With pre-built houses on a seemingly never-ending rise in price, even the best home loans can start to lose some of their appeal.

And it’s understandable you might think it would be cheaper to just build your own house and not have to worry about competing with all-cash offers in a seller's market or inheriting someone else’s costly problems.

However, before you put hammer to nail, you’ll need to do a lot of research to determine if building vs. buying a home is cost-effective for your location.

With that in mind, let’s take a look at some of the things you’ll need to know about when it comes to building your own home.

1. Budget

Even more than with buying a home, you’ve got to keep an eye on your budget. Land costs, labor, insurance, materials, finishes, inspections, and fees... It all adds up and can quickly overwhelm you if you’re not prepared.

Additionally, mistakes and miscalculations are inevitable so you’ll want to have money set aside to deal with them, particularly if this is the first home you’ve built.

The National Associations of Home Builders offers many resources to help you assemble a budget.

2. Land

Will you be buying land that needs to be excavated and prepped for a foundation and utilities, or will all of that already be done?

3. Grid Status

Will you be off- or on-grid? (Loans are generally easier to obtain for a home that will be built on land with connections already in place.)

4. Construction loans

These are specifically for buying land and building a home and usually last one year or until the home is completed. After that, you’ll transition to a traditional home loan.

Smaller banks and credit unions are likely better options for securing these loans.

5. Labor

Labor costs and labor shortages may play a factor depending on which part of the country you’re building in. Large sections of the construction industry still haven’t fully recovered from the 2008 recession when many tradespeople left for greener, more employable pastures.

6. It Might be Cheaper if You Opt for a:

• “Tiny home”. Not surprisingly, a smaller house means fewer materials to buy and less land needed to put it on.
• Pre-fab/Modular/A-frame/Kit/SIPS home. Many of the costs for building these are reduced because much of the construction is done off-site or rely on standard, low-cost designs
• Rural location. Land in the suburbs and further out is considerably cheaper than near cities.
• Builder’s design. More expensive than an established plan, but cheaper than an architect’s fee (see below), a builder’s design is typically around $2/square foot.
• Single-story. Multiple floors require more design work, material, and time.
• Site that’s already been prepared.

7. It Will/Might Be More Expensive if You Opt for a:

• Custom Design. Custom homes by their very nature require lots of expensive specialists. Among other things they’ll feature:
  • Lots of corners
  • High-end finishes and appliances
  • An architect’s and other design pros’ input: These will add between 5 and 15% to the total cost of your construction costs.
  • Custom roofs. A common asphalt shingle may not be the most attractive, but it’s still the most cost effective and durable.
• In the city or tough-to-get-to areas such as mountains.

8. Should You Literally Build It Yourself?

While highly recommended, it’s not mandatory that you hire a licensed general contractor to build your home.

However, aside from various state laws which seek to keep people from ignoring building codes and put restrictions on what owner-builders can and can’t do, building your own home is not for the faint of heart or uncommitted.

Some of the drawbacks include:

Even if you’re a skilled carpenter or electrician you’ll need to hire, schedule, and supervise plumbers, roofers, HVAC professionals and so on.

You’ll also be responsible for:

• Complying with all safety regulations.
• Estimating all of the costs for the build and then buying everything.
• Scheduling all work. (You don’t want the roofers to show up while the foundation is still being poured.)
• Purchasing specialized forms of insurance (and making sure all of your sub-contractors have their insurance in place).
• Securing all of the permits, impact studies, etc.
• Arranging for utility connections and HOA approvals.
• Figuring out solutions to things you have no experience with.

If you’ve already got a full-time job, your opportunities to build will be restricted to before and after work and the weekends. This can quickly take a toll on your social life and personal relationships.

And banks and the better sub-contractors may not want to work with inexperienced and/or unlicensed owner-builders.

Making a House Your Home

It’s not really a “dream house” if there’s a long list of things you’d really wish you could change. Making sure you’ve got everything just the way you like it is just one of the advantages of building a home from scratch.

While not a simple task, by doing your research and finding good people to work with you can soon be moving into a home that fits you to a tee.