Don't over build for the area.

So you have a budget for the home you want to build and you really need to get as big a home as you can. Maybe you have a large, growing family and need all the bedrooms and bathrooms that you can get. You may be tempted to spend less on the land and more on a bigger home. Big mistake!

 

Take a careful look at the sales of other homes in the area. You want to be inline with the prices, style, and foundation of these homes. If you don't, you may be headed for lower than needed appraised value for your construction loan.

 

The FHA appraiser will have to use recent sales of similar homes to justify what you are spending to build your home. HUD (the administrator for FHA loans) will only allow an appraiser to make small adjustments up on the sale price of a smaller home. So you may find yourself spending $200,000 on a home that may only appraise for $160,000 due to the fact that most homes in the area sell for $120,000. Even though those homes may be smaller than what you want to build.

 

If basements are the standard foundation in your area, don't build on a crawlspace or slab. Don't build a two-story home in a subdivision of ranch homes. Lenders don't like to lend on odd homes for the area. The lender always has to think about how much and how quickly they can sell the home if they have to foreclose. Homes that are "unique" for the area or have unique features don't sell as quick, or for as much, as conforming type properties.

 

The exception to all of this is if you are putting down a large down payment, say 40%-50%. With that large of a down payment the lender will feel comfortable that they will always get repaid.

 

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