How to Break Down Your New Home Build Budget

Finding a pre-existing home is usually the top choice for homebuyers, but if you decide you want to build a brand new home, there are several budgetary items to consider. From buying the land to selecting materials, to finishings and furnishings, how much does building a home actually cost? Every state and city are different, but I’m going to show you a real life example of how to break down your new home build budget — with our current one in South Carolina!  

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What you see isn’t always what you get

Home builders try to lure you into their neighborhoods by advertising “Homes Starting At,” followed by a price that seems really attractive. That price is typically for the least expensive floor plan the developer is selling in that neighborhood, and may only include the home, not the land it sits on. There may be other floor plans that offer more bedrooms, bathrooms and other extras, which means the price will be higher for those floor plans. The base price of the home we picked was $436,900, but this was just for the structure; not the land or any other upgrades.

Location, location, location!

After you decide which house floor plan you like, you’ll then have to pick where you want your home to be located in the lots available. These lots are the plots of land that have been divided up in the neighborhood, and they may vary in size, shape, and location. Something to keep in mind for your new home build budget is the “must-haves” regarding location.

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Cannot wait to enjoy more of these sunsets at the lake.

We were drawn to our new neighborhood for a few reasons: the lots were bigger, there was more space between the houses, and it’s just outside where we currently live, which meant the homes were more affordable. The lots that were available ranged in price from $90,000 to the lot we picked at $150,000. Our lot was at the top of the price list because at .68 acres it was larger than many others, it was at the end of a cul-de-sac, and it backed up to the large lake, making it a more desirable location.

Putting down a deposit

After we selected our floor plan and land lot, we put down an earnest deposit of $5,000. This money was both an assurance that we were serious about this contract, and that the builder wouldn’t sell this lot to anyone else. At the end of the sale, the earnest money will be applied to the cash we’d need to bring on closing day. Keep in mind: while the earnest deposit locks you in, there are situations where you could be released from the sale and your money returned. Make sure you read the paperwork you sign!

(READ MORE: Why We Built a New Home, and What We Learned Along the Way)

Designing your home

You’ve picked your floor plan, lot, signed your paperwork, and paid your deposit; next stop on your new home build budget is the design center, where you’ll personalize your soon-to-be new home. Each home builder has a list of items already included as standard options. This could include everything from the number of bedrooms, flooring types, light fixtures, doors, windows, etc. But, this is the point in the process when you can add more bedrooms, bathrooms or bump outs, change the kitchen cabinets, add outlets, choose the trim, select doors and plumbing fixtures; anything and everything to make your house a home.

Walking through the model homes gave us a chance to better see design layouts of the home.

The extra design choices add up fast, and you may have to look at your new home build budget and decide what’s a must-have now versus something you can change later.

My advice? First, walk through any available models to get a feel for how things look first hand. Then, prioritize any structural items you’d want changed over something more cosmetic (ex: adding a bathroom versus upgraded countertops). Those more cosmetic items may add value to your home, but they’re easier to save up for as a future project; it’s much more of a hassle to change a home’s structure once it’s built. Once we added in all of our must-haves for our home, our total in the design center came to $91,000. 

Comparing pre-existing to the cost of building

When we compared what it would cost to buy a pre-existing for the same price, we could not find a pre-existing home that came close to everything we would be getting with our new home build budget. After all, we handpicked nearly every aspect of this home, including (and most importantly) the location. We would still be close enough to enjoy the beach and downtown Charleston, but have much more open space, proximity to water, and a home that wouldn’t need any updating. With the interest rates so low and the equity we have selling our current home, taking this leap made the most sense for our family. 

Have more questions about building a new home? is your one-stop resource for building, and budgeting for, a new home. From tips and advice, to checklists and step-by-step processes, the “How to Build” section is the perfect starting point for your new home build.

Brooke has a lifestyle blog called Cribbs Style and currently lives in Charleston, SC. This wife, mom of two almost tweens, and mom of three fur children enjoys all things DIY and organizing. When she’s not helping others tackle the chaos of life, she’s either working out, at the beach, or just enjoying time with family and friends.


