Estimating Residential Construction Costs

Building a new home is typically more expensive than buying an existing resale home, so setting a construction budget is especially important.

Tract Builders

When buying from a tract builder you will sign a contract that indicates everything that will be included in your new home. Tract builders will present a variety of options that are available for your home, from upgraded kitchen cabinets to fireplaces and tile floors. It's helpful to identify those features that are must have items and those that are nice to have when finalizing your construction budget.

A tract builder will provide you with a contract to complete your home at a fixed price.

Custom Builders

If you are custom building a home, the process becomes more complex and you must decide on each piece of the home from door knobs to the kitchen sink. As design plans are finalized, be sure that everyone agrees on these priorities. A custom builder will add up the costs of your requirements for the custom house and give you an estimate that may be subject to material price changes and other variable costs. Plus, each change you make along the way will affect the final price.

Hidden Costs of Building a House

Upgraded Materials:

While most builders offer a standard package of floor coverings and other materials, you may want to upgrade the materials that will be installed. Be aware that purchasing these materials and finishing touches through the builder may cost more than buying and purchasing them yourself. Stretch your construction budget by providing for these upgrades by shopping around.

Landscaping:

While the builder may include some basics, such as new sod, you may want to plan for additional landscaping, including trees and shrubs. You don't have to finish the landscaping right away. Consider doing the work after you move in and perhaps doing the work yourself to save money and stay ahead of budget.

Rising Association Fees:

When a development is new, association fees may be subsidized by the developer, which means that the builder will pay a portion of the fees for a limited period of time. Once the development is completed, typically the full extent of the maintenance costs are realized and the association begins to assume the maintenance costs. These fees can increase substantially.

Real Estate Taxes:

Taxes on vacant land are much less than taxes on a finished home. The taxes that will be estimated by your lender at the construction loan closing will be based on vacant land. In the following tax year, your real estate taxes may triple or more. Funds to pay your taxes will be collected as part of your monthly mortgage payment as part of your escrow account.

Homeowners Insurance:

Your lender will require homeowners insurance that can be a significant cost and you will have to provide a paid insurance policy at your mortgage closing. Your lender will collect funds with each of your monthly payments to provide money to purchase insurance each year.

The Break-In Period:

During the first five years of home ownership, plan for some of the minor repairs that might typically occur in any new home. These may include a new a coat of paint, or replacement of some appliances that may stop working.

Finishing Touches:

Your personal construction budget should include blinds, window coverings, and other finishing touches that are not included in your construction contract.

Plan B:

It's likely that you will need one. Maybe the bathroom fixtures you want are no longer available, or you realize that you want an option or feature that was not in your original plans. Since you will not foresee all the things that may occur, build some flexibility into your construction budget and schedule appropriately to allow for unpredictable events.

Consider Resale Values:

As you customize your home, be careful not to over-improve it. The most expensive home in the neighborhood might be more difficult to sell. Additionally, when selecting colors, consider your personal tastes in view of what potential buyers may find to be undesirable and decrease the value of your property.

New Appliances:

Most new construction homes do not include refrigerators, washers, dryers, or other useful items such as exterior spot lights. These, along with other finishing touches can add thousands in expenses. All should be added to your post construction budget which will be part of your total costs.

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