I am struggling to buy a home. Should I just build my own?

Frustrated by the low inventory of homes for sale? Tired of getting outbid by other buyers? Should you just find some land and build your own home? For the vast majority of home buyers, this is not the solution.

Building a home requires a lot of time

New residential construction home framing against a blue skyIf you haven’t built a home before, you need to recognize the long, sometimes very long, time frames involved. Let’s start with a new construction home where you visit a new construction subdivision, pick a floor plan and existing lot and then order a home from the builder. About the fastest that you’ll get a home that hasn’t been started is 6 months from start to finish. These new construction subdivisions are completed quickly because the lots are surveyed and a variety of plans are ready to go.

Now lets look at the time frame when you are going to build your own custom home on a lot that you locate and purchase.

  1. Find and purchase land: 1-12 months – If you are in a dense urban area like Seattle, this could take awhile.
  2. Get land surveyed: 2-3 weeks
  3. Find and hire an architect: 1 month – You’ll need to locate a few to find one that suits your design style and tastes.
  4. Iterate with architect on designs: 1-2 months – You are going to go back and forth on various designs.
  5. Find and hire a builder: 1-2 months – You’ll need to interview and get bids from a few builders and will need to do this with plans in hand. You also want to review their previous projects.
  6. Apply for permits: 6-12 weeks – When the city is busy or if your plans need corrections, permits can take awhile to be approved
  7. Construction of the home: 9-12 months – If you make any changes along the way, it will affect the building schedule.

While some of these tasks can be done in parallel, realistically you are going to spend 12-18 months on the process, sometimes more if you have trouble finding the land. In addition, the builder of a single custom home will always take longer to build than a builder who is constructing 5-10 similar homes right next to one another. It is simply easier to schedule sub-contractors across multiple homes in various stages of construction.

Don’t forget about the demands on your time when you are building the home. When you are building your own custom home, it is like a second job. You will want to visit the construction site, sometimes a few times a week. You’ll also spend countless hours shopping for tile, light fixtures, bathtubs, sinks and more.

Building a home is going to be more expensive

faucetBuilding you own home gives you an enormous amount of control over the final product. You get to pick out every design and every fixture to achieve the look and quality that you are going for. That creative control is going to cost you more money. In almost all cases, your personal choices of finishes are going to exceed the budget that a builder has when they build a subdivision of homes.

There are no economies of scale for a builder to build a single home. A builder can get a better deal from their suppliers and subcontractors when they are promising work on a large number of homes.

A builder also needs to make a profit on your project. When you own the land, they do this by marking everything up with a general contractor fee, usually about 20%. This is different than when you buy in a builder’s subdivision. In that case, a builder has probably paid less for larger parcels of land that they subdivide. Some of the builder’s profit comes from markup on the home and some of it comes from buying the land at an attractive price.

Finding land can be difficult

In rural areas and in many sprawling metropolises, it wouldn’t be that hard to find some reasonable land on which to build a home. However, in a highly built-up, geographically-constrained area like Seattle, there aren’t that many great parcels available at any given time.

In a dense urban area, you probably need to compete with others to buy a tear-down home. You’ll also find a fair amount of “difficult” lots on the market that have environmental factors like steep slopes or wetlands that require a much more extensive planning and permitting process.

You need more cash

When you build your own home, there is going to be a much larger outlay of cash by the buyer. First, financing land for construction requires bigger down payments, usually 20% of the final value of the project or more. You’ll also need to seek out lenders who specialize in short-term construction loans.

Before you can begin building the home, you are going to need to pay for the survey, architect, engineer and permit fees. On a custom-designed single family home, you could easily spend $30,000 on this part of the process, and you can’t really finance it because you need approved permits to get a construction loan.

You also need a backup fund in case you go over the budget of your construction loan. It is not a question of whether your custom home will go over budget. The only question will be by how much. The last thing you want is to get stuck at the end of the process without enough money to complete the home.

When is the right time to build your own home

You need to be in a financial position to make a home construction process happen. This means that you adequately qualify for construction financing and can pay the upfront costs of getting surveys, plans and permits in place.

You also need to be in a flexible living situation in another home or rental. It is impossible to predict with any accuracy when a custom home will finally be complete, so you need somewhere to live during the acquisition and construction phase.

You need to dedicate time and energy to both the design and construction phase to ensure that the home meets your expectations. There are also tons of decisions and choices that you will need to make along the way. If you are too busy to interact with a builder on these decisions, the project will experience delays.

Nothing can compare to building your own home. The process can be very rewarding and results in a home to exactly match your needs and tastes. However, it is not the right solution for folks who are struggling to buy a home in a competitive market. It simply requires too much time, energy and money.