Seven New Year’s Resolutions for First-Time Homebuyers

Perhaps the three most serious mistakes most first-time homebuyers make are failing to give themselves enough time to put together a down payment, failing to improve their credit and not paying down as much debt as possible before they start shopping for a home. These can take months to complete, and should they find their dream home, they won’t be in a position to make an offer or get a mortgage.

Many buyers also not give themselves enough time to make a budget for the purchase, including down payment and closing costs and a budget for monthly living expenses afterward to determine what they can reasonably afford. Before they can realistically house hunt, they will need to decide on a list of “must-haves” that includes location, find an excellent real estate agent and find a lender.

If 2020 is to be the year you want to become a homeowner, here are seven New Year’s resolutions that will help you not only buy your first home, but be able to do so comfortably and happily.

Resolution #1. Save for a Down Payment and Closing Costs

Unless you are a veteran who qualifies for a VA mortgage, which requires no down payment, you will need enough cash on hand for a down payment and closing costs. A recent survey found that nearly half of millennial renters who want to become homeowners have not saved a penny towards a down payment, even if you choose a 3% low down payment loan like those offered by Fannie Mae and Freddie Mac, you are going to need $6,000 for a down payment on a $200,000 home. Most young families will need six months or more to save that much. A few lenders offer “zero down” mortgages to first-time buyers, but only to borrowers with excellent credit.

Photo of cheerful loving young couple using laptop and analyzing their finances with documents. Look at papers.Photo of cheerful loving young couple using laptop and analyzing their finances with documents. Look at papers.

Some first-time are turning to their families for gifts to get them over the down payment hump. These must be gifts, not loans. But lately, the “bank of mom and dad” has been drying up. In 2019, 17.4% of millennials were expecting support, down from 19.1% in 2018. Those who expect help in 2019 are expecting less ($8,928) than they did last year ($9,878).

If you haven’t started saving yet, reduce your living expenses as much as you can and put away as you can with every paycheck. Pay yourself first to make sure you are putting away enough to reach your goals. Don’t save cash by using your credit cards to pay living expenses. You will quickly increase your debt load, which will lower your credit rating. You will also increase your debt-to-income ratio, which could kill your chances of getting a mortgage. Even if you do get approved, you will be offered a higher interest rate.

Closing costs like title insurance, appraisal, settlement fee, home inspection, and lenders’ expenses are beyond your control and are required to be paid at settlement. Most closings these days take place six weeks or so after the seller accepts your offer. Closing costs are generally 5% of the home price, but they vary significantly by state. Here’s a state-by-state list of average closing costs in 2018.

Resolution #2. Reduce your Debt

Lenders look at debt-to-income ratios to see if you will have enough each month to handle a mortgage payment in addition to your monthly debt payments. Your debt-to-income ratio is the of all your monthly debt payments divided by your gross monthly income. The average debt-to-income ratio (DTI) for all recently approved mortgages is 24/37.

You can improve your DTI either by making more money or paying off some of your debt. Review your current debt load and pay off those that have the smallest balances.

Resolution #3. Improve Your Credit Rating.

Your credit score and credit history will also determine whether or not you will get a mortgage and how much interest you will pay. Lenders to whom you apply will pull your credit and carefully review your record. The average credit score for all mortgages is currently about 736.

Credit scores change every month, and you should monitor yours and review your credit history on each of the three major credit bureaus: TransUnion, Experian, and Equifax. If you need to improve your credit, then it should be at the top of your resolution list to do so– here are some tips on improving your credit. Like saving for a down payment and reducing your debt, it takes months to improve your credit. However, you can keep working on your credit until you find a house to buy and apply for a mortgage.

Resolution #4. Get Pre-approved by a Lender.

When you’ve done the best job on your credit and debt, ask a lender to pre-approve you before you to home shopping. With a pre-approval in hand, you will be in better shape to make an offer. If your credit or DTI continues to improve, you may be able to get a new pre-approval for a larger loan.

Resolution #4. Decide Where You Want to Live.

