Building a home is an alternative to buying an existing home that many people don’t consider. You might be surprised to find that building a home actually poses a lot of opportunity for saving, and it can be a much better investment than an older home.
We’ll take a look at the process of building a custom home and how you can save for it.
Hopefully, the information below can serve as a good first step toward owning the home of your dreams. Let’s get started.
Building a Custom Home: How Can I Pay for It?
We imagine that building a home from scratch requires the money to do so beforehand. When you buy an existing home, you know the value and you can take out a loan to afford it.
It’s a lot simpler than having plans for a home, knowing an approximate value, and having contractors change their prices as projects continue. Adding all of those factors to build your own house might seem really complex, time-consuming, and difficult.
The fortunate thing is that building a custom home isn’t as complicated as it sounds. Sure, there are a lot of factors that go into it, but professionals like far west commercial roofing in your area are experts at completing the process and offering help.
Plus, you don’t have to have all of the money in advance.
Getting a Loan for a Custom Home
The best way to afford a new home is to take out a loan in advance. You’ll need to speak with a lender to see how much you’re approved for before you start making any plans, though.
Knowing the value that you’re approved for will make it far easier to make decisions in your budget.
Getting approved for a loan to build a home requires a few more things than a traditional mortgage loan. First, you’ll need to have better credit than you would for a traditional loan.
There might be lenders out there who offer competitive rates for people with lower credit, but just note that the rates are a little higher and that you’ll be more likely to be approved with excellent credit.
Credit is always an important factor, but the requirements are marginally steeper when you’re working with a new build. Additionally, you’ll have to have more money down than you would otherwise.
In most cases, lenders will want you to offer nearly 25% down for your custom home loan. If you already own the land you’re building on, you can use that property as collateral against the building loan.
Also, if you’re someone who already owns a home, the equity on your current home should serve as more than enough to cover that down payment. That said, many of us don’t have that kind of capital to throw around.
If you’re faced with saving up 25% of your loan, let’s look at some saving plans that you can consider.
How to Save Up for a Down Payment
Depending on the ultimate cost of your home, you’re probably looking at a down payment of anywhere from 30 to 50 thousand dollars upfront.
While that isn’t nearly as much as it would cost to build the home on your own dime, it’s still a massive chunk of change. Most people don’t have that kind of money to access, and it’s likely that it’s in a retirement or savings account if they do.
Our first tip is to consider your potential down payment and break it down over a period of five years. If your investment requires that you put 30 thousand down, that’s 6 thousand dollars per year over five years.
Is it feasible for you to set that much aside? When you consider it in those terms, that’s 115 dollars per week set into a separate account. You can also plan on that money accruing marginal interest over a period of 5 years if you have it in a good savings account.
Access Your IRA
The wonderful thing about IRAs is that there are no penalties to withdrawing that money if you’re a first-time homebuyer.
Even if your investment account doesn’t have quite the amount of money you need to cover the down payment, you might still be able to get a good chunk of it from your IRA without having to take any penalties.
If you’re worried about using that money for something other than your retirement account, consider thinking about it in terms of additional investment. Homes are some of the best ways to accumulate wealth.
The value of your home will increase significantly over the life of your mortgage. Additionally, the value of your land will go up a great deal when your home is complete.
Taking money from an IRA and putting it into your home equity is just another way to turn that money into fuel for your retirement.
Invest in a Home and Use The Equity
The final idea that we’ll offer for your plans to build a custom home is to start with an existing home. Existing homes are easier to get qualified for and you don’t typically need as much money down for the mortgage.
Investing in a home now and waiting 5 years could provide you with the kind of equity that you need to invest in a custom-built house. There are also a lot of small investments you can make on your own that will boost that home value up a good deal.
Doing this can allow you to continue on with your normal life without setting too much money aside every week. Your investment will grow naturally, and you’ll wind up with a chunk of cash that you can use to sculpt out your dream home.
Need More Home-Building Advice?
Building a custom home is a process that requires a fair bit of thought and help. We’re here to help you come up with ideas that could save money and make your home as beautiful as possible.
Explore our real estate section for more ideas and insight into homeownership, budgeting, and more.