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  • Writer's pictureJessica Doberneck

Is A Custom Home For You?

In my last blog post, we dove into comparing the purchase of a model home vs. purchasing a pre-existing home and updating it. If you want an updated home, but neither of those spoke to you, then we need to have a conversation about custom homes!

My goal for this post is to clearly explain what it takes financially and logistically to build a custom home in hopes of helping you determine if this route is for you.

The Process (Simplified)

  1. Get prequalified with a lender. There will be 2 major purchases in this process: 1) The lot. Hopefully, we can pay for this in cash (I'll explain why later), and 2) The cost of construction. Unless you are paying cash, this will likely be a "construction loan." Understanding what you qualify for will give you financial boundaries for your building plans and lot purchase price. Fun Fact: Statistically, your lot price will be about 20% of the cost to build the home.

  2. Get with your realtor (HI!) to shop for your dream lot. Make an offer and close the deal.

  3. Select a general contractor, architect, and interior designer (Hello again!).

  4. Work with them to create your floor plan, make all your selections, and get a final quote.

  5. Work with your lender to get the construction loan all buttoned up based on your quote before construction begins.

  6. As construction is going on, you will make 5 interest-only payments on what has been drawn from the loan to pay your contractor. About 90 days before construction is finished your lender will start shopping rates to try and lock you in at the best interest rate for the remainder of the construction loan.

  7. Once construction is complete, you will begin making your principal and interest payments (the equivalent of a mortgage payment).


Down Payment - You will need a 25% minimum down payment to purchase a lot. You will also need a 20% down payment minimum for the construction loan. However, if you pay cash for your lot, the lender of your construction loan can consider your lot purchase as a down payment for the construction loan. This is why I suggested paying cash for the lot, and financing the construction loan as this will keep things simple only having one loan rather than 2 (one for the lot and one for the construction).

Interest Rates - The interest rate for a construction loan is ONLY about .25% more than your typical mortgage loan. Which is way more obtainable than people think!

Loan Qualifications - The loan qualifications for a custom home are a little higher than the purchase of a pre-existing home for sale. However, it's not as strict as I had thought! You are expected to have a good FICO/Credit score, debt to income ratio shouldn't be below 40%, and you need to have enough cash on hand for the construction loan down payment and lot purchase.

Have extra funds available. You might make changes or may run into unexpected issues while in construction that the loan didn't account for. Sometimes you can adjust the loan, but it's MUCH easier if you just have extra cash to cover those extra costs.

Financial Break Down

The biggest question... Is it financially worth it? I wish I had a straightforward answer, but it all depends on the finishes you select and the lot you purchase. There is a lot in Anthem (the last residential lot in the master-planned community) that is listed for about $600,000 - which is SO MUCH MONEY! You will never see that money back, not for another 10 years at least. However, there are some decent desert view lots in a more "rural" area just 15 minutes away for under $125,000. The more rural you get the more affordable your lot will be. The nicer the views and more in-town you go, the more you will see extra $$$.

As for the cost of construction, you can expect to pay anywhere from $150-$250 per sqft to build a home.

  • $150/sqft would get you your builder grade materials like basic windows, formica countertops, 12"x12" tile, no hardware on your cabinets, no facny lighting, jut canned lights throughlut.

  • $200/sqft would be decent quarts or granite countertops, nice light fixtures, some features throughout (shiplap wall or stone fireplace and mantle), $5/sqft VLP. etc. This would look like a nice modle home.

  • $250/sqft is where you start getting more luxurious with high end appliances and all the bells and whistles.

Let's do some math...

One area that is exploding with custom homes is Desert Hills, Arizona. Currently, the most affordable yet practical lot for sale is listed at $193,000. Let's say you purchase this lot for $190,000 and you build a 3,000 sqft home at $200/sqft. This means you can have some nice finishes, but nothing crazy luxurious. No 3,000-pound marble tubs (if you have visited my stories this week, you know what I'm talking about!). That would be:

$190,000 Lot Purchase (cash ideally)

$200 * 3,000 = $600,000 Construction Loan

Add those together and you are in at $790,000

Currently, there is a house for sale just down the street from this $190,000 lot listed at $1,275,000 for 2,808 sqft, 4 bedrooms, 3.5 bathrooms, and it is a newly built custom home (no previous owners).

That's a profit margin of $485,000. That's a lot of cheddar!!! In no other scenerio will you purchase a home and instantly be sitting on $480,000.

I have been watching this custom home market in Arizona and from a financial standpoint, so long as you keep your interior and exterior selections reasonable, they can be a huge investment.

The reason I say your selections need to stay reasonable is because you can EASILY spend 480k on your finishes. That may sound like a lot of money, but it goes quickly when you start putting in higher-end materials. You could easily spend 100k in high-end appliances alone!

How I can help

If you've been following me for a while you know that I am an Arizona REALTOR with a background in Interior Design. Do you know what my bread and butter is? The magical combination of both!

I help my sellers do a quick flip on their home so we can sell for top dollar and as quickly as possible.

I help my buyers find the perfect fixer-upper, the stunning dream home, or the model home with all the fun design choice.

And, last but not least, I represent my buyers in purchasing a lot and am hired to be their interior design for their custom home.

I am currently designing 2 custom homes (one in North Scottsdale and one in Show Low). And I just finished helping one of my real estate clients remodel their entire home.

My real estate brokerage has a sister company, Platinum Design Studio, where I have access to architects and a design director who oversees the permitting and architectural logistics. I work with many General Contractors in the valley and I have my favorites. Together we have designed custom homes from the ground up - literally.

I have all the resources you need to build a custom home from start to finish. If you want to work with me directly for a year straight, this is a fun way to do it ;)

In Closing...

There's a lot more to custom homes, but these are the main bullet points to give you a fair overview. If you have more questions or would like me to dive deeper into the process with you, let's have a chat! I love this stuff!


Jessica Doberneck of

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