How to Budget for Your New Construction Home by Chafin Communities

New year, new home, new budget! If a new home is on your vision board for the new year we are here to help you reach your goal. Budgeting is the first step towards success, so let’s break it down and crunch the numbers. Here is a guide to building your next home and understanding the world of construction costs.  

Finances 

First, we need to establish a solid financial foundation for your future home. It is crucial to understand your annual income, credit score, and monthly expenses to set a realistic budget. Your credit score will play a significant role in determining your mortgage rate, which can have a long-term influence on your finances. Your first step should be to track your monthly expenses and identify any unnecessary spending. Then, calculate how much you can comfortably save each month for your home construction fund. Additionally, getting pre-approved for a mortgage will help you know exactly how much you can afford to borrow. Once you know how much you can allocate towards your future home, you will be in a much stronger position to create an attainable budget. 

Set a Goal 

Now, let’s set a goal for yourself to strive towards. Having a specific and measurable goal can be highly motivating and effective as you can monitor your progress. Define your goal by determining how much you need for the total build and closing costs. Then, break down this larger goal into smaller, actionable monthly saving targets to stay motivated. Whether it’s saving for a down payment, securing financing, or calculating the total construction budget, putting numbers to your vision will make the process easier to visualize. You can even use financial tools, apps, or pen-to-paper to track your progress. 

Reducing Expenses 

Tightening the belt is not always a necessary step, but it may be helpful for your savings. After reviewing your monthly expenses, you may have flagged some unnecessary spending that could be reduced. Perhaps that looks like eating out less, canceling unused subscriptions, or doing less online shopping. If resisting these habits proves to be a challenge, you might consider automating savings so the money comes out of your account before you have the chance to spend it. Although it may not be enjoyable in the moment, sacrificing extra spending can help you reach your goals, or at the very least, give you an extra cushion. 

Cost Analysis 

When you are building a home, it is important to know what you are paying for and where your dollars are going. You have created a budget and set a savings goal, but now let’s break down the major expenses involved in the process. When you construct a new home you will be covering costs like land expenses, lot fees, and design elements. Prices for different lots vary depending on location and size, so it is essential to consider this along with the specific plan you are interested in and any additional upgrades you may desire. Ensure that you are communicating with your sales agent to get an accurate breakdown of the costs, so you can factor in base costs and any potential upgrades. 

Contingency Fund 

The best-laid plans can still run into uncertainty. With design changes, fluctuations in material prices, or any other unforeseen circumstances, construction projects can tend to go over budget. To prepare for the unexpected, it is wise to set aside a contingency fund of 10-20% of your total budget. This will give you some wiggle room just in case anything does not go exactly as planned. The most difficult part may be to keep this money set aside. Remember to only dip into this fund for unexpected issues – do not use it to cover upgrades or additional expenses as you move forward with the build as hard as it may be. 

Timing

Constructing a new home takes time, sometimes more than expected. To prevent an avoidable financial strain, it is good practice to consider the timeline for construction. Ask your builder for an estimated completion timeline for your home and factor in extra time just to be fully prepared. 

Closing Costs 

Lastly, it is time to discuss closing costs. You will typically encounter closing costs when finalizing the deal on the land and the construction loan. These costs often include title insurance, appraisal fees, property tax, and more. They generally amount to between 2-5% of the home’s purchase. It is important to budget for these expenses in advance to avoid any surprises later on.

Now that the numbers have been crunched and the vision is set, you are on your way to a new home in 2025. Having a strong grasp on the finances of a new construction home is vital for planning your budget. 

Get in touch with us today and take the first step toward making your dream home a reality! Here are some other articles that you might be interested in reading:  Master Your Finances Budgeting Tips For Your New Homes, Mortgage Calculator: What’s Your Buying Power?, and Benefits of Buying a New Construction Home.