Building a Home on Your Farm, Part 1 - Why Build a Home
Updated: Jul 3, 2020
This is a 5-part series of articles that discuss building a house on your farm or homestead. We look at planning, budgeting, designing, building, and we share our lessons learned along the way. In Part 1 we explore why to consider building a home on your farm. In Part 2 we discuss different types of homes you may want to build. Part 3 goes into site planning and home design. We'll discuss the people you work with to help build your home in Part 4. And finally the step-by-step process is explained in Part 5.
So you've found the perfect piece of land, a place you want to grow vegetables and raise animals. And more importantly a place you want to live. That seems to be the obvious first step, building a house on your slice of rural paradise, right? And you probably want to get started right away.
We've been there and can relate. Unfortunately for us we had to learn a lot of hard lessons along the way, and thankfully we dodged a few financial bullets on the journey. We want to share with you what we learned so that your journey goes a little smoother. If you've done the trip yourself, we'd love for you to add to the discussion in the comments section.
Before we get started, if you haven't already purchased land, we recommend researching whether buying farmland or renting it is the best option. Visit our article here on the pros and cons of buying versus renting farmland.
Why Build a Home on Your Farm?
This question is step 1 in the process as far as we're concerned. And the answer should be unique to you and your situation. Why should you build a home on your farm? There are lots of possible reasons:
It's our dream to live on a farm.
The farm will be our livelihood and source of income, thus we want to live where we work.
We own the land, might as well live on it.
I can't stand living in the city anymore, and I want to live somewhere with breathing room.
We need to be near our livestock so we can properly care for them.
The cost of living is cheaper out in the country.
HOAs drive us bonkers, and we want to get as far away from them as possible.
I want my kids to experience farm life while they are young.
We want to live off-grid and enjoy a self-sustaining lifestyle.
This is an investment property and a home will increase the value and allow us to build equity.
These are all good reasons, and you may think of others not on the list. Now here are the next questions: When do you need to build a home? Can we afford to build a home? These are cautionary inquiries, and I encourage you to think carefully about your answers. Building a new home is not a cheap endeavor in of itself. Now build a new home on a farm with all kinds of expenses associated with starting and operating said farm (examples: repair old fences, install irrigation, put in a well, build a high-tunnel, acquire livestock), and you may find your head spinning as costs pile up. Every situation will be unique. If you are depending on the farm for the bulk or all of your income, it will be wise to consider when your farm income will allow for you to build a home. Remember, in this case you're operating as a business, and start-ups often don't make a profit until a couple years into operation.
If your farm is more of a hobby or homestead operation, then your financial planning will be different since it's likely your main sources of income will be from outside the farm. Even in these kinds of scenarios, carefully weigh the expenses of building a home while trying to get your homestead up and running.
How do you know if you're financially ready to build a home?
If you've already purchased property then you likely have considered this, but if you are looking at buying land this is the perfect time to answer this question. So start with how much you can afford. Whether it's a home on your farm or a new build in town, the general rule is that your monthly mortgage payment should be no more than 28% of your gross (before taxes) monthly income. Most lenders will only approve a mortgage up to that amount. We prefer a more conservative monthly mortgage payment of 25% of after-tax income. Consider how much you can afford based on the stability of your income, amount of other debt you have, and how much money you can put toward a down payment.
Be aware that most mortgage calculators will provide you with an monthly payment that goes toward the loan - principal and interest. You have to factor in homeowners insurance and property taxes as well to know your total monthly payment. To determine that information you can get insurance quotes and check with the local tax office on average tax rates. Or to get pretty close to those numbers without going through extra steps, we recommend the mortgage calculator at SmartAsset.com. This calculator provides estimates on insurance and taxes based on the location of the home.
You're not just building a home, but you're also developing and running a farm. So including operating expenses in your budget is in an important variable. You may decide to keep farm expenses separate with the intent of the farm operation paying for itself. That's fine, but bear in mind if the property is on the same note as the home then you risk losing both if you can't make payments. One way or another make sure you have the money to keep things running on the farm.
