Thinking About Building a Home? Consider These 4 Issues First

When most people decide to buy a house, they look for one that's on the market and already built. But building a home is another option. If you build a home of your own, you'll often find a vacant lot, hire a builder, and have the builder create a custom property just for you.

Building a home can be fun. I've done it once and I'd happily do it again if I had the opportunity. But there are a few issues that you need to consider about acquiring a house this way before you decide to jump in.

1. You will probably go over budget

I'm sure at some point in the history of the world, a new home build has come in at exactly the budgeted amount. But, it's never happened to me or anyone I've ever heard of. In fact, it's typical for most new builds to go around 10% to 20% over budget.

Houses can go over budget for all sorts of reasons. Sometimes, you might decide you really like a more expensive countertop material than your builder planned. In other situations, your builder will have to dig a well that's twice as deep as expected for you to get enough water to your home and you'll spend an extra $10,000 for them to do so (that happened to me a decade ago, and I'm still mad about it!)

The fact that you'll probably exceed your budget creates added uncertainty that doesn't exist when you buy an existing house. It also means you better have some extra money in savings if you want running water in your home (or whatever other extras you have to pay for).

2. You'll have to figure out where to live during the building process

Building a house doesn't happen quickly. And, while I'm sure some construction projects actually finish on schedule, this has also never happened to me or anyone I know.

During the time your house is being built, you'll probably need somewhere to live. Unless you're lucky enough to have another house or generous friends or relatives, this means you're going to be paying for the place you're living and your new-build project. This can get expensive, especially toward the end.

It's also hard to time when you'll move out of your old place and into your new one since you don't really know when your new house will be done. This can make selling an existing house or giving notice to a landlord tricky.

You'll need to make sure you can afford to cover both your current house and the new build in your monthly budget -- and have a contingency plan or a kind landlord who is willing to work with your uncertain moving timeline.

3. Your mortgage situation will be more complicated

When you get a mortgage to buy a house, the lender appraises the home and gives you money to buy it if it's worth enough and you can prove you're qualified for a loan.

Things are more complicated with a new build since there isn't a house. You'll typically need a construction loan. You may be able to get a construction-to-permanent loan which would mean a lender offers you a construction loan which then turns into a permanent loan at the end. But, these loans tend to come with higher costs, including a higher interest rate and a larger down payment requirement. They can also be more difficult to qualify for because there's more risk to the lender during the building process.

Alternatively, you could get a construction loan and then apply separately for a permanent loan. But this could be a huge disaster if you don't qualify for the permanent loan or if rates go up in the meantime and the loan becomes more expensive. This also means having to pay two sets of closing costs.

There's not much you can do about these downsides unless you're going to pay for your construction in cash -- and that's not feasible for most people. You do need to be aware of them, though, and financially prepared.

4. You'll have a ton of decisions to make

Finally, during a new build, you have to decide everything from paint color to what faucets and hinges you want. For some people, this is fun. For others, it's overwhelming and stressful.

So, think about what kind of person you are and whether you'd thrive in designing your own place from the ground up or would be overwhelmed with decision fatigue.

None of these issues would stop me from building a home again if I got the chance, and they may not stop you. But they are worth thinking about, because they can definitely cause issues for aspiring homeowners who are looking to build.