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It seems there are 3 basic ways to do it. One is to dig out until there is enough flat area to build, as you suggest.
Then one could do stepped down tiers.
Finally, the house can be on stilts and float above the hillside.
I'm guessing digging out is the most economical way to build, but I'd be curious to hear from an engineer/builder the various strategies and price differences.
I've got to have a garage, so I think digging out is the likely solution. My wife hates when the garage is the prominent feature of a house. I'd also be sad to lose height by digging.
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