What You Need to Know Before Building a Home

Local laws regulating the location and construction of residential properties can impact your building plans and result in increased construction costs or undesirable neighborhood changes in the coming years. Before becoming too attached to a piece of land, make an appointment to meet with local building department representatives to discuss your proposed home site. Ask for an overview about property owner requirements such as home size laws, land use regulations and the area's future development plans.

While some developers require you to use a specific contractor if you purchase one of their building sites, it can be more advantageous to choose a licensed, independent builder. Don't choose a name at random; get referrals from homeowners with well-built homes that you love. Selecting a local building company can keep your costs down, since the builder will know how to work with regional building codes and regulations. Investigate your list of potential companies by interviewing past clients and contacting your state's contractor's license board to learn if complaints have been filed against the builder.

Before you can build your dream home, you need to know what it might cost. Work with your contractor to create a realistic building estimate featuring all of the components you want in your new home. Once your contractor gives you a reality check of the costs to incorporate them into your home, you might want to eliminate certain high-priced features, such as custom windows or commercial-grade kitchen appliances. After you achieve a realistic price, remember it's always better to overestimate your fees. Always add about 25 percent to the project's total costs to cover unforeseen construction expenses such as seasonal increases in material prices.

Unless you're paying cash for your new home, you'll need to secure both a construction loan and primary mortgage from a lending institution. Nurture relationships with local bankers who have a firm understanding of your community and building area. Local lenders are more inclined to invest in their own communities but some may resist funding projects in certain areas, such as fire-prone wilderness areas. Apply for funding with the institution that has the most lucrative offer and seems most likely to approve your application. When a lender wants to take a closer look at your application, you'll need to provide at least three years of income tax filings, bank records and other evidence that demonstrates you're a good financial risk.