Buying land and having a house built vs. having the builder do it all

If you are getting a mortgage it would definitely make a difference. If you are doing everything cash, then disregard.

When a builder does it all for you, the bank would treat it as regular home purchase and just ask for a 5% down payment. Essentially, the builder is fronting the cost of the land and construction and all you are doing is buying a finished house.

Now, if you were to buy the land seperately, the bank will require a much bigger deposit on the land (up to 35%) which really hurts your cashflow. That would be $35k down payment on a $100k piece of land. The construction process will probably end up being on a draw basis where you first pay out of pocket for each milestone of the project and then get reimbursed by the bank. e.g. foundation costs $40k - the bank will ask you to pay for it out of pocket and upon passing city inspection you can then be reimbursed.

Most people who purchase the land outright and then have a builder construct the home are looking at custom builds. Costs for custom builds can very quickly escalate with the home owner often making changes that cost money and extra time. One of the primary concerns with any custom build is remaining on budget and on time.

The other issue can be decision making. Large builders have essentially made all the build decisions for you - allowing only limited upgrades in the purchase process. With a custom build, every aspect of the house can be decided on and this can quickly overwhelm the home owner.

And yes, as mentioned above, cash flow is very different. Financing a custom build is very different from financing a new build from a large tract builder.

You would need to check the local zoning for the particular municipality to see what is allowed for that specific lot.

If it’s an infill lot inside the city, there are all kinds of weird local zoning restrictions.

For builders mortgages, most if not all banks (and btw, not all banks offer this - I think scotia and cibc offer them) would require you to own the land outright before you could get a builder’s, ie, construction mortgage.

RCGA wrote: ↑

I feel like I can get a lot cheaper than the builder is quoting me; probably by at least $15k.

Is $15K a typo? if you are thinking of hiring your own builder to save $15K than don't do it. If your motivation to buy the land and build your own is to save money than don't do it. If you have done your due diligence and think you can save $200K+ you may be able to come ahead by a bit but it won't be $200K, If you have lots of money and can afford a custom home it may be for you. Dealing with contractors and trades is priceless ;-)

senasena wrote: ↑ Is $15K a typo? if you are thinking of hiring your own builder to save $15K than don't do it. If your motivation to buy the land and build your own is to save money than don't do it. If you have done your due diligence and think you can save $200K+ you may be able to come ahead by a bit but it won't be $200K, If you have lots of money and can afford a custom home it may be for you. Dealing with contractors and trades is priceless ;-)

The builder is the same in both instances. This is a custom home.

The lots available have been sitting for 5+ years and haven't dropped in price. Some are also resale lots and wouldn't have HST implications.

The builder is quoting the full asking price + HST for the lot and I think I can do better if I negotiate the lot independently.