9 financial pitfalls of building a new home

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Owning a home is a mainstay of the American dream, but buying one that’s ready to go can be very expensive. Home prices inflated 16.9% in 2021, the highest on record. While we can expect interest rates to warm up and cause the market to slow slightly, that doesn’t mean homes will become more affordable or even cheaper. In fact, house prices could continue to rise by as much as 12%, according to some forecasters.

See: Advantages and disadvantages of locking in your mortgage rate
Learn: 6 Vital Questions Buyers Should Ask a Home Inspector

To reduce costs and see the house of your dreams fully realized, you can turn to the method of building your own house. If you have the time and resources, building your own home from scratch might be the most economical route. But beware of the builders – building a house from scratch is not without costly caveats.

Avoid these common financial pitfalls by planning ahead, doing your homework, and investing in extra help when needed.

Not using a licensed architect

“Building your own home without an expert architect directing every phase of infrastructure, design and construction from start to finish is like flying around the world without a trained pilot,” said Baron Christopher Hanson of Fine properties of echo.

“Aside from styling, creativity, and paint colors, professional architectural drawings are the primary roadmap and expert order of operations needed to complete your new home construction on time, on schedule. budget and according to strict materials and mathematical planning. Plus, architects know how to help hire qualified general contractors, niche contractors, and craftsmen who can deliver every small project on time, on budget, and executed perfectly every time,” Hanson added.

Be sure to research licensed architects and/or reputable home building companies before starting any project.

Not getting everything from your local government in writing first

“Yet another reason you need to hire an experienced local architect is because they know every twisted clown on your local town’s payroll, and how to get all the exact building codes, tax costs and construction oddities exactly and in writing before construction begins,” Hanson said.

“People who don’t get 100% of everything in writing from their local government first – before they start – soon find themselves surrounded by smiling local officials all the way to their banks.”

Related: 10 hidden costs of buying a home

building too big

Bigger isn’t always better, at least not when you’re building your own house.

“The average cost to build a custom home in the United States is $105 per square foot,” said Corey Tyner, Founder and President of Buy Yo Dirt. “This implies that simply removing 500 square feet of unnecessary space from a home can save you over $50,000.”

Skipping contracts and/or signing failed deals

“Avoid skipping contract signings or signing inadequate agreements, as this has serious ramifications,” said David Bitton, co-founder and CMO of door loop. “When building your home, you need to be careful with any contract you sign to make sure it meets all the requirements and conditions.”

If you are unsure of your own ability to read the fine print (or honestly, even if you are), consider employing a qualified attorney. They can “analyze every contract you sign to ensure it’s sufficiency and provide you with protection if something goes wrong at one stage in the process,” Bitton said.

Incorrect custom commands

“Incorrect custom orders are another potential stumbling block that could cost you dearly,” Bitton said. “You need to create construction requirements before the project begins to ensure that all unique material specifications to be used are clearly defined and stated. This document may help you qualify for an enhanced rebate or exchange for incorrect custom hardware delivered to you. »

Explore: 10 fastest ways to pay off your mortgage

Conservation Laws

“One of the biggest pitfalls of building a home is any conservation laws,” said Omer Reiner, licensed real estate consultant at Florida Cash Home Buyers, who notes that this problem is particularly rampant in Florida. “Often people buy land and hope to build a house on it; however, there may be issues like endangered species or even general land conservation laws that prevent people from building on the land in the first place. When people find out about this, they realize they’ve bought a few acres of hiking land where they can pitch a tent at most. Many clients of mine have helped people try to build on land only to abandon the project, sometimes wasting hundreds of thousands of dollars in the process.

To avoid this financial pitfall, Reiner recommends that hopeful homebuilders pay a land inspector. “[They] must survey the land before purchase and declare the land free for construction. It will cost around $500.

Not checking construction progress

“Don’t be fooled into thinking it will be nice to have someone blindfold you and take you to your new property for a surprise reveal (like you may have seen on TV shows). home improvement reality show),” Tyner said. “Because you don’t want to be trapped with a big mortgage on a house you don’t like.”

To avoid a bad surprise, visit the site under construction. “Make sure everything meets your expectations, and if not, ask questions,” Tyner said. “The worst option is to stay silent and end up with something you don’t like or have to spend on. [fix] later.”

Read: Will mortgages be affected by Fed interest rate hikes?

Cost overruns due to supply shortages

“Due to supply chain issues caused by the COVID-19 pandemic, costs are volatile,” said Darren K. Proulx, strategic finance advisor at Estate bees. “Be sure to leave a minimum of 25% contingency money in your budget for cost overruns until supply chain issues return to normal.”

Make changes along the way

“Random changes cost exorbitant amounts of time and money and a waste of materials that you can never salvage,” Hanson said. “Don’t dig into the ground or even look at a single hammer and nail until your architectural plans are 100% decided and set in stone.”

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About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles via Brooklyn. Her work has appeared in Vogue, The Atlantic, Vice and The New Yorker. She is a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, Fifty Shades of Dorian Gray, received rave reviews from Fred Armisen and Ken Kalfus, and has been published in the US, UK, France and Russia – well let no one know what happened with the Russian edition! She has an affinity for Twitter.
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