Should you buy & build or buy a single family home?

 

Purchasing a house is representative of so many different things in life depending on who you ask. Buying a lot and constructing is a monstrous project requiring long-term planning. Here’s some things to consider if you’re trying to weigh out the options…

Let’s first look at the example of building home. Building a home is no easy feat. You must consider the amount of cash required for this project. Generally, to purchase land want at least 30% as a down payment and the chances of getting a 30-year fixed rate for land are quite slim.

Construction costs depending on where you’re purchasing can be extraordinarily high. Moreover, you would be better served finding a lender who offers a construction loan for the purposes of acquiring and building the entire project. The other challenge that you might have is most banks only support financing for a primary residence. So, if this property is anything other than a primary home the chances of you doing this could go down or rise considerably with higher costs and a substantially larger down payment.

The process to do such a project like this from getting permits to hiring a designer a contractor, architect if necessary, could be at least one to two years in the making. Then there’s also the possibility of a change order due to going over budget.

The other alternative is to buy a piece of land and put a manufactured home on it. Sounds practical enough right because a manufactured home might cost as little as $80,000. $80k is a lot of money in comparison to say a single-family house. That is not the whole picture. The other component is the construction costs to create and build a foundation board to acquire the land and most lenders do not have financing to acquire a piece of rural land for the purposes of attaching a manufactured home to it.

In theory it sounds attractive, but in practicality this could be a very problematic situation because manufactured homes still have a stigma with banks that there are movable and subsequently riskier so once again extra cash could be needed if there was lender that was willing to take on such a project

Lastly, we have buying a single-family house securing residential Mortgage loan financing. You can put down as little as 3% to 5% with an affordable 30-year fixed rate mortgage and get substantially lower cost of funds making the project way more affordable from a payment standpoint.

After you close escrow in your house nothing says you can’t fix your house up over the course of time and do an addition for example or do a remodel on the house for example as your cash income and finances permit. Doing so could be far less expensive for 80% of the families who otherwise might be considering buying raw land for the intent construction.

Ultimately, it’s a large decision that should be well planned out. Do not be fooled into buying into the concept of constructing a home is less costly than an already built home, that is of course unless you already own the land.

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