It’s no secret that first-time buyers are facing the worst affordability crisis in decades. Supplies of all homes improved slightly last year, but most economists don’t expect it to get much better and hotter markets may have even fewer homes than last year. Unfortunately, smaller starter homes popular with first-time buyers are harder to find than larger homes.

deciding where to buydeciding where to buy

Inventories and prices vary greatly. Larger coastal metros are the most expensive, but properties in smaller cities are generally more affordable.

If you live in a high priced market, is relocating a possibility? Could you find an excellent job in your field or work virtually? If so, you might surf locations that appeal to you. Check out prices and the supply of affordable homes. You might be surprised at how much reasonable some markets are.

If relocating isn’t in the cards, try to enlarge the areas you would like to live in your current metro. The larger the area you consider, the more listings you will find. If you are moving from an urban rental to am exurb, you might a longer commute will make to become a homeowner faster than staying where you are,

Resolution #5. Make a Realistic Budget for Living in the Home You Buy.

Nearly two-thirds, 68%, of millennial homeowners said they had regrets about their home purchase, and 18% cited unexpected maintenance or hidden costs as their greatest pain point, a Bankrate survey found last year.

Your monthly mortgage is just one of several costs of homeownership. Many first-time buyers fail to plan for insurance, maintenance, taxes, utilities and homeownership association fees are some of the expenses that can strain your family budget. When you decide to make an offer on a home, ask your home inspector for rough estimates of significant repairs or upgrades you will have to make soon. (Better yet, ask the seller to lower the price of the home to cover major expenses, or require him to make the repairs himself). Plan to set aside 1% to 2% of the value of your home each year for upkeep. These expenses, as well as your monthly mortgage payments, will increase with the cost of the home you buy.

If your budget comes in at a level for more than you can comfortably afford, you will have to reduce your mortgage and the amount you can spend to purchase a home.

Resolution #6. Stick to Your Budget.

By making a good budget and sticking to it religiously will save your family from years of living “house poor.” Promise yourself and your family that you will stick to your budget. Don’t assume that the maximum amount that a lender will lend you is the maximum you can afford. His number does not take into account all the expenses you have listed in your budget. It’s merely a number based on your credit score, your debt and don’t get caught in a bidding war for your “dream house” and offer more than you can afford. You may lose the deal but find another house next week that you will like just as much and can also afford.

Resolution #7. Don’t Give Up Easily.

There is no question that these are tough times for first-time buyers. A recent survey found that 12.3% of millennial renters who would like to become homeowners have given up homeownership and plan to rent forever.

After you have given your best effort and can’t find the right house at a price you can afford by the late summer or fall, this might not be your year. Pack it in until 2021. As you continue to save, improve your credit, and reduce your debt, you will be in a better position to buy a home.

Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.


Budget Basics: Beat the Budgeting Blues

Most of us know the importance of keeping a budget. These tips can help you stick to one.

Budget: It’s the word we love to hate. Most of us understand the importance of keeping a budget, but for a variety of reasons still haven’t found the time or energy to actually implement one. The purpose of a budget isn’t to create a complex and lengthy document, it’s to help control spending and maximize savings to ensure financial security. Keep in mind, there isn’t a one-size-fits-all budget; each individual and family is unique, and their budgets should be equally unique.

Get started on your budget by following these four guidelines.

1. Know What You Earn Vs. What You Spend

It doesn’t matter if you’re new to budgeting because all budgets start with knowing how much money you earn as opposed to how much money you spend. All budgets are designed for the same reason: so you can live within your means on a month-to-month basis. Think of budgeting this way – if you spend more than you earn, you may end up in debt, or have to dip into your savings. Spend less than your income and you get to save money. Put a few months of savings together as a result of your budgeting efforts, and you may end up with a little extra cash.

2. Create a “Zero-Based Budget” Plan

Once you have a better understanding of how your income stacks up to your expenses, it’s time to establish your budget. One simple method is called “zero-based budgeting” in which every dollar earned and spent is tracked for an entire month. Add up all your expenses including your rent or mortgage, food, cell phone bill, cable and internet, and compare them with your income for the month. The goal of the “zero-based budget” is to have zero dollars left over. Keep in mind that the purpose of creating any budget is to help you reach your financial goals.

