Building Your Dream Home? How to Budget for $375,000 Worth of Costs

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Love that new-home smell? Or maybe you like the idea of a never-occupied home that’s customized to your lifestyle.

There are plenty of reasons for building and moving into a new home. However, buyers of new homes also have to navigate the costs to build a house.

If you’re hoping to get a brand-new home, either through a builder or by building a home yourself, the biggest challenge might be sticking to your home-buying budget.

So, what’s the real cost of building a house from dirt lot to dream home? Read on to find out so you can set your budget accordingly.

Costs to build a house vs. costs to buy an existing home

First, you’ll want to understand the costs of different types of homes. For instance, the price of an existing home can be significantly different from the price of a new construction or a home you build yourself.

Here’s a look at some typical costs for each kind of home purchase.

Existing single-family home price: $255,500

The most recent median price for an existing single-family home was $255,500 in August 2017, according to the National Association of Realtors.

Here’s a breakdown of purchasing costs for this type of home:

Overall, buying an existing home will set the typical homebuyer back $35,770 in upfront costs and land them with $227,395 in mortgage debt.

New builder-constructed home price: $319,700

Newly built homes cost more money. These homes are built and then sold to buyers, often at the speed the developer builds them.

The median price of a new house was $319,700 in September 2017, according to U.S. Census Bureau and U.S. Department of Housing and Urban Development data. 

Here’s a breakdown of purchasing costs for this type of home:

  • $35,167 for an 11 percent home down payment
  • $9,591 for 3 percent closing costs
  • $284,533 financed with a mortgage

Overall, that’s $44,748 in upfront costs between the down payment and closing costs along with a $284,533 mortgage.

New custom-built home price: $374,554

According to the National Association of Home Builders (NAHB), the most recent estimates from 2015 put the cost of constructing a home at $289,415.

But that’s just the cost of construction. Before you can start building a home, you’ll usually need to pay to develop the lot for a residence, which averages $85,139. Those costs add up to $374,554 to build a custom home from the ground up.

A new custom-built home also requires the buyer to get a construction loan. Construction loans typically are viewed as bigger risks than conventional mortgages and require down payments of 20 to 25 percent, according to

Here’s a breakdown of costs for this type of home:

  • $74,911 for a 20 percent down payment, which is standard for a construction loan
  • $11,237 for closing costs of 3 percent
  • $299,643 financed with a mortgage

The bottom line: You’re looking at typical upfront costs of $86,148 — twice the upfront costs of a developer-built new home or an existing home. Plus, you’re looking at a mortgage of more than $299,00. That’s a significant increase in mortgage costs compared to builder-constructed homes.

Existing, new, or custom: Which option should you choose?

Overall, buying a new home will be more expensive, whether you buy through a construction company in a new development or opt to build a custom home yourself. However, costs don’t jump astronomically, and they can be affordable for many homebuyers without much stretch.

Buying with a builder can be a better option if:

  • You can’t or don’t want to put down 20 percent on a home. A conventional mortgage is easy to get when you buy with a builder and won’t require as much money down.
  • You want the option to choose your home’s layout and customize it without having to start from scratch.

However, opting for a custom-built home does have some advantages, such as:

  • You get exactly the home you want in every way. You’re not limited to the layouts and options offered by a builder.
  • You get a great value. While custom-built homes are expensive, they also tend to be larger. And the $375,000 price tag for building the home yourself is far below the $468,300 sale price the NAHB estimates for the same home.
  • You get to choose your own lot and likely can get a much bigger home plot than you would in a new development.

Watch out, though: The costs to build your own home might not be as predictable with a custom-built home, and the process is more involved for the eventual homeowner. 

Of course, there are considerations beyond cost. You’ll also want to consider what else you want in a home, such as location, commute time, and square footage. The type of home you choose will affect these factors too.

Watch out for these unexpected costs to build a house

“I have worked with many clients who are surprised by the different costs they never think about, many that cost far more than expected and some that are totally forgotten on the initial estimates,” said Todd Huettner, a real estate agent and the president of mortgage lender Huettner Capital.

The process to purchase a newly built home will take a longer. But it’s not always clear what you’ll need to pay and when, which can lead to you setting a budget that’s woefully inaccurate. Here’s what you need to know about the unexpected costs to build a home.

Deposits and financing costs to build a home

For a builder-constructed home, a conventional mortgage is typical. However, it might have a couple of differences:

  • Deposits: You’ll likely need to put down your earnest money, or an initial deposit, when you sign the contract with the builder. You might be asked for an initial deposit in the process too. They’ll go toward your final down payment.
  • Mortgage provider: The buyer-preferred mortgage lender won’t always offer the best deal, so make sure you compare mortgage rates and products with other lenders.

