What Are the Out-of-Pocket Costs Associated With Building a Custom Home?
Building a custom home is a dream for many, so it’s important to understand the costs, since they’re generally higher than buying an existing home. With that in mind, here are some potential costs to consider that may be different or more than what’s required when buying an existing home.
Construction Financing
Falcon Alaska doesn’t offer in-house financing, so you’ll need to work with a bank or mortgage company directly to determine how much you’re pre-approved for and the approximate costs and fees associated with the construction loan process.
Construction financing generally requires at least 20% as a down payment; however, if you already own the land, the equity in the land counts toward this 20%.
Property Taxes & Insurance Costs
Property taxes will still need to be paid while your new home is under construction, and these costs will be paid for by you during that time frame. Your lender can hold an escrow account for taxes during construction, or you can set aside money for this on your own.
Land Purchase, Closing & Preparation Costs
Selecting the perfect location for your custom home is one of the most difficult and rewarding parts of the process. While Falcon Alaska doesn’t offer financing for purchasing the land, we’re often very involved with clients to help them understand and select the best lot for their needs.
We offer an in-person land consultation for free. Sometimes, there can be “hidden” costs associated with a particular lot, for example, a road improvement requirement, groundwater, or a utility main line extension, which is good to be aware of before purchasing.
Design Fees
Falcon has a comprehensive design-build process that outlines what you can expect. After an initial meet and greet, we’ll collect a fee to draft a design concept and bring your vision to life with a 3D model. This upfront fee is often $15k to $30k, depending on scope and complexity, and doesn’t go toward the construction loan or home costs.
Once you approve the preliminary design, we put together a 90% estimate for you so you can see what the total home package will cost. With the total package price as a guide, we then iron out many of the interior and exterior selection choices. This is a critical step, and it’s important that it’s done in this order so you can make the most important decisions in the correct order.
Construction Loan Payments
As your home is built, your lender will disperse funds to us as your builder on a preapproved schedule, and interest costs will be accrued during the build timeline. Construction loans typically have four to six draws during a 12-month build, so the number of draws may vary based on your project timeline.
These interest payments are based on the amount disbursed after each draw rather than the total of the end loan, meaning your interest payments will be low to start and higher as the project progresses.
Falcon makes it easy to stay updated with the building process with our online project management software, which gives you direct access to your team, schedule, budget, and progress photos.
If you choose a stand-alone construction loan, you’ll then close on a permanent mortgage when the final inspections are complete and the project is done. If you choose a construction-to-permanent loan, your loan will automatically convert to your long-term mortgage, and you’ll simply start paying your monthly principal and interest payments.
Landscaping Costs
Like most builders, landscaping isn’t assumed to be included in Falcon’s standard build package, unless specifically requested, so depending on what you have in mind for this, you might want to include costs for this after closing.
Are you ready to start your custom build in Alaska? Call us today to schedule a consultation.
