It’s easy to become wrapped up in the emotions of a new-home purchase. Homebuyers may view the purchase price as the final number they need to prepare their budgets.
However, there are other costs to consider outside of the total price of the new home. There’s far more to examine before signing on the dotted line. NewHomeSource spoke to several experts in the field of new homes and new home construction to get their opinions on unexpected expenses, and how to budget for those extra costs.
Q: What are the best practices for budgeting for a new home build?
A: “As a rule, budget 10–15% above the builder’s price,” said Leon Fisher, real estate advisor at Zook Cabins. “The more complex the construction, the higher your margin. 10-15% is usually enough to fully cover any unexpected fees and costs. It’s better to be safe than miss a few thousand dollars to finish your new home. "
Todd Stephenson, the co-founder of Roof Quotes, agrees.
“If your build is $450,000, then setting aside $45,000 gives you breathing room for closing, landscaping, appliances, taxes, insurance, and move-in costs,” said Stephenson. “It keeps you from cutting corners at the finish line, where the final stretch of expenses can pile up fast.”
Q: What are some of the unexpected expenses in new home construction?
A: “There are many costs associated with building that can surprise buyers, particularly for custom homes. The biggest costs that are not typically included are those associated with site preparation,” said Jonathan Culp, design principal of Land Agency.
According to Culp, that includes:
• Soil testing
• Clearing the plot
• Grading
“Soil tests happen on the engineering side of the project,” Culp said. “Clearing and grading typically happen on the civil/site prep side of the project.”
“Many buyers are surprised to learn that the builder’s contract price does not cover everything,” said Whitney Hill, CEO and co-founder of SnapADU. “Common additional costs include utility connection fees, which can vary widely depending on the site and whether new meters or trenching are required.
“For example, adding a new sewer line can cost several thousand dollars. Landscaping, fencing, and irrigation are often excluded from the base contract, especially in tract home developments or custom projects.
“Even items as simple as mailbox installation or house numbers can be the homeowner’s responsibility. Other possible extras include exterior concrete or driveway work, window coverings, appliances not included in the build package, and site-specific grading or retaining walls.”
Q: Taxes and insurance can fluctuate in that first year. What should new-home buyers expect?
A:“Big fluctuations should be expected,” said Karen Watts, CEO and founder of DomiSource. “Property taxes are assessed based on the value of the land before a new home is built, so your escrow figure will likely be low at first. However, as soon as the county assesses the value of your house upon completion, your mortgage payment could increase by hundreds of dollars.
“The same goes for insurance,” Watts said. “Once you make an offer, the insurance company will want proof of full coverage before closing, and premiums are increasing. You could pay $2,000-$3,000 annually for a $400,000 house today. Keep that in mind before falling in love with the granite countertops.”
Q: Are there recurring costs that new homeowners tend to underestimate? What about annual community fees, local improvement levies, or even one-time charges for shared infrastructure?
A:“Recurring costs are another area where new homeowners often underestimate long-term expenses”, said Hill. “Some communities impose HOA fees, private road maintenance costs, or shared infrastructure charges such as detention basins or community lighting.
“There may also be annual special assessments or improvement district levies that increase over time. One-time costs such as school impact fees or park development fees may appear during permitting but are not always clearly communicated upfront. Buyers should ask specifically about both recurring and one-time costs early in the process.”
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Erin Nicks
Erin Nicks has written for various publications for more than 20 years. She has covered new home construction for industry-leading websites and publications, such as Livabl, ARCHITECT, Multifamily Executive, and Builder Magazine.