If you're stuck with a smaller lot than you'd like, designing a home that fits your lifestyle and expectations is more challenging. But you can create the living space of your dreams even with a tight space to work with. Here are a few ways to do just that.

Go Vertical. If you don't have a lot of ground space, use your vertical space by building upwards. By opting for a second story, you can add bedrooms, an office, a larger master suite, and additional bathrooms. Depending on where you live, you may also be able to build downward by adding a basement that's perfect for housing extra kids or designing family playrooms.

Add Luxury. Make up for a lack of space with quality, luxury interiors. With a smaller total square footage to pay for and buy materials for, you can splurge on luxury counter tops, a chef's kitchen, high-end flooring, or the master bath you've always wanted. 

Focus on Priorities. Since you won't have room to include everything on your "dream home" list, be sure you know your true priorities. How much do you really use your full kitchen, for instance? If you, like many Americans, are busy and cook relatively simply, you could scale down your kitchen to make room for a home office or larger family room. And that home office could double as a guest room as well.

Open it Up. Closed-off spaces often feel smaller and more claustrophobic. Open up the house to make it feel and appear larger. Opt for bigger windows, strategically placed to take advantage of any views. Remove excess interior walls, replacing them with things like columns or knee walls. Use open banisters instead of closed ones. Install a carport rather than a full garage. 

Make Use of the Outdoors. Your limited yard space should also do double duty as a living space. Invest in a good patio or deck plan that's easily accessible from the house — preferably from more than one place in the house. Use it to add features like an outdoor kitchen, outside dining room, family play area, or even a covered area for working from home. 

Building a custom home with space restrictions takes more creativity than many other house projects. But with a focus on the right things and smart use of your existing space, you can make a home you'll love for years to come.