decisions for every little thing that goes into your house and be able to stay within budget on each of those 1000 items then yes you will get more by building than by buying used.

This is hardly a rule though.

Your choices when you build are what you thought you wanted at that time versus accepting what the previously owned house has such as carpet color, tile, hardwood, fireplaces, windows, paint, trim, front door, interior doors, toilets, showers, tubs, cupboards, countertops, appliances, ceiling height, skylights, recessed lights, garage size, room sizes, room location, water heater size, furnace, AC, cable outlets, phone jacks, power outlets, radiant floor heat, whirlpool tub, deck, landscaping, etc.

The list could go on forever! For me the choice is simple. If you have the patience to make the 1000 choices then have your house built and avoid replacing all the things you accepted when making the used home purchase.

[PrincessPerky]

That reminds me...when we bought this house I thought I knew what I wanted, I was ok with not getting it, but I thought I knew what I would pick given the chance, now 5 years later, most of those ideas have changed.. I am glad I didn't do any of them/pay for them then...

[Ima saver]

The references are a very good idea. We have reference letters from every house we build, complete with addresses and phone numbers. We encourage people to call as many as they want. We have stayed friends with all we have built for, some we have built for more than once. We are going out to dinner with one couple tomorrow night and to a halloween party with another couple. We have a two year waiting list, that is as long as we will take. DH prefers spec houses so he can build them the way he wants. He builds every house as tho he is going to live in it himself.

[Snoopy2645]

If I could do it over I would have bought a new house brand new maybe not like custom built or maybe I would I dont know maybe someday I will I hope!!! But I would rather by new than a house like mine over 50 yrs with all its problems ya know its a sad sad situation