Profile picture for blackmetal

building a home versus buying and already built one

Prior to deciding to buy an already built home my original plan was to buy a plot of land and then me a contractor to build a custom home. The problem is that after doing the math it didn't seem any cheaper to build a custom than buy a new home, in fact it seemed like it might be equally as expensive (not to mention more of a hassle). The problem is that when I had this plan I impulsively bought a lot. So my question is should build a home on the lot I already have or try to resell the lot and then buy an already constructed home. While I feel like I can get a good deal if I hold out a couple months and buy new, I also feel like the lot I bought will depreciate so its kind of a catch 22. In general would you all say it is better to build a custom home or buy pre-constructed? Has anyone gotten a construction loan before? Is it a hassle?
  • October 21 2007 - US
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Answers (6)

In my experience building you own is always better, the key seems to be finding a smaller builder, and paying him a flat fee (25k) for example. With biz being slow these days you should be able to find someone willing to do this. Put the constuction loan in your name and monitor all the costs, General contractors have a funny way of leaking funds in one direction or another is you dont watch them! It is a bit more hassle putting the const. loan in your name but should be worth it in the end.
  • October 21 2007
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Profile picture for robin398
Sometimes getting approved for a construction loan can be difficult. Many times 2 loans are needed, a construction loan and another loan for permanent financing. You will have to pay the closing costs on both loans which requires a lot of documentation and patience.

Besides the contract price it is customary for a construction lender to put a contingency reserve into the loan. The amount needed is based on a percentage of the contract price, the loan amount or other on-site costs.

Depending on how fast you use the money from the construction loan, there might be enough money left over from the construction loan to last you through the entire construction process.

Take some time and make a list of what you expect from your dream home. Pre-existing homes are always available for sale. Know where you want your dream house to be and what it should look like. When you know exactly what you want then you are ready to buy your dream home.

One thing you need to figure out is how much you can really afford to buy a home and how much can you put aside each month for mortgage payments and other house-related expenses. You can speak to a mortgage broker to see what you can afford and to see what homes are for sale in your area. Make sure your finances are in good shape before shopping for a home.

Buying a pre-built home in an upscale community might be wise buying decision because you are buying a new home at a low price. I would put in an offer on a pre-built home because then the price is locked for your new home and the price can't rise even if the builder decides to spend more time building the home.

A good way to spend your time looking for your dream home is to look at more than one home. This would include modular homes, pre-built homes and pre-constructed homes. Some buyers only look at a couple of homes before settling on the purchase of a home and it is usually a bad choice.
  • October 21 2007
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jhanan

Building on "spec" is risky business - you build a house that you like and then you have to try to sell it. If you are not going to build a house that you intend to live in then sell the lot and buy something already built.
  • October 21 2007
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Profile picture for blackmetal
Thanks all. To clarify I would be moving into this home so it would not be a spec. I just don't know if I want to wait six months to live in a home. But since the market is bad now anyway it looks like I'll have to wait a couple months to get a good deal on a home so maybe I am just better off building. Damn it's a tough choice.

Josh
  • October 21 2007
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Profile picture for blackmetal
I'm going to begin building this week its decided. I hope I made the right choice.
  • October 21 2007
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Profile picture for pub123
good luck jh :)
  • October 21 2007
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