Building a New Home? Be careful!

It was early 2014. We'd been living out of our parent's old house, and they only made us pay for insurance and taxes. We were saving as much cash as possible in preparation for the next step in our life.

We didn't have a grand plan to build a new house. However, looking at the increased living expenses moving to a larger city outside of Montana, we realized that our dollars could go much farther if we stayed in MT.

And then we discovered this small neighborhood towards the edge of town. It had sidewalks, alleyways, parks, and was close to walking and biking trails. We started envisioning what it would be like moving into a neighborhood like this.

We checked out their model home and decided we were interested in taking this step.

Base Price is Not What You Will Pay

Often, the advertised price for building a new home includes the most basic options for the house.

But it would help if you realized the builder makes money when people upgrade. So they will often go with cheap options for the base level, and you will have to pay hefty prices to upgrade.

Here is a list of common upgrades.

Lot Size: If you are building a house in a neighborhood controlled by a builder, they will probably have multiple options to build your new home. Want a larger back yard? That is probably going to cost extra.

Flooring: Unless you are okay with the cheapest carpet available, that won't be durable, it will cost extra to upgrade flooring. The larger the house, the higher the cost. And upgrading flooring is expensive.

Kitchen: Don't expect the base price to include quartz countertops and a custom backsplash. These will require additional funds. If you want a large stainless steel kitchen sink, that will cost extra.

Bathrooms: The bathroom will most likely have multiple upgrades available. These upgrades can include countertops, bathtubs, types of showers, and accessory upgrades.

Landscaping: Don't expect the base price to include your dream garden. Our base option included some landscaping and sod.

Appliances: In our case, appliances did not come with the base price of the house. Kitchen appliances can easily add several thousand dollars to the base cost.

Accessories: Many other possible upgrade options will most likely come up that cost extra. Types of lighting, light fixtures, light switches, etc. These smaller things can get expensive fast.

How Much Space Do You Need?

If you have children or have family come to stay with you during the holidays, you may want a larger house. But keep in mind, prices can skyrocket as you add bedrooms and bathrooms or choose a larger layout.

How much space will you use?

This question will determine the overall price of your house. I think we often get used to the idea that we have to have a massive home to be comfortable. But what benefit is there having an extra bedroom that doesn't get used? Or a basement you never see?

When you build a larger house, it not only increases the base price, but it will also increase the cost for certain upgrades. With a smaller home, upgrade expenses go down.

House size is one area where I wished we didn't upgrade. I work at home and need a dedicated office, but we could have done just as well without a fully finished basement and going with a different plan. Going with a three-bedroom home could have easily worked perfectly for us.

The larger your house, the more costly it is to maintain. And it takes longer to clean.

For me, a larger kitchen is useful since I do a lot of cooking. I love our gas stove and our pantry. But we didn't need the fully finished basement.

Before Entering the Process: Prepare

If you decide to move forward with building a new house, it's best to go into the process by being as prepared as possible.

Here are a few questions, that when answered, allow you to maneuver around the many sales tactics you will encounter in the planning phase of your new home:

  • How large of a house do you need? Which plans do you like the most?
  • What is the maximum amount of money you are willing to spend on the house and still be comfortable? The lower you can go, compared to your current income, the better. Be very careful in assuming you are going to make more money in the future.
  • List out, in priority order, your top house upgrades. Do research on which upgrades give you the most bang for your buck to increase your home's value.
  • How well do homes resell in your neighborhood? Is what you want to build going to be the most expensive house in the area (which might make reselling harder)?
  • Think about which things you would be willing to downgrade (or not upgrade) to save money.

Long-Term Plans

If you plan on living in the house over multiple decades, it might be easier to justify splurging on certain upgrades. But to have the luxury of living in a brand-spanking-new-house, you are going to pay extra.

But if you think you might want to move for any reason within a few years, you might want to question whether the extra cost of building a new house is worth it.

Our current plan is to consider selling our house in 10 years, once our girls hit college age. We won't need as much space, and we can probably easily downgrade at that stage in our lives.

