Understand the basics of the home building process – Part 2

Step 2: Know the Experts and Fees Involved in Building a Custom Home

 

It can take anywhere between eight and twelve months from the time you purchase a lot, choose the design of your home and start interviewing builders, to the time you finalize your choices, acquire a loan, have blueprints made, have the house built and ultimately move in.

Choosing the best custom home builder for you and your project is essential to its success. Remember, you will likely be working together for 6-12 months; so as in any relationship, there needs to be trust and clear, honest communication. Our guide How to Hire a Custom Home Builder will help you through this process.

The entire process is an intricate one and can involve up to 30 different businesses and entities.

The cost of the home construction itself will be your largest expense, of course, and that cost is impacted by characteristics of the lot where the home will be built. So in our next installment, we’ll talk about The Land, and after that, we’ll go into detail about Primary Construction Costs.

For now, let’s discuss the fees that will be due to everyone who will be involved in the construction of your new home.

The Experts and What They Do

Architectural Design Fees

If you want a custom-home, designed from scratch you will need to hire an architect or designer to design the home and prepare detailed blueprints. The fee for this is anywhere from 5% to 15% of the construction cost of the home.

If you can find a pre-existing house plan that is close to the design you want, you can save many thousands of dollars and often months of time compared to a custom design. Most existing house plans can be modified to suit the specific needs of you and your family. A pre-existing plan typically costs 2% or less of the home’s construction cost.

Example

For example, let’s assume that you are going to have a 2,000-square-foot house built and the cost for construction will average out at $200 per square foot.

 

EXISTING HOUSE PLAN

$1,800 to $3,000 + Modifications

 

CUSTOM DESIGNED HOUSE

2,000 sq. ft
 
$200/ sq. ft = $400,000
 
$20,000 – $60,000 (5%-15% fee)

 

(The above is just an example. As we’ll explain in the Budgeting for Home Construction section of this course, even two houses being built to the same plan will not cost the same, for a variety of reasons.)

Structural Engineer Fee

BWthe-tumalo-under-construction-113Whether you are having a home built according to a pre-existing plan or a custom plan, you will likely need the stamp of a structural engineer. Many local/state governments require that a structural engineer go through the plans for any new building to confirm that the specifications will work for a certain geographic area.

New home construction is done in stages, and with each stage an inspector will visit the home to ensure it conforms to the International Residential Code (IRC).  The IRC is a minimum standard, and your builder should really build to exceed that code.  The engineer can take a look at the plans and often help to simplify the structural design, and ensure that the mechanical, electrical and plumbing systems are meshed together properly, which in turn can save both money and time during the permitting process and the construction of the home.

 

Loan Fees

A “New Construction Home Loan” is handled very differently from a loan to purchase an already existing house.

You will interview at least three lenders to see who can offer you the best rates. Once your loan is approved, your builder will “draw” upon that loan at certain specified times to pay for work done. An officer of the lender will visit the home to ensure that the work actually has been done and that everything meets code.

Be sure to talk to each lender you interview about how they handle their loan fees.

Recommended Reading:Residential Construction Loans: 10 Things You Should Know

Potential Fees from a Variety of Professional Firms

Professional firms you may need to employ include surveyors to ensure that the lot you wish to purchase has been platted properly, geotechnical engineers (who ensure that the soil on which a home is to be built is suitable), and energy experts should you desire a “green” home.

Permit Fees

Local and city governments will require that you have permits to build or install the various systems of your new home. The permits needed will vary from city to city. Some cities can be very highly regulated, others – not so much.

Will an existing building on the plot need to be demolished? You’ll need a permit for that. Building a pool? You’ll need a permit. The list goes on. Prices for each permit will vary. It’s a good idea to speak with your local building department before you begin the process to get an idea of the individual permit costs.

It is up to you, with the assistance of your builder, to ascertain and acquire the required.

Site Preparation Costs

You’ll need a permit to demolish any structures on your property before constructing your home. You’ll also need to pay someone to demolish or deconstruct the structures and remove the debris.

  • Other potential costs – questions to ask:
  • Does the lot need need to be graded?
  • Will you need a brand new septic tank?
  • Will power and water hookups need to be added?

Primary Construction Costs

We’ll talk about this in more detail below, never fear! Construction costs include the exterior (the frame of the house, the roof, etc.) and the interior (flooring, counter tops, etc.)

BWthe-tumalo-under-construction-109Builder / General Contractor Fees

Your builder will charge you a percentage of the total cost of the home to build it. This often starts at the 10% range, but may be higher.  When you first meet with and interview potential builders, the question of their fee is one you’ll need to ask. (More about this in the next E-mail lesson.)

Hardscaping and Landscaping

Once your builder has completed your home, there’s still the “hardscaping” – the driveway, patio and walkways, and the “landscaping” – the irrigation system, laying of sod and planting of trees, as well as outdoor lighting, to be considered.

Final Cleanup

There will always be debris left over from the construction process on the interior and exterior of the home that you’ll want to have removed / cleaned.

Sales Tax

All materials you purchase (or your builder or sub-contractor purchases for you) will come with a sales tax.

Real Estate Tax and Insurance

Once you begin the purchase of the land on which your home will be built, you will owe real estate taxes.

You will also want to consider taking out a Home Owner’s Insurance Policy as soon as construction on the home actually starts.  Ascertain that your builder – and any subcontractors they employ – have their own insurance in case someone gets injured on the job.

Unforeseen Expenses

There will always be unforeseen expenses, for which you will need extra cash on hand. Always try to budget about 5% of the cost of the home for unexpected costs.

By using due diligence and hiring the most experienced and skilled professionals in each discipline, you’ll make the process as stress-free as possible!

 

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