3. Make Savings a Priority

At first, making savings a priority may be the most difficult part of budgeting. However, it will also make the biggest difference down the road. A simple habit of putting away money before spending ensures you won’t spend more than you earn, and allows you to contribute to retirement funds, rainy day funds, future vacations, car purchases and a variety of other things. When you are ready to start saving, you should consider an online bank such as Discover Bank. Online banks may allow you to save more with competitive rates because their overhead expenses are much lower. It’s also a good idea to consider a bank that offers a variety of products including savings, certificates of deposit (CDs), and money market accounts so you spend less time managing your money because it’s all in one place.

4. Be Flexible

Your budget isn’t going to be perfect. Unexpected expenses and emergencies happen to all of us, more frequently than we’d like. So don’t be unrealistic with your expectations. Understand that changes in your budget will happen, and they’ll happen frequently. The important thing is that you remain flexible and maintain your “zero-based budget”. For example, let’s say your car is having problems and you need to take it to the mechanic; you may need to cut back on your recreational expenses in order to cover the repairs.

This isn’t an exhaustive budgeting list, but it’s a good starting point. Remember that your budget is unique to you, so do what works best for you and your family. The most important thing is that you implement the budget; you won’t regret it.


Tax Breaks and Benefits

Ready for April 15th? Here are some tips to get all the deductions you deserve.

It’s tax season and April 15th is fast approaching, which usually means you’re thinking a lot about your tax return. Preparing your taxes isn’t easy, but half the fun is figuring out what deductions you need to itemize to maximize the money you get back. We want you to get the most out of your tax return, so in case you missed these deductions, here are some tax write-offs that may apply to you.

Tax Breaks and BenefitsDownload the Tax Breaks & Benefits PDF.

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To Spend, or to Cut? 4 Questions to Help You Avoid Unnecessary Expenses

Consider your material and emotional values to decide which expenses belong in your budget.

It’s a universal truth: For most people, budgets only have room for so much. Juggling the cost of that summer vacation you’ve been taking for 10 years with the pressing need to help pay your child’s college tuition, actually use your pricey gym membership or fix your faulty water heater is no easy feat. Sometimes, something’s got to give. But how do you decide which expenditures are worth making and which ones you should cut?

Eliminating unnecessary expenses may depend on your personal priorities.

Figuring out when to spend and when to cut—and how to avoid unnecessary expenses—depends on your personal priorities. But the following four questions will help you weigh each spending decision and choose the best option for you:

1. Is it more than you need?

During a recent family budget meeting at Rosemarie Groner’s house, the hot topic was … wait for it … paper towels. Every week the personal finance blogger’s family sits down to review how they can reduce unnecessary expenses. When their giant pile of paper towels came under scrutiny, Groner, whose blog is called The Busy Budgeter, admits they were skeptical of the wisdom and sanitation of reducing their use of paper towels. They worried about the risk of spreading salmonella and other germs, for one thing.

cut back in other areas to reduce unnecessary expenses. Travel provides the opportunity to explore different places and cultures, experience personal growth and reflection and create long-lasting memories with loved ones—all worthy outcomes.

Let’s say it’s not travel you’re pondering in your quest to avoid unnecessary expenses, but the generous line item in your budget for events like concerts, plays or museum visits. Can these things get expensive? Sure. But you may decide that the enrichment of the arts is valuable enough to continue this spending.

Investing in your education can pay off in the long run, so don't assume it's a cost you can cut to avoid unnecessary expenses.

Likewise, an investment in your education—earning a degree or taking a few classes to boost your credentials and increase your earning potential—might also be a worthwhile expenditure. In 2016, for example, the median weekly earnings for workers with a master’s degree were $1,380, compared to $1,156 for those whose education topped out with a bachelor’s degree, according to the U.S. Bureau of Labor Statistics—a difference of more than 19 percent. Professional degree earners had a nearly 51 percent pay advantage over those at the bachelor’s level.

3. When’s the last time you used it?

While some experiences are special enough that you wouldn’t want to miss out on them, there might be others you rarely use even though you’re continuing to pay for them. When eliminating unnecessary expenses, watch out for automatically renewable charges on gym memberships, magazine subscriptions and retail subscription services (including for fashion, cosmetics and food preparation kits) that continue even when you no longer want them.

