Sometimes, you’ll come across a plot of land for sale that’s fairly inexpensive. You start thinking to yourself – what if I built a brand-new property that was all my own, designed just the way I liked it?
While the land itself might seem like a bargain, the actual cost of constructing a home from scratch might surprise you. Between garages, foundations, finishings, and more, you’re looking at a very big bill.
Once you start building, people often don’t realize how easy it is to get carried away. They go with slightly higher-end finishings than they initially anticipated, they add an ensuite bathroom, and on and on.
The next thing to consider when building a new house is financing. If you were to buy a property that’s already built, a bank is typically willing to lend up to 95% of the purchase price. In most cases, you can mortgage at least 80%.
Banks are willing to give out a much larger mortgage on existing properties, since they have an asset in-hand. If you were to build something on your own, you’d have to front a lot of the money.
While banks do offer programs for construction loans, you’d have to prove that you have the liquidity to build it – then, as construction progresses, they will start dispersing cash so that they are basically covering an asset that is being built. So, you need to be a lot more cash-heavy, and not everyone has that availability.
That being said, if you have the cash, the vision for your dream home, and the piece of land ready, go for it! It’s all about being in the right position to take on a project like this. Know your finances, know your bandwidth, and do what’s best for your unique situation.
Have questions about buying your first home? We have answers! Reach out to our team today to strike up a chat about real estate.