Building a new home is not a cheap endeavor in of itself. Now build a new home on a farm with all kinds of expenses associated with starting and operating said farm..., and you may find your head spinning as costs pile up.
This information will give structure to your budget. Remember a budget is not a set of handcuffs that restricts you, it's a tool that gives you boundaries and keeps you safe from going overboard. Once your budget is nailed down, you can start researching costs to build. In a future article we will go over the process and associated expenses, but for now you should be aware that it's more than just building a house. Additional expenses that you may incur include: architect fees, site clearing, electricity installation, water hookup and plumbing to house site, and property surveys.
What if you look at the situation and realize you can't afford to build a home right now?
First off, this is not a problem - it's wise to slow down and not spend money that you're not sure you have to spend. There are advantages to taking your time in building, and there are affordable options for living while you get your financial house in order.
Advantages of Slowing Your Timeline Down:
Gives you time to get acquainted with your land. After some time you may realize you want a house in a completely different spot than what you envisioned when you purchased the property.
Allows you an opportunity to get your farm established and producing. If you're stretched thin paying the mortgage each month, the farm may suffer with few funds available for investment and operations.
You'll be able to think through what you really need in a home, not just what you want. This is true for us - we had a floor plan and were within weeks of pouring a foundation, and after some real soul-searching we realized it was more than we needed and more than we could honestly afford. So we scrapped the plan, ate some sunk costs, and started over with a simpler floor plan that we love.
Save money toward building a home. If you can live affordably during this time, you can save more money to put toward the expense of building a home. The more you can pay up front, the more it will save you in the long run on interest.
Get used to the area and decide if it's really where you want to live. We bought a house in San Antonio that was a "great" house and in the "best" school district (imagine air quotes there), and after a couple of years we realized it was a big mistake. The house was nice but in a jam-packed subdivision with nosy neighbors, it was expensive, and the schools were no better than any of the surrounding school districts.
A home should be a blessing to you and your family, not a burden that snuffs out joy.
Where to live while waiting?
If you're not quite ready to build, then where should you rest your head until you're ready? Again, every situation is different, but consider these options:
Stay put. Does it make sense to just stay in the house or apartment you're in right now? You'd need to consider the commute time to the farm and how often you need to do work there. Maybe you can lease the farm out in the meantime and let someone else work on fixing it up while you prepare to move there permanently.
Buy an existing house nearby. If your farm is out in the country, odds are you can find an existing house for sale that is affordable. This puts you in proximity to your land and allows you the opportunity to become familiar with the surrounding community. The downside is in rural areas there aren't normally lots of houses to choose from at any given time, and it may be difficult to sell the house later on.
Rent nearby. Buying a house may not be worth the trouble, so it could be that renting better suits you. The upside is the rental house or apartment is the landlord's responsibility to deal with, and you may find affordable rates that keep your living expenses low.
Go ahead and live on the property - in a travel trailer or RV. This is a popular option, and lots of people do just this. We nearly took this route as well. Putting a travel trailer on the property is a great way to scratch all the itches - develop your farm, start production, get familiar with the area and land, and save money toward building a house. If your property doesn't already have it, you'll need to get hooked up to a water source and electricity. And of course you have waste to deal with, so you may want to go ahead and get that septic tank installed. We learned that renting a decent sized RV or travel trailer was as much as, or even more than, a mortgage, so it looked like the better option was to buy a used one then sell it later on.
The idea here is good planning and prudent decision making will lead to the right home at the right time. We have a friend who is an architect for business developments. He told us he got out of residential architecture because it was too difficult trying to help people design a dream home only to have them come back to the drawing board several times because they were trying to build something they could not afford. Hey, we have been in that same situation, and thankfully we got our bearings sorted out before we got to a point we couldn't turn back. A home should be a blessing to you and your family, not a burden that snuffs out joy.
In Part 2 we look at different types of home to consider building on your farm along with the pros and cons of each.