Not everyone wants to live in a gated community with a property already built for them. Others may want to utilize a vacant plot or create a home on agricultural land. This means that one would have to start building from scratch.
But how much does it cost to build a house these days? The answer is a lot.
Get Ready for Home Construction Spending
When it comes to determining the costs of building a house, many factors can affect the numbers:
1. DIY or Contractor
One of the important decisions to make is whether they will build the house themselves or hire a contractor to do it for them. At first, it seems DIY is much cheaper. Homeowners will have more control over their spending. They won’t have to spend money on labor, which is in shortage these days, so wages are currently high.
However, homeowners may struggle to qualify for construction and home loans. Lenders who are willing to finance the building process would find it difficult to trust a home built by someone who may not have the license or the skill to do it. The risks are high for them. They may also share the same sentiments with those who extend mortgages.
Homeowners may consider the DIY approach if the person doing the job is licensed or skilled in the field. Otherwise, they are better off working with a contractor.
Construction costs may be cheaper in some states for many reasons. First, the needed materials are already more affordable. Second, it’s easier to find the people who can do the job. Another factor is the price of the land.
According to Go Banking Rates, Hawaii is the most expensive state to build a house from scratch. It could cost as much as $288,000, while labor fees may be almost $30 an hour. California, meanwhile, places second. Those who want to construct a home here should set aside at least $260,000 and pay labor at $22 per hour.
It is the most affordable in Oklahoma. Here, one can already have a decent house for less than $150,000. Labor is no more than $15 per hour.
3. Demand for Houses
The housing demand may also affect those who want to construct their own since there may not be enough contractors or skilled people to meet their needs and budget.
Currently, the United States is in a hot seller’s market, which means the number of available houses is lower than the number of people wanting to buy them. In fact, the industry data in April suggested that the country lacked four million.
In 2019, HomeAdvisor pegged the cost of building a house to almost $300,000. However, during this time, the average home price was over $310,000. This makes home construction a slightly cheaper choice, especially since homeowners can be more flexible with their choice of state, materials, size, and labor.
How to Make Construction More Affordable
Here’s the good news: homeowners can explore different ways to afford home construction. One of these is getting a construction-to-permanent home loan.
How does this work? The borrower will have a sort of two-for-one loan arrangement with the lender. The financial institution will finance the construction process, after which the loan can then shift to a full mortgage.
During the entire time, the homeowner pays only one loan, one interest rate, and one closing cost. This streamlines the process of getting a mortgage, ensures that the borrower is already pre-approved for a mortgage, and covers the majority of the construction costs.
Borrowers, though, need to remember a couple of things:
• Some nonconventional loans can fall into this category, including USDA loans.
• Not all lenders, however, are open to offering construction-to-permanent-home loans because of the risks involved. First, there’s no actual collateral, such as a house, to speak of. Second, the construction process can encounter major problems along the way.
• The potential down payment for this type of loan, therefore, is usually high. If FHA loans may ask for 3.5 percent, a construction-to-permanent-home arrangement may require at least a 15 percent down payment. Other requirements may also be harder to meet, like credit scores or income. They may also check contractors and conduct inspections.
• Borrowers may not receive the money in bulk, especially during the construction phase. They may also have to accomplish some requirements before every withdrawal.
• While they might pay closing costs once, other charges might kick in before the mortgage rolls in.
There are pros and cons for getting a construction-to-permanent-home loan, but it remains a viable option to homeowners who prefer to design their own space but spend less on building it.