Building Your Own Home? 5 Things to Consider
Building Your Own Home
Have you ever spent a few happy moments daydreaming about building your own home? Everything would be in exactly the right place. Building a house is a rewarding adventure and the ultimate way to customize your home. Here are 5 important things for you to mull over.
1. It’s All in the Numbers
Whether you are shopping for a pre-built home, or are looking to create your own from the ground up, it is vital to know what you can afford and stay within it. This is the key to building a home that you will be able to enjoy for the next 20 or 30 years, while still maintaining your financial stability.
When calculating the cost of building your home, there are many components from construction materials and contracts to tax benefits, funds for the down payment and slush account and other related expenses. In Toronto, the typical cost to build a house is a hotly debated topic but let’s estimate between $200 and $350+ per square foot. Do you love luxury or want to build on an especially challenging lot? It could cost as much as $500 or more per square foot. An average 2,500 square foot home could cost between $500,000 and $875,000 to build depending on materials, design, location, etc.
2. Choose a Reputable Builder
There are a lot of people building houses in the GTA. You have a lot of choice but the best custom builders are incredibly busy and command high prices for their work. When it comes to determining the head contractor for your project, do some careful research.
Be sure to ask family and friends but do not make the often fatal mistake of carefully evaluating the information you receive as you would from any other source of intel.
Get out there to the infill sites and exurbs where custom homes are being built. Knock on doors and meet the happy custom home owners and the people who did the work for them.
Note that in British Columbia, Alberta, Ontario and Quebec, builders must provide home buyers with a third-party warranty. The Canadian Home Builder’s Association has a list of reputable professionals you can start with or, if you reside in the province of Ontario, you can use the HCRA’s Ontario Builder Directory. This will allow you to confirm:
If a builder or vendor is licensed with the HCRA
If any conditions have been placed on their licence
If Tarion has had to resolve warranty claims for a builder in the past 10 years
How many homes they have built and where these homes are
3. Build a Home for Tomorrow
As tempting as it can be to personalize your home to the tenth degree and include every cool little feature you can think of, it is important to keep resale value and practicality in the back of your mind. It is inevitable that you will need to sell your home in the future. When that time comes, you will want to be able to appeal to all buyers easily and not have to hold the house longer than necessary. Ask yourself if the features you are putting into your home will appeal to others, and if the design suits the neighborhood.
4. Go Green!
Now, more than ever before, energy efficient upgrades are easy to add to your home. To make your home as efficient as possible, it is important to incorporate these options into your design BEFORE you start building. Options such as energy efficient appliances, windows, HVAC systems, and more can save you money in the long run and may also make you eligible for certain grants and discounts. The Canadian Mortgage and Housing Corporation (CMHC) green building program rewards those who select energy efficient and environment friendly options.
5. Understand the Loan
Aside from the costs of building a new home, what does a mortgage look like for an unbuilt home? In many cases, this is where a “construction mortgage” might come into play. In order to properly qualify for financing on an unbuilt home, you need to give me a budget that includes both hard and soft costs, as well as the reserve of money you plan to have set aside in case you run into unexpected events.
For example, based on the lender loaning up to 75% of the total cost (with 25% down):
Land purchase price: $200,000
Total soft and hard costs (as complete): $400,000
$600,000 x 75% = $450,000 available to finance
It is also important to understand that the lender will also consider the appraised value of the finished product. This value is determined before the project begins. In addition, depending on the lender, you may have a time frame within which you need to complete construction (typically between 6 and 12 months).
Below are a few key points to remember with regards to repayment on construction loans:
Construction loans are usually fully opened and can be repaid at any time.
Interest is charged only on amounts drawn; there are no “unused funds”
Once construction is complete and project completion has been verified by the lender, the construction mortgage is “moved over” to a normal mortgage
Lastly, the lender will always consider the marketability of a property. This includes not only demographic aspects, but also the geography. A lot that in a secluded area with minimal market demand may not be a property that they are willing to lend on, so it is important to review the entire property and plan before breaking ground. Please don’t hesitate to contact me to get started on the process so that you can build with confidence!
Jay Brennan
Mortgage Broker
DLC Estate Mortgages Inc.
Lic# 11363