Costs to Consider Before Building a New Home

If you’re in the market for a new home, you’ve probably spent a lot of time poring over real estate listings looking for THE house. Although you didn’t start out thinking you had high standards, you’ve discovered there just isn’t much out there that’s speaking to you. Or maybe you’ve found several houses you thought were “the one,” only to have another buyer swoop in and snatch them up before you could even make an offer.

Lately, a new idea has come to mind: you’re considering building a new home. Building a new house gives you the opportunity to customize an entire house to your standards. And, it guarantees that there won’t be another potential buyer to make an offer before you do.

Building a home sounds glamorous — and it can be exciting — but it’s important to go into it with your eyes wide open. Sure, it’s fun to pick out new flooring, paint and light fixtures. But there’s more to it than that. Understanding the challenges and costs associated with a new build can help you avoid frustration.

Getting Started

There’s a lot more to building a house than just picking out new appliances and windows. And, as you’ll quickly realize, there is a financial component to each phase of the building process. So what exactly is involved?

1. Find a Builder

One of the first things you’ll need to do if you’re planning to build a new home is to find the builder you want to work with. If you already have a floor plan in mind, then you can find a builder who can work with the plan you want. Or, if you don’t have a floor plan, you can look at what floor plans different builders offer and choose the one you like the best.

The first thing to do when you’re considering a prospective builder is to make sure they are properly licensed and insured. But don’t just take their word for it. Check with the appropriate credentialing agencies to make sure they’re being honest with you. Then, ask around. You can spend some time looking at online reviews, but take some time to seek out other people who’ve used the builder you’re considering. If you don’t personally know anyone who has used them, ask the builder to provide you with references.

At the very least, the builder should also be able to provide pictures of their work, but don’t hesitate to ask for a tour of their current projects as well. Touring a model unit or a current job site can tell you a lot about the contractor’s craftsmanship and safety practices, as well as the crews they hire to work for them.

2. Select a Floor Plan

Selecting a floor plan should be one of the first steps you take once you decide to build a home. If you’ve decided to work with a specific builder, you may select from one of their pre-designed floor plans and the cost of the floor plan will be rolled into the builder’s other costs. But, if you’re like a lot of homeowners, you want to customize your floor plan and find a builder who’s going to turn your dream home into a reality.

3. Get a List of Detailed Specs

Once you’ve selected a builder and a floor plan, then it’s time for the builder to craft a detailed list of everything they’ll need to complete the job. In other words, they must provide you with a detailed description of what materials they will need to build the home using the floor plan you selected and how they will use those materials to craft your home. This should include a breakdown of each special service that will be included in construction, including plumbing, electrical, roofing, flooring and concrete work.

The more detailed the specs, the more accurate of an estimate they can provide on the final cost of your home. If you don’t work with your builder to establish this upfront, you’ll likely end up with builder-grade fixtures and finishes. If you have a preference when it comes to fixtures and finishes, it’s important to let your builder know. It’s also important to discuss your budget, so the builder understands what you can afford to spend.

Although it’s not necessary to outline the cost of every nail and hammer that will be used during construction, asking the builder to provide a list of specs ensures that you are both on the same page about what you expect your house to look like and what it will cost in the end.

4. Obtain a Construction Loan

Once you have a good idea of what you’ll need to build a home and what it will cost, then it’s time to obtain a construction loan. Although it is typically obtained through a mortgage lender, a construction loan is different than a mortgage, which you won’t get until the house is complete. A construction loan is secured to pay for the builder, the materials and the crews who will be doing the work of building your home. Typically, a mortgage lender will require a down payment toward a construction loan, and, at this point, you can expect to pay out of pocket for the appraisal, credit check and title insurance, as well as homeowners or construction insurance.

5. Give Out Building Allowances

Building or construction allowances are set amounts of money that are handed to a contractor to put towards certain materials or installations that will take place during the building process. For example, if a contractor is drawing up a detailed spec list but their client hasn’t decided whether they want to put traditional or engineered hardwood floors in their dining room, they may put an allowance in place that will cover the cost of whatever flooring is ultimately chosen.

Allowances can be helpful when a client isn’t ready to make all the detailed decisions about fixtures and finishes in the early planning stages. The concept has often been used by less-than-honest builders to get extra money out of a client. Some builders over-estimate how much something will cost or alter the details of a quote so that it comes in at a less-than-accurate price. As a general rule of thumb, allowances should be used sparingly. When they are included, contracts should include specific language about what happens if there is extra money leftover or if the allowance falls short of the final total.

In some cases, a builder may underestimate the amount that needs to be set aside for an allowance. Contracts should also account for what will be done in this case because it can potentially impact the final cost of the home and, if not handled correctly, can cause additional financial stress and strain on the homeowner.

6. Start the Building Process

In most cases, a builder is paid periodically throughout the building process as different phases of construction are completed. There may be places where a builder or homeowner discovers that they went over budget during that particular phase and owe additional money. Because the construction loan has already been secured, overages are the responsibility of the homeowner.

7. Close on a Mortgage

Once construction is finished, it’s time to secure a mortgage. The mortgage loan will pay off the construction loan you took out to cover building costs. At this time, you’ll be responsible for paying closing costs, which may include another appraisal and homeowner’s insurance if you didn’t purchase it already. If the house does not appraise for the amount it cost to build, then you may end up having to pay more money at closing as well.