With a custom-built home, however, you’ll usually need two loans: a construction loan and a mortgage that will replace it once the home is complete. Here are major financing costs you should watch for:

  • Down payment: You’ll pay 20 to 25 percent toward your lot and construction costs, which will be due upon signing your construction loan. This is a major upfront expense, so make sure you’re prepared to pay it.
  • Closing costs: You’ll refinance the loan into a mortgage once the home is built and appraised. Some lenders will treat them as two different loans, in which case you might have double the closing costs. Or you might have a construction loan that will convert into a mortgage once the home is built and appraised. Look into both options.

Before building begins

Besides the deposits, down payments, and financing costs, there will be other costs before you can break ground on the home. Most of them will apply only to homebuyers who opt for a custom-built home.

First, there’s the giant cost of finishing a lot, which the NAHB puts at $85,139. It could include both the purchase of the land itself and any improvements that will be needed to finish and prepare it for a home.

For instance, you’ll usually need to pay to put in basic utilities like water, sewage, electricity, and telecommunications connections. You also might need to grade the lot to even it out before construction can begin.

There are preconstruction costs that can add up too. For example, per the NAHB, you’ll be looking at:

  • $3,601 for building permit fees to get the proper permits and licenses to build
  • $4,191 for water and sewer inspection fees
  • $4,583 for architecture and engineering to draw up and modify plans for the home

Once construction is underway

Unlike an existing home, the construction cost of building a home will be front and center for you.

Whether you’re building a home with a builder or on your own, plan to pay for key inspections and an appraisal. It’s also a good idea for you to visit the construction site frequently.

“Let them know you are keeping an eye on things,” Huettner suggested. “A clean job site usually means things are going well, and a disaster of a job site can be a sign of problems.”

With custom-built home construction sites, you’ll be responsible for many more costs, including:

  • Portable toilet: “It is usually included by the builder, but you need to have one, and many people don’t think about it,” Huettner said.
  • Construction insurance: Your home will take six months to a year to build, and a lot could go wrong in that time. Protect yourself with construction insurance “to cover the house, materials, and liability during construction,” Huettner advised.
  • Foundation: Expect the foundation alone to cost around 12 percent of construction costs, or $33,447 on average, per the NAHB.
  • Framing: This is when you’ll start to see your home take shape. Framing costs are about $52,027 on average, or 18 percent of construction costs.
  • Exterior finishes: From the roofing to siding, windows, and the garage door, you’ll spend 15 percent of your construction budget here, or about $43,447 on average.
  • Utility systems: Plumbing, electrical wiring, and HVAC systems will set you back $37,843 on average, or about 13 percent of your budget. 
  • Interior finishes: From insulation and drywall to fixtures and appliances, this is when the inside of your home will take shape. These finishes will be the biggest cost by far at about 30 percent of your construction budget, or $85,642 on average.
  • Final steps: Once your home is done, a few final costs might remain, such as a porch, a driveway, and cleanup. They can add another $19,567, or about 7 percent of your construction costs.

Construction setbacks and delays

Even if you make the perfect home-building budget and plan, there probably will be some kind of hiccup or setback in construction.

It’s even possible that your contractor will mistakenly forget a big-ticket item on estimates.

“This is not typical, but I did have a builder forget to include the boiler on the estimates for a large new log home in the mountains,” Huettner said. It was a huge cost the buyer wasn’t expecting since it wasn’t in the original estimate.

Try to give yourself of a bit of wiggle room in your budget to cover unexpected costs or delays.

“People usually have more delays than they expect, and the cost of delays is always far more than people expect,” Huettner said.

“However, these costs are not always direct costs,” he explained. “They could come from having to find another tradesman for a specific job because they are on another job when yours was not ready for them. A few months of interest on a construction loan can sure make a difference as well.”

Extra costs for upgrades

You’ll have seemingly unending options for upgrades to customize your home — at a premium price, of course. To limit your costs to build a home, carefully choose which options you need now and which can wait.

For builder-constructed homes, you might even want to compare the price your builder would charge for a particular upgrade with what a contractor would charge. Builders often mark up upgrades and charge a premium to boost their profit margins. It’s possible paying a contractor for the job after you own the home will cost less.

And resist the temptation to overdo it in the kitchen and bathrooms, Huettner warned.

“These are the two areas that most people can spend far more than they plan,” Huettner said. “It is just very easy to get carried away on these two spaces, and they are high-cost areas of the house already.”

Bottom line: Budget for all costs to build a house

There’s no doubt that building a home is a big commitment. These steps can help you set your budget and prepare for the process of building a home:

  • Research the process so you understand it from start to finish and can anticipate costs.
  • Plan and save for costs to build a home so you’ll have enough money set aside.
  • Consider getting a buyer’s agent who has experience working with home construction and can advocate for you as well as help you navigate the process.
  • Use a house cost estimator to get a ballpark figure of your possible costs.
  • Carefully choose your professionals. “Take time to pick the right architect, builder, and lender because they will make your project a success or not,” Huettner said.

Building a home often will cost more, but for people who choose this path, it’s a means to fulfill their homeownership dreams. Building a home that’s exactly what you want can come with huge quality-of-life benefits.

Now that you understand the cost of building a home better, consider whether the perks are worth the price for you.

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