How to Budget for a New Construction Home
You’re ready to buy a new home. Well, sort of. Mentally you feel prepared, but you haven’t quite decided on your new house budget and the steps to buying a home seem complicated. That’s okay. A little research can go a long way, whether you’re looking to buy or build your dream home.
Use the next five steps to help you determine a new house budget that works for you. And with a little calculating, you can gain confidence in your ability to afford the home of your dreams.
5 Steps to Buying a Home & Building a New House Budget
1. Understanding the initial costs
One of the first steps to buying a new home is to seek out pre-approval. This lets sellers and lenders know that you’re serious and confident about what you can afford. It will also help you determine a general estimate of what your new house budget should be. At this point, you’ll also want to decide how much money you have for a down payment.
2. Finding and paying for a real estate agent
The second step to buying a home is finding a real-estate agent. You don’t always need a real-estate agent to buy a home, but it’s rare that you won’t. Real estate agents charge about a five to six percent commission fee. Typically both the buyer and seller have agents and most often, the buyer will become responsible for paying the agents. That’s because often the seller of the home has already incorporated these costs into the home’s price. These charges will hit at the close of escrow.
3. Unexpected Costs
While building out your new house budget, there are a few home buying costs you may not have considered. This usually comes towards the end as new construction closing costs, or expected closing costs if you’re not buying a new construction home. Closing costs are two to five percent of the total purchase price of your home.
With new construction, you may have to put down earnest money. This money is to show the home builders that you are serious and committed to buying the home they are building you—especially since you’ll probably want a few personalization options to help build your dream home.
Home inspection costs are another thing to calculate, even in new construction closing costs. This will run you about $400 to $600 and these costs are almost always paid by the buyer. And finally, consider the cost of living in your area. If you’re buying a home in an area you already live in, you should be pretty familiar with your monthly expenses. But if you’re buying a home in a new area, it’s worth doing some research on the monthly expenses around there.
4. Estimating Monthly Home Ownership Costs
The fourth step in determining your new house budget will be determining overall monthly costs of home ownership. When you think of buying (or building) your dream home, there are a few monthly costs that you probably don’t consider.
Property taxes are number one on the list. These can cost as much 2.2 percent annually, based on the assessed value of your home. And as the value of your home goes up each year, so do your property taxes. There’s also homeowners association fees (HOA) and condo fees to consider, plus homeowner’s insurance.
You’ll also want to have a budget for unexpected repairs. This is to account for major issues with plumbing or electricity, a leaking roof, termites, mold problems, and any other serious issues that may arise and take a chunk of budget to resolve.
5. Calculating your monthly mortgage payments
With online resources, getting a rough estimate of your monthly mortgage payments isn’t too tricky to do. There are several different types of mortgage calculators that can help. Many will include estimated property taxes, homeowner’s insurance, and homeowner’s HOA fees when applicable. It’s worth noting that sometimes, HOA fees include certain utilities or services that you might otherwise have to pay for anyway. It’s worth asking your agent about these to help you better determine your new house budget.
The steps to buying a home can seem intimidating, whether you’re trying to build your dream home and figure out new construction closing costs or simply trying to afford your first ever condo. But enough research will help you prepare to make one of the biggest financial decisions of your life.
Contributed to Your Home blog
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