Steps in Building a House – Where to Start

These are the basic steps in deciding whether to proceed with your building project.

Steps in Building a House –A Budget is the First Step

1. Make a budget.

Making a budget for building or buying a home is simple. Don’t complicate it. The formula is: Cash plus Loan = Budget!

First, add up all your available cash and any assets you want to convert to cash for your dream home.

Then, determine your maximum “borrowing power.” These two steps determine how much you can spend. It’s that simple.

The first step needs no explanation. The second is easy too.

Just contact any mortgage lender, and a loan officer will look at your credit history, cash available, your income(s) from all sources, and your total monthly obligations (debt).

The ratio of your debt to your income is called your dti. You will hear this term frequently!

Then the lender can determine the maximum loan amount you will qualify for based on current interest rates and loan terms (length of loan) available.

You should also contact several different mortgage lenders to compare rates and terms.

2. Deduct land cost. Location ultimately determines land value and land cost.

3. Determine what size and style of house you desire and then find a house plan that meet these criteria.

4. Determine the approximate cost to build this particular house using construction cost estimating software.

5. Get an real estate appraisal on the value of the finished house and land together. Appraising the market value of a new home before it is built is called a “Subject to Completion” appraisal. Your mortgage lender will order such an appraisal when you apply for a loan, but you can order one from a real estate appraiser yourself early in the decision making process. I have always felt that it was money well spent.

6. Now it should be easier to make your decision.

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