The process can be long and expensive, but it can be worth it for the home of your dreams.

What to know when building a custom home

Brian Higgins | June 27, 2022 at 12:00 AM

There are many reasons people choose to build rather than buy their next home. Some people have specific visions for their home and want to customize certain features. Others simply want to be the first people to live in a brand new home, or would like their home to have the most up-to-date materials and technology available. No matter your reason, there are many things to keep in mind when building a custom home. 

How to pay for a custom home

When building a new custom house, you’ll most likely need to take out a construction loan. A construction loan is a short-term loan that covers the expenses associated with building a house. It can cover materials, labor, permits, the land itself and more. 

A construction loan is different from a traditional mortgage in several ways. For starters, it usually comes with higher interest rates, since there is no house in place for collateral. Because of this, the lending process is more expensive, and usually involves a closer inspection of plans and income. Your approval process may involve submitting a construction timeline and budget. 

Another way in which construction loans are different from mortgages is in the payment process. Since they’re only meant to cover the construction process, they’re usually only 12-18 months long. They’re also taken out in installments, which will be doled out as stages of the build are completed. When these installments, or “draws,” are taken out, you’ll only need to pay interest on them, rather than the full amount. 

Due to the loan’s short timeline, a popular repayment option is a construction-to-permanent loan. This is a construction loan that converts into a standard mortgage after the build is complete. If that type of loan isn’t available to you, you can apply for an “end loan,” which is a standard mortgage that you’ll pay once the house is completed.  

What you’re paying for

When building a home, keep extra expenses in mind. The plumbing, electrical wiring, lighting, internet configuration and media hookups will all need to be installed by different professionals as the home is built. Plumbers and electricians aside, you’ll also need to meet with people like city inspectors, land surveyors and structural engineers. 

Your builder or contractor should be able to organize and reach out to everyone you need, or at the very least steer you in the right direction. Be sure to do some research and factor in the cost of all the specialized labor and materials that will be involved in the project. 

First time homeowners will have other startup costs as well, as they’ll likely need to buy their own appliances for the first time (dishwasher, refrigerator, washer and dryer, etc.). There is also new lawn and garden equipment to consider if your home has a traditional yard. 

If you’re building a custom home, you might need to hire an architect to design it. This is more expensive than opting for a predesigned stock plan, but if you’re choosing to build because you want a house your way, it’s worth it. An architect will ask plenty of questions about your lifestyle and your vision for the house, and the process will be much more in depth. 

The extra effort should be worth it in the end, but remember that if your custom design requires significant changes to the land or developing area, it can get expensive quickly. If you don’t want to hire an architect, the contractor or home builder should have stock designs for you to choose from. 

Before starting the home building process, be aware that there will be unexpected expenses along the way (unless you become the first person in history to build a house without a hiccup). Put some money aside for this and talk to your contractor about who might cover certain expenses should they arise. For instance, will they be responsible for a rise in building material costs or will you? 

Finding the right contractor for your custom home

Speaking of contractors — the right one makes all the difference, and choosing your contractor should be one of the most extensive parts of your process. The best way to find a good contractor is good old fashioned word of mouth. Do you know people who built a custom home they love? Ask them who they worked with. If that contractor is booked up or unable to work with you, they might have people they know and trust to refer you to. Interview several contractors and don’t be afraid to treat them like an interview. Make sure they can meet your timeline, agree with your vision for the home and don’t have any major concerns about the design. There are no bad questions when it comes to your future home, so ask whatever you need to in order to put your mind at ease and make the details as clear as possible. 

As with any interview, it’s good to do some behind the scenes research. Check references, read business reviews and google their name to see what comes up. Remember that it’s the internet and some people just love to gripe, but an overwhelming number of bad reviews is definitely a red flag. 

Look for a balance between affordability and quality in your contractor. If you can afford the best, get the best! But if you’re trying to save money, you may be paying for it later by skimping on a contractor now. Try and look elsewhere for cutbacks. 

Designing and building the house

Your contractor will likely have lots of preconstruction meetings with you. This is a good thing; it means they’re being as thorough as possible and trying to ensure that the house is exactly how you’d like it. Pay attention and keep records so you can always come back to the plans you made and agreed upon. Meanwhile, make sure you cover your bases with the necessary professionals and experts early on in the process — you’d be surprised how often a house’s septic situation isn’t discovered until the foundation is well in place. 

Always keep your budget at the forefront of your mind. It can be easy to get carried away as you watch your dream home come to life, especially when you’re prone to big dreams. A hot tub and a climbing wall might tie the yard together, but remember there are plenty of expenses to pay now and plenty of time for additions later. Another thing to think about is how design choices may affect your future resale value. If possible, you want to give your home as broad of an appeal as possible. This may affect decisions like the number of rooms, floor plan concept, natural light and more. A good architect and contractor should be able to steer you right, but you should temper bold ideas yourself as well. (The Utah Jazz logo is not a good shape for a house). Avant garde designs aside, it is your house, so don’t be afraid to think about your values and lifestyle when building. Do you like to entertain? Are there any tiny little family members in your future? Do you need rooms set aside for hobbies or personal projects? Do you have any especially tall relatives who might be over often? This is your future home, so try and think of everything, take your time and do it right! It’s a long process, but when you finally step foot in your dream home, you’ll be glad you did it. Search KSL Homes for all your housing needs.