Ditching a gym membership you don't use is one way to reduce unnecessary expenses.

That’s a favorite hack for eliminating unnecessary expenses from Sami Cone, a Nashville-based speaker, author and finance blogger. Cone, who discusses money-saving tips on her website and hosts a radio show called Family Money Minute, recommends putting a reminder on your calendar at either the beginning or end of each month to check your statements for expendable services and subscriptions.

Similar to those subscriptions you haven’t used in ages, are there items you purchase by habit that you or your family no longer want or need? A useful way to avoid unnecessary expenses is to take your spending off autopilot. Possible signs you need to do this stat include: You’re paying for music and dance lessons your children skip more often than they attend; you buy extra phone and data services you never use or premium cable channels you never watch; you’re frequently replacing dietary supplements and cooking spices that have lingered on the shelves past their expiration dates.

4. Will you save later by spending now?

Sometimes the best way to reduce unnecessary expenses in the long run is to invest in what seems like a big expenditure now. Upgrading your home’s heating, ventilation and air conditioning system to a more energy-efficient model, for example, might be a smart way to splurge because it can save you money on your utility bills. According to the U.S. Department of Energy’s Energy Star program, replacing a central AC unit that is more than 12 years old with an Energy Star-certified AC unit could trim your cooling bill by 30 percent.

Another example of a major expenditure that can pay off later is investing in quality home furnishings instead of choosing bargain goods. The higher-end products may save you more in the long run because they are often more durable so you won’t have to replace them as soon. Making healthier, if more expensive, food choices now can also potentially help you avoid medical costs related to illnesses like diabetes, high blood pressure and heart disease.

Stay motivated to reduce unnecessary expenses

Having a specific financial goal in mind when you set your spending priorities is an important source of motivation when you’re trying to avoid unnecessary expenses. Groner says her family is now out of debt after paying off more than $30,000 from credit cards and car loans with the help of their frugal spending habits.

Stay motivated by keeping track of how far you've come since you first started eliminating unnecessary expenses.

“In the beginning, when we were first trying to reduce our expenses, the reward was the relief to sleep at night without worrying about living paycheck to paycheck,” Groner says. “We kept going even after we left the paycheck-to-paycheck cycle because then budgeting became fun. It wasn’t about deprivation anymore. It was about laying out a path to get whatever we want in life.”

Cone, whose family used plans for a Disney vacation as an incentive to reduce unnecessary expenses, says it’s important to choose an objective that everyone in the family can get excited about. That way, when eliminating unnecessary expenses starts to pinch, you can remind them: “We’re saying ‘no’ now, so we can say ‘yes’ later,” she says.


Are You Making These 4 Common Budgeting Mistakes?

If these budgeting pitfalls sound familiar, there are steps you can take to get your finances back on track.

If you’ve blown your budget before, you might end up thinking that budgeting just isn’t for you. There are common budgeting mistakes that could impact your financial progress, sure. But many have simpler fixes than you think.

Before jumping ship at the first sign of difficulty, know that creating a budget—and sticking to it—is a skill. And all skills take time and effort to master.

What are some common budgeting mistakes? To get on the right track, review these common budgeting pitfalls and budgeting hacks:

1. You’re not motivated

If you’re considering budgeting mistakes to avoid, know that you’re less likely to stick to a budget if you don’t have clearly defined financial goals. You’re more likely to commit to your budget and be disciplined in your spending if you’re working toward a specific milestone.

“I initially created a budget because everyone said it was the responsible thing to do,” says Chonce Maddox, the personal finance writer for a blog that focuses on eliminating debt and budgeting. “After a while, I started to resent my budget because it felt like it was keeping me from doing the things I wanted to do.”

One of the biggest budgeting pitfalls is not having a financial goal for motivation.

Her “aha” moment came when she realized she actually did have motivation to start budgeting: She wanted to get out of debt. “At this point, I realized I wanted to budget, and it helped me be consistent with planning my spending,” Maddox says. She ended up using a budget to pay off more than $30,000 in student loans in less than three years.

