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Advice/Info on building a home needed

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TaylorTaylor
New Contributor

Advice/Info on building a home needed

Hi all,

My husband and I are looking to buy our first home, however the price of homes where we live has increased so much and inventory is down a lot so we are having problems finding anything that even remotely works for us (i.e. not in a flood zone or not cash only renovation). Therefore, I've been doing research on how much it would cost to build a home. My initial impression is probably that it will cost even more, but I have not found anything that can give me a clear answer about the costs associated and was wondering if anyone had any advice or experience in the area.

 

Here is a little background on our situation.

In our favor:

  • Low to mid 700s credit scores
  • Front-end DTI is 23%
  • We also have my mother moving with us who has additional income
  • If we build, only looking for a 1500-2200 sq ft home (about 2-3 beds, 1.5-2 baths)

Not in our favor:

  • We live in Central New Jersey (high tax and housing costs)
  • Only have $10k saved for down payment. May have access to an additonal $14k by pulling from pension.
  • Most available land in area is undeveloped

The highest we can afford for a PITI is probably about $3k a month (this could increase) and I was looking at FHA construction loans, so any advice would be really helpful!

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ShanetheMortgageMan
Super Contributor

Re: Advice/Info on building a home needed

FHA construction loans may allow you to just need to part with 3.5% down total, as if the home is worth enough the closing costs can be included into your loan amount (the builder gives you a credit for them, but the builder gets that credit back through the loan amount).  You can buy the land and finance construction of a home with the FHA construction loan, so you'll need to have an idea how much the lots of land you like are listed for and you'll also need to speak with a contractor about how much it'd cost to build.

 

You mentioned that you are finding cash only renovation homes, if they are on the market for more than a minute the seller may entertain you getting a renovation loan to purchase, such as FHA 203(k) or Fannie Mae HomeStyle which have lower down payment requirements.  It's a little more work than a non-renovation loan but opens up more possibilities.  

 

Including your mom in the loan shouldn't be an issue as long as her credit qualifies.  Assuming NJ's typically high property taxes, if you are trying to keep the PITI payment to around $3k/mo then you're probably looking at financing a total loan amount in the low $300's.

Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
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Message 2 of 5
TaylorTaylor
New Contributor

Re: Advice/Info on building a home needed

Thanks, Shane.

 

Land in the area can go anywhere from $50k to more than $250k depending on the neighborhood and if it is ready to be built on, but I seem to have more luck finding suitable land than a house. Just don't know if the construction will just end up costing us more than a similar home in the area. Also I know with construction loans as the home is being built we may only be responsible for interest which would help a lot since rent has to be paid. I am imagining a renovation loan does not offer the option to pay only interest if you cannot yet live in the home due to how much renovation is needed?

 

 

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Starting Score (06/2020):
Current Score (12/2023):

Fico 9
Starting (10/2019):
Current (12/2023):


Wells Fargo Visa Signature Card: $10,000 - CapitalOne SavorOne: $11,000 - Care Credit: $20,000 - Target RedCard: $5000 - Apple: $2250 - Amazon: $10,000 - Synchrony Home Design $21,000
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ShanetheMortgageMan
Super Contributor

Re: Advice/Info on building a home needed

You're welcome. 

 

With FHA construction loans the amount for the interest only payments during construction is typically financed into the new loan amount, so you don't have any payments until the home is complete.  FHA 203(k) renovation loans and Fannie Mae HomeStyle renovation loans can also include up to 6 months of payments if the home isn't habitable while renovations are going on.


You'll want to engage with a contractor to determine how much building a home will cost so you can compare it to buying an existing home.

Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
Located in Southern California and lending in all 50 states
Message 4 of 5
TaylorTaylor
New Contributor

Re: Advice/Info on building a home needed

Thank you, you cleared a lot up for me!

Fico 8
Starting Score (06/2020):
Current Score (12/2023):

Fico 9
Starting (10/2019):
Current (12/2023):


Wells Fargo Visa Signature Card: $10,000 - CapitalOne SavorOne: $11,000 - Care Credit: $20,000 - Target RedCard: $5000 - Apple: $2250 - Amazon: $10,000 - Synchrony Home Design $21,000
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