“Where do I start?” How to begin the Home New-Build process

Quick Tips and Tricks for Building Your Next Home

Our home is now weathered in and as we continue with the process, the question we most often get is, “how does the new-build process work?” This is the question that really convinced me we should start this blog in the first place. We want to help others build the home of their dreams!

Our process, like many, began with a struggle. We looked for months trying to find a home in our price range that had everything we were looking for (and didn’t require us to spend even more money fixing it up). Unfortunately, the Portland market is really saturated with overpriced fixer-uppers and we just didn’t have the money or the patience to deal with a home that needed the extra love it deserved. At the time, we were mid-remodel of our current home and we were tired of living in a construction zone (if you have survived a remodel, you know). We wanted something that we could move into and enjoy right away. After a few months of searching, we decided to start looking at land and lots instead. At the time, neither of us believed we would be able to make a new-build work. After plenty of research, time, victories, and mistakes, we have taken the lessons we have learned and summarized it here for you.

So, how do you know if building a home is right for you? Here are a few things we have learned along the way for the first steps to start your journey:

1. Construction Loan – Get approved: this is really tricky, but it can be done! It turns out there are not many banks who provide construction loans or lot loans for that matter. After learning from our mortgage broker that the wholesale lenders would not make it easy to obtain a lot loan, we started reaching out to other friends of ours who had recently completed the new home build process themselves. From the information we gathered (mostly word-of-mouth), it seemed like there were two banks in the Portland, Oregon area that were doing lot and construction loans: Washington Federal (WaFd) and Umpqua Bank (if you live elsewhere, from our research, it seems like smaller banks and community credit unions are more likely to provide a construction loan). We even had one loan officer tell us he typically tries to talk people out of a construction loan! The construction loan process is not as straightforward as a conventional home loan. However, building the home of our dreams was totally worth it! So, to start your journey, this pre-approval process is an important first step to determine what you can afford to build.
2. Budget: This is a complex subject and I will eventually dedicate an entire post to it. Some quick rules of thumb:
   1. Residential Construction Costs: for the Portland, Oregon area in 2020, this is approximately $150.00 – $175.00 /sf for a “slightly above spec home.” This number includes permit fees, contractor’s overhead and profit, fixtures, and appliances. Depending on where you live, it could be more or less than this number. If you live on the west or east coast, you can expect this range or higher. Generally speaking, the more urban areas will be higher and the more rural areas will be lower. Additionally, if you are looking for the highest level of finishes, you should increase that number accordingly. Keep in mind this number does not include the cost of land, so don’t forget to account for that when determining the size of home you can afford. For us, we had a budget determined by our comfort level (for a monthly mortgage payment) and what the bank was willing to lend us. We subtracted the price of the lot from that amount and divided it by $155 /sf. This revealed the size of house we could afford.
   2. Permit Fees: When people think about the cost of construction, they often forget to include the cost of permits! These can be expensive depending on where you live. We are building our home in Milwaukie, Oregon, which is a small suburb just south of Portland. Our Permit Fees were approximately 6.3% of the total cost of our lot and build. That can really add up! Don’t worry too much though, the Permit Fees should be calculated into the $150 /sf cost of construction above. The reason I mention it here is that there can be sticker shock if you aren’t expecting it (it’s a big check to write). Here’s a cost saving trick: If you can fill out the forms, follow instructions, and work with the City, you can save the contractor’s 10%-20% mark-up on the Permit Fees by handling it yourself!
3. Find a Lot or piece of land: this is as easy as notifying your realtor that you are interested in seeing land! Of course you can always use a home-buying app or website such as Redfin, John L. Scott, or Zillow. All of these websites have easy apps you can download on your phone and filter results so you can peruse options while in the checkout line at the grocery store or while watching the HGTV channel. I still recommend having a realtor who can look for lots with your requirements as well as handle the negotiating. If you live in the Portland area, our favorite realtors are Paul Rastler and JJ Green of Rastler-Green Real Estate. Some important things to note:
   1. Land on a hill or with a slope of any kind will be more expensive to build-on ($$$$). Those views cost extra for a reason!
   2. Land that does not already have utilities (water, sewer, power) will come with the cost of bringing the utilities to you ($$$). This can quickly add up! We went with the easy approach and purchased a lot from a developer that had already been connected to utilities.
   3. Heavily forested land will add the cost of tree removal to your budget, so plan accordingly ($$). You need to make room for that house!
   4. Consider looking into the City’s planning, zoning, and street development requirements. Most cities have their own design standards outlined in their municipal code. These can often be found online. You will want to look into the standards because sometimes these will limit what you can build and where you can build on the site you are looking into. Some standards may even add cost to the construction of your home by design: extra trim around windows, extended eaves, roof forms, siding types, porches, garage locations, etc. ($).
   5. Keep your home size in mind when you are looking at lots. If you can afford a 3,000 sf home, but the setbacks on the lot would only allow a 1,200 sf footprint and two stories tall, you should probably look for a larger lot.
   6. For the more sustainably-focused families, keep solar orientation in mind when looking at lots (for day lighting and PV solar array).

Hopefully this blog will help take some of the mystery out of the new-home build process. Check back soon for our next post for finding a floor plan that works for you!