Building and financing a new custom home can be confusing even under the best economic conditions. Throw in rising rates, labor shortages and sustained supply chain challenges and the task not only grows in difficulty, but in cost. Thankfully, there are things you can do to both help ensure a smooth process as well as help keep the project’s cost as economical as possible.

I. Selecting the right building lot

Selecting the right building lot can have a major effect on cost, and we’re not referring to the purchase price, which will be predominantly determined by location. Here we’re going to focus on lot improvements and the costs associated with the concrete needed for your foundation. Lot improvements are items such as clearing trees and putting in a driveway, a well and septic, or running lines and tap fees for connecting to public utilities. Costs for each of these items vary greatly depending on the specific conditions of the building lot you choose.

Type of septic system: does the lot perc for a standard, gravity-fed septic system or will it require something more expensive and engineered?

Distance from main road: does it have an access road or driveway already cut in? Will it need cleared? How far will the home be from public utilities such as power lines or public water and sewer, if offered? What will be the cost for the necessary lines and piping? Also, for public water and sewer, what are the fees for tapping into them?

Slope of the lot: how steep is the lot and will it require additional concrete for the foundation? Is it too flat requiring additional earth work for grading or to make way for a walk-out basement? And in that case, will a retaining wall be necessary?

Geology: this can be more challenging to figure out, but is the area known for rock? If there are other new homes nearby built recently, did they have any issues when preparing the lot?

II. Design and build

When it comes to the home itself, there are several design aspects that can drive up costs. There are also a few ways, by planning ahead, to reduce costs at the time of building, while still making the home amenable for future changes.

Two-story homes versus ranches: two of the most expensive aspects of a new build are the roof and the foundation, and ranch homes typically have about twice as much of these items as a similarly sized two-story. If stairs are not a factor for you, then the better economics of a two-story home may make sense. Many plans even offer first-floor master suites.

The home’s depth: it’s not something most people think of, but the depth of the home can be a considerable driver of cost. Homes that are less than 32 ft deep, can use standard floor joists and minimal beams. As the depth grows beyond that, not only are additional costly beams necessary, but frequently these homes require engineered floor joists known as a TGI or Truss Joist I-Joist. These can add considerable cost.

Roof lines and gables: plans with multiple roof lines, steep pitches and large numbers of gables may offer some enhanced aesthetics, but it comes at a price. More complicated roofs can increase the cost of the build dramatically, especially when multiple gables are part of the design.

Porches: everyone loves a nice porch and the tranquility they offer, but they are not an inexpensive aspect of building a home. Large porches are not only costly, but appraisers frequently assign a value to them that is less than the cost to build them. If you’re not concerned about the appraisal, then this may be of less importance, but if you need the house to appraise for what you’re paying to have it built, then being conservative with porches is a smart avenue.

Build for the now, plan for the future: if you’re currently facing budget constraints, consider adding things such as a garage later on. Or planning now for a future addition. For example, your builder can frame in a doorway ahead of time and then cover it up with drywall, until the moment comes to begin the work in the future. Talk with your builder about things that can be done to make future improvements and additions easier.

Use one of your builder’s stock plans: with just about any builder, it will be more economical to start with one of their stock plans and make your customizations from there. With their own plans, builders have a very clear idea of the exact build cost, even with considerable design changes. This allows them to offer you a more competitive price when compared to something completely custom that they’ve never built before and could easily cost more than they anticipate. To account for that risk, they’ll need to price in a larger margin, which can translate to a higher build cost.

III. Financing

If you’re planning on financing your construction project with a bank, there are a few things you can do to try to reduce costs, especially if you’re using the normal construction-to-permanent loan, which is a construction loan that converts into a permanent mortgage once the build is completed. Though none may result in a dramatic savings, taken together with some of the other cost-reducing measures described above, they can contribute to keeping the project within your budget.

Use your land as a down payment: if you own your own land or have built up equity in land that was previously financed, you can use this as part or all of the down payment for your construction loan, reducing the amount of out of pocket cash necessary. One caution with this is in today’s market – late spring 2022 – valuations of land and homes are in flux and that value of that land today, could easily be more or less, in the 10 – 12 months it will take to complete your home. If it’s more, that’s great! But if it’s less, it could reduce the dollar amount of your down payment from your land.

Buy points upfront: depending on your financial institution, they may offer you the ability to buy points on your future mortgage. Generally, this means paying 1% of the mortgage up front for a .25% drop in your rate. This can both reduce your monthly payment as well as the amount of interest you pay over the course of your mortgage. For individuals who plan to stay in their home for a longer period of time with no plans to refinance, this may make good financial sense. If this interests you, ask your loan officer to help you figure out the breakeven point, which is the number of payments you would need to make for the savings to equal the upfront cost.

Negotiate closing costs: sometimes, though not always, there is some room for negotiation on some of the costs the bank charges to close on the loan, such as the points they charge for origination. It’s always worth a shot, and getting estimates on closing costs from various lenders, can be a big help in this process. As the number of mortgage applications continues to drop, banks may be more willing to make concessions to earn your business.

Understand the potential fees: this one is more for prevention of unexpected costs. Although the global supply chain has recovered to a degree, it still has a long way to go to reach the efficiency and reliability of the pre-pandemic days. In addition, workers in all facets of home construction remain in very short supply. This simply means that homes are taking longer to build. If financing your home, your lender will typically provide you a one-year lock on your future mortgage’s rate. If construction takes longer than that, most lenders will allow you to extend that rate lock for a fee. Speak with your lender in the beginning about what that cost would be, as it can vary significantly from one lender to the other.


Having a custom home built is a dream for many people, and if it’s in your plans, we hope the above tips can help. At Ellis Homes, we’re always willing to answer any questions and provide as much guidance as we can to help prepare you for the journey and ensure it’s as smooth as possible. Please reach out to us at any time for more information or to learn more.  

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