If you're in the market for a new construction home, it's important to be aware of some of the financial pitfalls that can occur during the process. By knowing what to watch out for, you can avoid making costly mistakes and save yourself a lot of hassle down the road. So, without further ado, let's take a look at some of the most common new construction financial mistakes and how to avoid them.
The biggest financial mistake when building a new home is not creating a budget. It's easy to get caught up in the excitement of the build and lose track of your spending. Before you even start the process, sit down and figure out how much you're willing to spend on your new home. Once you have a budget in place, stick to it as closely as possible.
Chances are if you are building a new home, you will be financing it through a mortgage or line of credit. The first step to ensure everything goes smoothly with the financial aspect is to consult with a mortgage lender or bank to obtain a loan approval. This will give you an accurate idea of how much money you can afford to spend on your new home.
When you purchase a new construction home, the lot it will be built on is often an additional cost. If you're not careful, this can throw your entire budget off. Be sure to factor in the cost of the lot when creating your budget for the build. This way, you won't be caught off guard by an unexpected expense later down the line.
Make sure to consult with your homebuilder to be clear about the cost of the lot as well as additional expenses associated with it. Is the lot purchase included in the home purchase price? Are there additional fees for hooking up services such as water and sewer? These are all important questions to answer before you finalize the purchase of your new home.
When you're building a new home, it's important to understand the difference between base price and upgrades. The base price is the starting point for your home and includes the cost of materials, labor, and profit for the builder. Upgrades, on the other hand, are anything that goes above and beyond the base price. This can include things like custom finishes, higher-end materials, or additional square footage.
It's easy to get caught up in all the possibilities when it comes to upgrades. However, it's important to be mindful of your budget and only select upgrades that are truly important to you. Otherwise, you could end up spending more money than you originally intended and blowing your budget completely.
When building a new home it is advisable to have additional funds set aside for prospective upgrades. If the contract of the new build only budgets for laminate countertops, but you are wanting to put in granite or quartz, this would be a cost on top of the purchase price. This would also be the same case for upgrading lighting, cabinetry, flooring and more.
There are many additional features that you may want for your home that are not included in the original purchase price. Many times, these are associated with the exterior of the property and include things like a deck, fencing, gardens, and landscaping. If you're not careful, the cost of these features can quickly add up and blow your budget.
To avoid this, be sure to discuss all additional features and their costs with your builder beforehand. This way, you can make an informed decision about what you want and factor it into your budget accordingly. Also, be sure to get everything in writing so that there are no surprises down the line.
When you purchase a new home, it should come with a home warranty. This is a type of insurance that protects you from any defects or damage that may occur during the first few years of ownership. In most cases, the builder will provide a one-year home warranty. However, you can also purchase an extended warranty that will cover you for up to 10 years.
While an extended home warranty is not required, it is highly recommended. This is because any repairs that need to be made during the covered period will be paid for by the warranty company. Without a home warranty, you would be responsible for paying for all repairs out of your own pocket.
Extended home warranties can be purchased through third-party companies or directly through the builder. If you're considering an extended warranty, be sure to compare the coverage and costs of different companies before making a decision.
While building a new home can be an exciting prospect, it’s important to remember that there are many potential pitfalls which can easily turn a dream into a financial nightmare. By taking the time to plan ahead and making sure you have a realistic budget in place, you can avoid most of these issues and enjoy your new home for years to come.