Hidden Costs of Building a Home

Sunday, 7 May 2017

So I have had a few people approach me to talk about building a home.  I wanted to do a post for those that might interested in the things you don't know about building a home.  If this isn't something you are interested in by all means; thanks for checking in!!  I will give you a token of my appreciation for clicking on the link by including some pictures :)

Finally getting some of our artwork hung! 

Pretty Gloomy, Lazy Sunday Morning Vibes (and yes I admit I do not reliably make beds)

So..that home building thing!

There are definitely some hidden costs when it comes to building a home: ones that I didn't think of at all!!  No, I am not talking about when you chose hardwood over laminate over ceramic. I am not talking about the hidden costs behind all the decor and the finishes you choose....I am talking about costs, that you don't think about, when you go to a contractor and get a quote.

Let's get started:

1) House plans: We were lucky...a friend that is an architect did our house plans.  Obviously...I can't speak to how much it costs to typically have a draftsperson complete their plans....but I am guessing it's not a bargain.  We had looked at house plans online but we would have had to pay someone to alter them to what we were looking for, anyway.  In addition, the house plans online drastically underquote how much it would cost to build them (don't trust the internet!)

2) Land: We purchased our land about a year and a half before we started the build on it.  What we didn't know at the time is that before you can have a mortgage on a house that you are building...you need to pay off the balance of the loan, for the piece of land.  In other words...the land price needs to be paid in full before you can start getting money for the mortgage and apply to your contractor bills.

First) In order for you not to have to pay a ton of cash, the bank has to assess the value of your house + the value of the land.  What you have to hope is the value is around the same amount that it is costing you to build (i.e. the cost of your land plus the price that the contractor is charging you).  For example:  If you paid 50,000 for the land and your contractor wants to charge you 200,000 for the house build, you better make sure that the assessed value is 250,000 plus hst.  Otherwise you will be paying any extra out of pocket.

This is not something to worry about in a large centre like Vancouver or Toronto.  It's a challenge when you live in a more rural area.  The banks need to know that if you walk away from the house, they will be able to sell your property for at least the balance of your mortgage.  Thankfully, for us, the assessed value came close to the actual price of the land + the house.  We had to pay about 9,000 + our downpayment out of pocket. (I should also mention that the bank also requires you to have at least 12 months of house payments, on top of your downpayment, in assets..in case the bank has to liquidate them.)

Second) For us, we had paid a chunk in cash on the land (the bank requires a good downpayment on "raw land"); however, we still had quite a balance to pay on it.

When you are building a house you typically get money from the bank in 4 installments (First is after foundation and things like the well and driveway is completed, second is what's known as "water tight" which basically means the framing and the exterior.  The third is your electrical and plumbing rough-ins, insulation, drywall, and the fourth is your finishes (flooring, kitchen etc).

Well...for most people...since they don't usually have their land paid off in full....their first installment usually goes first to paying off the balance of the land.  This can leave your contractor and subcontractors (like your foundation dudes) waiting a bit of time, to be paid in full.  Hopefully, you have some money left from the first installment monies, to tide them over a bit. We also paid our downpayment (5% down) after the first installment to help with some of the costs that were left uncovered, by the paying off the land. It helps at this point and time to have a patient contractor with a large line of credit (did I mention I worked with Graham Construction?)

3) Surveyors: the bank wanted a clear definition of the size of the land and the markings.  So we hired a local surveyor to do that. We also had to ensure that it clearly marked where crown land started (i.e. where the road begins) so that our house could meet certain by-laws (the house has to be so many feet from the road).

4) Engineers:  The municipal safety inspector wanted an engineer to sign off on the design of the house. Blahh...more money.

5) CMHC fees:  I will be honest.  Even this one is still hard to wrap my head around it.  Basically, when you get a mortgage with a bank, they add this one big giant fee (read: pain in the ass).  It is a percentage of the final mortgage and provides insurance on the mortgage.  The more you put on in a down payment, the lower the fee. If your downpayment is 20%, there is no CMHC fee.  But...20%.

6) Taxes.  Big ouchie.  15% on a 10 dollar pizza isn't much....but it's a lot on a couple hundred thousand dollars! (You can apply to get a certain amount of your taxes back....but unless your house that you built is your first house...it's not that impressive, and if the value of your home is over $450,000, you aren't getting anything back, if you live in Nova Scotia)

7) Water testing: to make sure you don't have E.coli  and shit in your water...literally.

8) Your Lawyer fees.  It's definitely a different structure than when you buy an existing home.  Since your lawyer is the one that the bank releases the money to, you have to pay the lawyer in installments, as well.

9) Appliances.  This one is not very hidden.  But you kinda forget about it.  You can include the cost of your appliances in your mortgage.  I don't recommend this.  If your mortgage amortization is 25 years...chances are, you will need to replace your appliances before the 25 years are up.  If you do, and your appliances get replaced...you technically are still paying for your old one, while you are also paying for your new one :/ No thanks.

10) I feel like I need to find a 10th item to round out the discussion....I will chip in a water softener and sediment filter....as it was an afterthought for us.  I am a water princess that has lived on municipal water in my small Newfoundland town and on Brunswick street, all my life. When I realized that hard water, with lots of sediment, meant not washing clothes and sand in your bathtub...it was a race to talk to a plumber, to have that installed.

Well, I hope that was all clear as mud!  Please msg me if you have any questions!  I am not an expert, but certainly feel like I have some handle now, in the forgotten pieces of information, when you are bright eyed and bushy tailed, and picking out your hardwood floors and tile!  Seriously, home building was an amazing and privileged experience for us. We are super thankful to have had the opportunity.

Have a good Sunday!


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