Building with Bank Financing vs. Out of Pocket – Is It Less Expensive?
Building a home is not as simple as renting or buying ready-built property. The financial plan on a ready-built property is fairly straightforward if you come to an agreement. You’ll need to know information such as the amount that needs to be paid on the mortgage, the duration of your contractual agreement with the seller as well as unexpected expenses.
These expenses are the difference between you owning a piece of land and owning an actual house. For starters, to start building a house, you have to legally own the land you want to develop. Next would be a construction fee that depends on the plan you agree on with your desired construction company. The stipulated partnership will have terms and conditions of a fixed price that includes all building costs. Another option is to agree on a cost price that will result in you being liable to pay for all other expenses (such as material costs, damages, labor, etc).
The most grueling expense that you’re going to encounter is the closing cost. Everything that you need to be finalized in order to own the property such as home inspections, property tax, homeowners’ insurance, escrow, legal fees, and any other costs that may apply to you needs to be taken into account when closing off the construction of your new house.
The more unexpected costs one acquires, the deeper the dent in your bank account becomes. This is the case especially if you are using your own savings to finance the new property. There are, however, home construction loans that can be used to finance the renovation of existing property or constructions on vacant land. A portion of the loan amount is retained by the bank and the funds are provided to you as progress payments while construction is taking place. To determine if you qualify for a building loan, you need to consult your financial advisors, realtor, and bank.
The best way to save while building your dream home is to get quotes from different service providers and compare costs. These would be your:
- construction companies
- landscapers
- interior designers
- real estate agents
- architects
To cut costs even further, try and opt for some D-I-Y work. You don’t always need to hire a professional landscaper if you can do the gardening by yourself. Additionally, instead of hiring an interior designer, there are plenty of apps and websites that can guide you on how to design your own home. At the end of the day, you have to love the home you’re building so it’s imperative to plan accordingly for what you can afford and what you can do yourself.
Another point to keep in mind is that deciding on a timeline for building a house from scratch and taking out home loans depends on your service providers and selected payment plans. Be vigilant in the way that you spend your money and don’t be quick to go for the cheapest one. This may result in spending more money for damages and repairs so it’s important to consult as much as you can from estate agents who have ample experience in building properties from scratch.
At the end of it all, building out of pocket usually proves more expensive, however, it does provide you the absolute freedom to build your desired home.