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Step-by-step guide to building a custom home

Lucas Gray

Creating a custom home for your family is a wonderful opportunity to design something unique and tailored to your lifestyle. It is also a long process that takes a lot of time and expertise to get right.

We have worked with many clients who come to us at different points in the process and we create an outline of the steps needed to complete their project. To help shine some light on the full range of steps you may have to go through we’ve compiled this list.

Custom Home Step-By-Step Process:

  1. Set a budget range
    You will need about 25% of the full budget in cash and you can finance the rest through a construction loan and convert it to a typical mortgage upon completion of the project.

  2. Find a region you want to build in
    Identifying a rough area where you want to live is an important first step. It allows you to narrow the list of potential properties to purchase. Plus knowing the area can allow you to build relationships that can help later on in the process, like knowing local real estate agents, researching contractors, contacting the local building department, and more.

  3. Do code, zoning, and tax research
    It is vital to understand what is allowed to be built in the area you are looking. This could affect what town/county/state you want to pick for your custom home. For instance, some areas may have size or style restrictions for homes, or minimum lot sizes. Some may allow ADUs or guest houses while others prohibit additional structures. Certain jurisdictions will have higher property taxes or other fees that could push the project beyond your budget. These are just a few of the many considerations that you need to research for the areas you want to live. This is something a designer can help with.

  4. Get control of land
    Once you identify the region you want to live, you start looking for the perfect property for your needs. Once you find some land that will work, you either purchase it outright (typically with cash), or have a signed contract or Letter of Intent with a set evaluation period, typically 90+ days. This 90 day evaluation period gives you the right to walk away if initial research determines that you won’t be able to build what you want. Often you have to put some earnest money down to get the seller to agree to this evaluation period. It could be refundable or non-refundable so try to negotiate the best terms.

  5. Pull together the equity
    Typically you will need 25-35% of the full project cost in cash or equity for a bank to loan you difference. You can also leverage things like the value of the land as part of your equity contribution if you own it outright. For example, if the full project will be $2,000,000 for the land purchase, design fees, and construction costs you will need approximately $500,000 to $700,000 in cash or equity, and get a construction loan for the difference. If you own the land outright, and the property is valued at $300,000, than you probably will only need to bring $200,000 to $400,000 in cash while a construction loan will cover the remaining $1.5 to $1.3 million.

  6. Hire the design team
    You could hire the designer earlier to help with code/zoning research on potential properties. Investing earlier can save money in the long run if it can avoid properties that have challenging codes/regulations or difficult constructability issues. You should budget about 10-15% of the overall project cost for design services. Of the $2million budget mentioned above, you could assume $200,000 to $300,000 would cover the design, engineering, and other consultants needed to complete the design work.

  7. Get financing in place
    This can overlap with the design process, and in fact, most construction loans will want to see the design plans so they can do an estimated value of the finished project to help determine the amount they will lend. On previous custom home projects we have worked through the Schematic Design phase with our clients and they used that work to help obtain the construction loan.

  8. Design Process
    We recommend scheduling approximately 8-12 months for the design process from hiring the design team through submitting the design work for permit approval. However, this range depends on client decision making, complexity of the site, size of project, local permitting requirements, etc.

  9. Permitting
    Every project will need to be reviewed and approved by the local building department. Considering that each jurisdiction will have their own rules, regulations, and permitting process, this schedule is highly variable and hard to predict. In Portland, Oregon we experienced permitting for a custom home taking 4-5 months. In the Bay Area permitting for a custom home could be 6-months to a year and sometimes even longer. Smaller towns and rural areas tend to be a bit easier to work with and permitting can take less time than in large cities.

  10. Construction
    Once the permits are approved you can break ground on the construction of your custom home. We estimate that it can take about 1-year to build a high-quality custom home. This could be more or less depending on the site, final design, financing, weather, labor and material availability, and other factors. Most construction loans will want the build to be completed within 12 months of issuing the loan so this is important to know when building the construction schedule with your design team and the general contractor.

  11. Certificate of Occupancy
    This is one of the last steps in the construction process and includes the building inspector reviewing the built project and determining it is a safe and meets all codes and regulations. Typically this signifies the completion of the construction phase and the point in which you can move into your new home.

Additional Thoughts for a custom home:

  • Budgeting
    Many people calculate budgets on a cost per square foot basis. I really don't like or advise this. Cost per square foot can vary so much depending on decisions throughout the design process. One example: wood flooring can be $5/sf or $25/sf depending on the material you chose. Same for tile, cabinets, appliances, windows, etc. Decide what you are comfortable spending as a total sum and together we can design a project and make decisions in order to meet that number.

    • To get something you love, that is beautiful, sustainable, high performance, and high quality, you are probably looking at $1,000,000 in construction cost or more. We can design something for less, but my experience is that at the end of the day, almost all clients want something that pushes a custom home budget to over $1,000,000. That is really the floor for custom home budgets.

    • There are also lots of aspects of building that people don't consider at the beginning of the budgeting process (especially when they look at cost per square foot numbers online). For instance, does it need a septic system? A well? A long driveway/road access? Lots of excavation, site clearing, or grading? Utilities? A pool? A fancy Tennis Court? Unique landscape design? These sorts of infrastructure needs and additional features can easily add $100,000 to $500,000 or more in costs before you even start building the actual house.

  • Less. But Better.
    My belief is that quality trumps size every day of the week. Often people come to me with certain size requirements - for instance “I need a 3,000sf house” or “We require a 300sf en-suite bedroom,” but don't understand that a well designed 2000sf house or thinking about the quality of their bedroom space rather than size could actually be better for them where being more efficient in space usage can give them what they want in a smaller package. This then allows us to invest in better quality materials and systems. The point here is that we should talk about what you need in terms of rooms, function, quality, and values rather than focus purely on size. You should want a great house, not necessarily a big one.

  • Investment
    Find a property that allows you to build more than one structure. Having a main house plus a guest house/ADU/Pool House etc. would be ideal for multiple families sharing a property. Plus if you ever want to rent out the additional unit to help pay for the mortgage this would give you the best return on your investment. Or perhaps you will want to downsize when your kids leave for college and the ADU could be a perfect place to age-in-place while your rent out the larger home. Or maybe an aging family member will need a place to live in the future and the guest suite would be a great place for them to live rather than moving to a retirement home. The point here is to consider all of the potential future needs as you consider what property to buy and as we work through the design process. Even if you don’t want to build other things now, having the opportunity to add on to the project in the future could be of tremendous value.

Other Resources About Custom Homes:

If you have any further questions or would like to discuss your goals and ideas for a custom home project, please don’t hesitate to reach out.

The Sheltered Nook House, a 2,200 square foot sustainable custom home outside of Portland, Oregon.