Common Fees & Expenses

Although materials and builders’ fees are a big part of the cost of building a new home, there are some other fees and expenses that you’ll encounter as well. Doing some research will give you a good idea of all the fees associated with building a new home so that there are no surprises at closing.

1. Lot Prep Fees

Lot prep is the process of preparing the lot to build your home on top of it. The expenses associated with lot prep can vary, depending on its location. For example, if your lot has a lot of trees that need to be cleared or it isn’t flat, then your prep fees will be higher because of the costs associated with grading the land to make it flat or cutting down the trees. The builder will also need to make sure that there is proper drainage on the building site to prevent a muddy mess in the event that it rains during the build, and they may also clear a space for a driveway in order to allow construction vehicles to move freely around the site.

2. Permit Fees

Depending on the county you live in, you may be required to apply for certain permits to cover each part of the building process. Your builder can help you navigate the local codes, but most of the time, you can count on needing building and occupancy permits, as well as electrical and septic/sewer permits. The costs for these will vary depending on where you live and the size of the house you’re building.

3. Utility Costs

When you build a new home, you will have to pay to connect to the existing utility lines for water, sewer, electrical and, in some cases, natural gas. You’ll also need to have a septic system installed. If you’re far from a water line, you may opt to have a well dug to provide water to your home. Because each of these costs will vary depending on the area where you’re building your home, it’s important for you to work with your builder to determine what hookups you need and what it will do to your budget.

Post Build

Once the home itself is complete, there are still some details that need to be completed — and paid for — post-build. In some cases, these can be done over time or negotiated to fit into your budget, but they are still important to plan for.

1. Hardscaping

Hardscaping refers to all of the “hard” items on the exterior of the home, including any patios or decks, walkways or driveways that weren’t included in the earlier build. These finishing touches are incredibly important because they’re often some of the most-used features of your home.

2. Landscaping

Landscaping refers to all of the grass or sod that will need to be planted once all of the construction vehicles stop driving around the property. It can also refer to outdoor lighting, sprinkler systems and any trees that will be planted. In some cases, homeowners opt to do a lot of this themselves. Whether you have your builder complete landscaping prior to closing or you opt to do it yourself later, you’ll want to make sure to include landscaping into your budget.

Costs of a New Build FAQ

If you’re considering building a new home, you probably have a lot of questions. And you aren’t alone. Everyone has questions, and it’s important to make sure you get satisfactory answers to any questions you have before you move ahead with building a new home.

1. What is the Average Cost For Building a House?

There’s no easy way to pinpoint the cost to build a house because the cost of a new home depends on many factors — location, size and upgrades are only a few of the many factors to consider when you look at the cost of a new home. The best way to determine what a new home will cost is to talk with some of the builders in your area. Look at the floor plans they have, consider what you want in a house and start compiling estimates.

That being said, it’s important to remember that a builder most likely won’t give you a detailed breakdown of all the construction specs until you’ve committed to building a house with them. So, it’s important to do your own homework and have an idea of what you can afford before you begin the process. Then, you can present a builder with your budget and your wish list so that you can negotiate.

2. Is it Cheaper to Buy or Build a House?

Again, the answer to this question depends on a lot of factors. A brand new home isn’t the best option for everyone, so it’s important to stop and ask yourself a few questions.

• How quickly do I need to move in? If you’re ready to build your dream home and plan to spend the rest of your life in that spot, a new build is a great option that will bring you joy for years to come. But, if you need to move in fast, you may find yourself frustrated by the timeline of a new build.
• Do I have room in my budget for unexpected expenses? New homes will always have extra expenses associated with permits, landscaping and new window treatments. And, there’s nothing like a brand new house to make you want to do some serious furniture shopping!
• Where do I want to live? Stop and look at the area you want to live in. In some cases, there may be a shortage of existing homes in that area. You may want to reside in a specific school district or town, so what better way to plant yourself down in that spot than to build the house where you want to be?

3. How Long Does it Take to Build a New House?

A new home can take anywhere from 3-18 months to build, depending on how large and elaborate it is. If you’re customizing everything or the house is large and ornate, it will naturally take more time. Climate can also be a factor, especially if you live somewhere that tends to get a lot of snow and ice in the winter. Although newer building technologies make it possible for builders to work during the winter months, snow and ice can slow things down.

4. How Can I Save Money When Building a House?

One of the best ways to save when building a home is to determine what items need to be done by the builder and what things you can do to improve the house over time. For example, anything that involves the structure of the house — the size of a room, placement of a wall, etc. — should be included in the builder’s scope of work because it would be incredibly difficult and costly to go back and change later. Anything that’s considered a basic necessity for your home — installing kitchen appliances, HVAC or plumbing — should also be completed by the builder. But things like the type of light fixtures you use in the bathroom, window treatments and paint are all things you can do after the house is finished.

Find a Plan With Family Home Plans

If you’re ready to take the plunge and build the home of your dreams, then let Family Home Plans help you find the perfect floor plan for your new home. The Garlinghouse Company is pleased to offer a wide selection of floor plans for every taste and every budget. Our plans have been carefully drafted by some of the best and brightest designers available — all at an affordable price. We pride ourselves on offering the lowest prices around, so if you find the same plan on one of our competitor’s sites, let us know and we’ll beat their price by 5 percent of the total. Now that’s a deal that can’t be beat! Ready to get started? Search our house plans today!