Building a Home From Scratch


If you're thinking about buying a home, consider building a new home from scratch. With a new construction home, you're able to work alongside the builder and customize the property. Of course, it can take several months to complete the construction, and patience is required on your part. But if you can survive the process, the reward is a beautiful newly constructed home.

Things You'll Need

  • Credit Report
  • Mortgage Lender
  • Home Builder
  • Vacant Lot
  • Down Payment

Check your credit report. To build a new home from scratch, you'll need to obtain a new-construction home loan, which finances the home and the land. Because the mortgage industry has changed, some lenders require borrowers to have at least a 680 credit score. Obtain a copy of your credit report before submitting a loan application. If your credit score is low, consider ways to boost a low score (paying bills on time, reducing debts, etc).

Save money for a down payment. It's possible to obtain 100 percent financing on a new-construction home loan. However, you'll need an excellent credit history. A down payment can improve your approval odds. And in some cases, influence lenders to offer a reduced interest rate. Down payments are traditionally 20 percent of the purchase price. But borrowers can receive a lower interest rate with a three to five percent down payment.

Learn about various home loan programs. There are different ways to finance a new-construction project. Borrowers can obtain a fixed rate home loan or an adjustable rate home loan. What's more, borrowers can choose between a 15-year and 30-year mortgage. Before meeting with a lender or broker, familiarize yourself with various mortgage loans.

Obtain mortgage quotes. To acquire the best rate and terms on your new-construction home loan, you'll need to get quotes from multiple lenders. Use a mortgage broker and complete a loan application. Brokers work with different lenders, and they'll help you find the best rate. These no-obligation quotes are free, and they estimate interest rate, closing costs and monthly payments.

Find a vacant lot. Build your new home in a residential subdivision, or purchase a piece of land. Contact a real estate agent and ask for information on land that's zoned for residential properties.

Locate a home builder. Once you've secured financing and you've found an empty lot, it's time to locate a builder. Builders have a variety of floor plans, and they oversee the entire construction process. They'll obtain the necessary building permits and schedule the subcontractors (plumbers, electrician, dryaller, etc.) You'll also work with the builder to customize your new home. This includes picking the wall color, flooring, countertops, appliances and other home features.

Schedule the walk-through. After the builder completes the construction process, you'll need to schedule a walk-through. This is the last step before closing; and your chance to preview the completed project, and make sure the home was built to satisfaction. Additionally, your mortgage lender will send a professional to inspect the property.

Attend the loan closing. At closing, you'll sign the loan papers, pay your settlement fees and obtain the keys to your newly built home.

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