But we also might decide to stay put. In either case, we “should” be able to sell much higher than the house's initial cost. The longer you can hold out, the more your home will appreciate and bring you more money when you sell.


Looking back at our scenario, I feel like we probably stretched our budget a little too much at the time we built. Sure, we qualified for the loan no problem. But based on what we were bringing in per month at that stage in our lives, our mortgage came to around 30% of our take-home pay.

We could have gotten just as large of a house for much less in a different neighborhood. Our income has increased quite a bit since we launched a successful salon. But getting a cheaper home would have provided more money we could have used getting out of debt and building our net worth.

If you can swing getting a 15-year mortgage and putting 20% down, this will save you a ton of money. You will save on interest charges, you will avoid paying PMI, and you will score a mortgage interest rate around 1% less than a 30-year mortgage.

As a result, you will build home equity faster and have your home paid off much more quickly.

New Houses Do Have Issues

New houses mean no problems. Wrong! New home builds have new home problems. Sure, your furnace probably won't go under in the first three years, but you could end up facing some serious structural issues.

For example, our front porch patio had to get ripped out and rebuilt twice because of a significant crack developed in the first few years.

However, the great thing about building a new home is they often come with a home warranty.

In our case, during the first year, they covered all the issues. After that, the house structure is covered by a 10-year warranty. Having a warranty is great, but that is not a reason to build a new home by itself.

There are many small issues, like most houses, that come up with new home builds. These can include minor issues, like closets not closing correctly or faucets dripping. But more substantial problems, such as porches cracking, can still happen. As much as they try to prevent these problems, building a new house is not a guarantee that you will be issue free.

When you buy a pre-existing home, you know that at least the settling issues have already come up, if there were any. But with a new build, issues can pop up within the first few years as the house settles.

Building a new house doesn't mean you will only see sunshine and rainbows. You can still expect to work through problems that will pop up.

Buying New Costs Extra

Don't expect to build a new house and get the best deal. Even when you are considering a specific neighborhood that is still developing new homes, building new is not your only option.

Unless you are the first people to build in the neighborhood, chances are there are previously built houses in that area for sale. Often these will be much cheaper than building a new home.

Sure, you give up the option of determining every detail in the house, but if you can find an option that fits your budget and gives you 90% of what you are looking for, it might be worth it.

You not only save time waiting for your home to be built, but chances are the overall cost of buying the house will be lower.

Waiting is the Hardest Part

From start to finish, it took 6-months to build our house. And that wasn't the only problem.

Since we couldn't necessarily lock down our mortgage, mortgage interest rates could change dramatically during the build phase.

For example, you could start building when the interest rates are at 3.5%, but by the time you lock down your mortgage, they rise to 4%. This interest rate change can dramatically increase your mortgage payment and stretch your budget.

And you can't easily walk away from a new house once you start building. You will most likely need to sign a contract and deposit a down payment to get the process started.

You need to be aware of the financial landscape of what is going on in the economy. If interest rates are rapidly rising, and the consensus is they will continue to go up over the next year, you might want to hold off starting the build process until things settle down. But this is tricky because no one can predict what is going to happen.

Fight the Urge to Upgrade Everything.

As you enter the new home build process, be careful to avoid wanting to upgrade everything.

Some name brand upgrades, like flooring, can find just as good alternative options for less money. Do you need to spend $1,000 upgrading the backsplash in your kitchen? Or will a different design look almost as good?

Once we moved into our house and got settled, there were several costly upgrades we could have avoided. We spent way too much money on our backsplash, and we should have gone with cheaper flooring. We could have saved money by not including a pergola in the backyard and building that later.


Overall, we are happy with our decision to build a home. We love the neighborhood, and our girls have tons of freedom to play outside (when it isn't -20 degrees outside).

But like every financial decision, figuring out what is worth the cost can be hard. If we did not have kids, the price for living in this neighborhood is probably not worth it.

If you are thinking about building a new home, make sure you educate yourself on which upgrades are worth the cost. Sometimes it can save money waiting to upgrade after you move in, where you don't have to go through a middle man who will charge you more money.

It was too easy to get caught up thinking about upgrades that we didn't need when building our house.

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