What Steps to Take When Considering Building a New Home?

Selecting a Plan

• An architect can draw up a custom plan to suit your individual needs, or you can select a plan from a book of plans, or choose from a set number of subdivision plans that you may customize. Make a list of the features you'd like in your new house, in the order of importance.

  Visit with a local real estate agent to get a general idea of the square-foot price of new homes in the community that are similar to the home you'd like to build.

Finding a Lot

• After you select a plan, you can shop for a lot. Be aware that the lot you see from the street does not necessarily represent the area on which you can build. Lots have easements and setbacks, and you must restrict your house to the permissible building site in the middle of the lot. This means checking with the company that sells the lots, and asking to see a plan of the actual building area before buying.

  Check on other lot restrictions. Some subdivisions have covenants, which are similar to building codes, but the developer, not the city, enforces them. Covenants may restrict the style of your house, the materials you use to side it, and even the pitch of the roof. If you really want to live in a specific development, find out what the covenants are before you purchase a house plan. Otherwise, get the plan first, and then find a suitable lot.

Finding a Contractor

• You've heard the horror stories about bad contractors, but don't let that put a damper on your plan to build. The National Association of Home Builders has some tips to help you navigate this important step.

  Find out how long the contractor has been in business and if he lives locally. Check with the BBB, but also ask for a list of the contractor's last three clients. Take a tour of the contractor's previous projects to examine the workmanship, and ask previous clients about their experience with the builder.

  Get bids from at least three contractors and compare them carefully; the low one isn't always the best one.

Financial Planning

• Before you can break ground, you'll need a construction loan from your bank. This loan does not accrue interest until you draw money out to pay for labor and materials. The banker may request a copy of the blueprints to keep on file, as well as asking the contractor and all subs to sign lien releases, stating that they've been paid, before the bank rolls the construction loan into a home mortgage. It's a good idea to visit with your banker before you buy a lot. Your banker can give you an idea of how much money the bank will loan you, depending upon your credit rating, your current income and your expenses.

  When you're ready to build, protect your financial investment with a builder's risk insurance policy. This limited-term policy reimburses you for actual damages that may occur during the building process, but it does not pay for time lost due to weather or from having to rebuild after a storm.