Building your own home is an exercise in careful budgeting. Each and every dollar needs to be accounted for, or your build could get away from you. Still, even if you’re careful with your budget, you might be making mistakes that cost you in the end. Maxing out your money might be less about choosing cheaper tile and more about managing your build with the future in mind. Don’t make these mistakes or you could be paying for years to come.
Ignore Resale Value
Most families build custom homes because they want a specific end product. Unless you’re building a home as an investment to sell, chances are you plan on spending years in your new place. But just because you don’t plan on selling doesn’t mean you won’t. Changes in lifestyle, careers, and budget could result in needing to sell. If you designed and built your home only thinking of what appeals to you personally, it might be a hard sell. Distinct features you fell in love with could be dealbreakers for buyers. That’s why it’s best to add personality in less permanent ways. Remember, paint color is easy to change; bright yellow bathroom tile isn’t.
Borrow Your Max
Building the house of your dreams means you have to be comfortable with spending money. But maxing out your mortgage on day one can cause you thousands in interest and stretch your budget too thin. The general rule of thumb for mortgages is that your housing costs (including HOA and any other fees) shouldn’t exceed 28 percent of your total income. Just because your bank is willing to lend you more doesn’t mean you should borrow the maximum amount. Make some concessions, borrow less, and you’ll be glad for it.
Building a new home isn’t like buying an existing one. Builders have their costs, so there’s no room for negotiation, right? It’s a common misconception in real estate, but it couldn’t be farther from the truth. Builders have room for negotiation and agreeing to their price right away could cost you thousands. Whether you ask for a better price outright or negotiate for better incentives or allowances, don’t accept that first price at face value.
Forgetting Your Responsibilities
Unless your builder agreed to finish the home and landscaping start to finish, there are parts of the build that are your responsibility. Usually, this includes things like minor landscaping (think laying sod or planting your garden) but it may also include sweat equity items, like painting or putting up trim. Whatever your responsibilities, don’t forget to budget for them. The materials and labor won’t be included in your builder’s price and you’ll need to pay for them out of pocket.
Building Too Big
A spacious home sounds like the American dream–until it comes time to heat and cool it, that is. See, even if you have the money to build a large home, it might not be the most cost-effective option when it comes to paying for utilities and the day-to-day running of the place. Building bigger doesn’t always mean building better. A good designer can create smart spaces that feel spacious without being too expensive for everyday living.
It’s an all-too-common way to save on a new build: just put off some of the finishes for another time. An unfinished basement seems like a money-saving tactic now, but it could cost you in the long run. It’s much cheaper to pay for a finished basement when contractors are already there and purchasing materials in bulk. Procrastinate that project for a few years and you’ll pay a premium for a contractor to purchase materials and come to your home specifically to work on your basement. If you have money in the budget and you know you want a finished basement (or completed deck, or landscaped backyard), have it done as part of the build process and save.
Use Your Builder’s Lender
Almost all builders have a “preferred lender,” where they send most of their buyers. And, if that lender offers the best rates and incentives, they very well might be the best for the job. But it’s always best to shop around for lenders that will offer the best rates, especially if you already have a lender you like. A builder might offer upgrades for using the preferred lender, so you can use that as a bargaining chip when negotiating rates or getting the best bang for you upgrade bucks. Remember, you’ll have your lender for decades; it’s best to make sure you work with one you trust.
Trying to keep track of your build budget can have you wishing you’d paid better attention in math class. But as you add up receipts and make choices, don’t forget to keep the bigger picture in mind. Paying for a new home doesn’t only happen during the build process, but for years to come after your move-in date. Make smart choices now and you’ll be paid in peace of mind later.