Elle Martinez, the founder of a relationship-focused website and podcast, had a different money motivation with her significant other: to live off one income and save for big financial milestones with the other. Any essential expenses (think housing and food) would be covered by their first income, while the second would go toward traveling, paying off debt and starting a business. “This goal has been a huge factor in staying consistent with our budgeting routine,” Martinez says.

Fix: Pick goals that will inspire you

Do you want to pay off those student loans once and for all? Save for a down payment for your dream home? Travel around the world? To avoid this common budgeting mistake, write down the goals that make you tick and how much you’ll need to save to accomplish them. When you’re tempted to stray from your budget, review your goals for the motivation to stay on course.

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2. Your budget is not realistic

One of the biggest budgeting mistakes to avoid is being unrealistic about your spending. Under-budgeting in some or all of your spending categories may leave you with less money than you need to allocate toward your needs. If you chronically under-budget and then spend more than you intend, you could get discouraged with budgeting altogether.

Maddox admits that she encountered this budgeting pitfall and failed to be realistic when she started to budget. “I was comparing myself to others and creating a ‘realistic’ budget based off of their lives,” she says. “That fell through quickly because I wasn’t being honest with myself about my situation, my spending habits and my own goals.”

Fix: Track, then adjust

If this budgeting pitfall is holding you back, consider using a budgeting and spending app to help you aggregate your spending across bank accounts and credit cards. You can connect your financial accounts to a budgeting app and get regular reports of your spending in different categories. You can then begin to adjust your budget and cut back in categories as it realistically makes sense for your lifestyle.

Maddox’s process of cutting back was simple after she began tracking her spending. “I realized that I couldn’t spend so much on things like going out to eat, so I learned to cut back by cooking at home,” she says. “I do like dining out at times, but I had to keep it to a minimum.”

3. You don’t account for every expense

Leaving things out of your budget is another budgeting mistake to avoid. Let’s say you have a family reunion coming up. In the past, maybe you relied on “winging it” when it came to paying for one-off costs like transportation and accommodations. But without incorporating these costs into your spending plan, you risk having to dip into other budget categories (goodbye, streaming services) or falling short on other goals.

Since your spending habits will likely change based on different life circumstances, you’ll need to regularly review and adjust your plan to avoid this budgeting pitfall.

Fix: Review and revise your budget

Martinez, the founder of the relationship-focused website and podcast, has a specific way of handling budget revisions with her husband to avoid this common budgeting mistake. “We have ‘money dates’ where we discuss our spending plan and any changes we might need to make to it,” she says. “Most couples forget that yes, we do have steady expenses, but we also have things that come up—trips, weddings, school, etc.”

Rather than omitting special events or irregular occurrences in their budget, Martinez and her husband make sure to capture every possible expense related to these spending “anomalies” when they have their budget reviews. “Once we do that, we can make adjustments in other categories or in other months to make sure the money is there and ready to go when we need it,” she says.

Some common budgeting mistakes include not being realistic about your spending and not accounting for every expense.

To avoid this budgeting pitfall, take time to figure out any future expenses that don’t fall into your regular spending patterns, and decide how much you need to save for them ahead of time. It can take time and practice to anticipate every expense imaginable, but it will be worth it to keep your budget as accurate as possible. You can also start an emergency fund to help cover unexpected expenses.

4. Your budget is too restricting

While it’s helpful to have an accurate budget, having one that is too restricting is actually a budgeting mistake to avoid. It’s possible that your willpower will wane as you try to cut things out. There’s even such a thing as “frugal fatigue.” Just like you can’t diet restrictively or engage in other extreme activities forever, you can’t expect to stick to a hyper-strict budget long term without burning out. Long periods of restriction can be both demotivating and tiring.

After a while, people tend to bend under the pressure of trying to meet perfection. If you remain extremely strict with your spending, you could go on a spending binge under the pressure.

Fix: Celebrate financial milestones

To combat frugal fatigue and this common budgeting mistake, be sure to celebrate what you’ve accomplished. Of course, you don’t want to indulge in anything so extreme that it sets you back financially, but you should make room in your budget to recognize financial progress and reward yourself accordingly. It could be something as simple as buying your favorite ice cream after reaching a saving milestone.

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