A Home Costs More than Just the Home

Buying a home is exciting. It means everything is new to you; the home, the neighbors, and the location. On the flip side, everything is new. Most people haven’t purchased a home before, or if they have, it was many years ago and anything they haven’t forgotten has most likely changed. Whether you are buying an existing home or building a new home, the cost of the home is more than just the home itself. For many, the unknown can cause unwanted stress in what is also a very exciting process.

Managing the Cost When Building a New Modular Home

When it comes to building a new home it can be hard to determine a good ballpark estimate when you first start. You can look in real estate guides, newspaper ads, and websites. When you find the price of a home, what does that price include? If you aren’t in the construction or home building industry it can even be difficult to understand what some of the terms even mean.

Modular homes, although they come 75-85% complete from the factory, can still prove difficult to determine true completion costs. Let’s start with the home itself. Typically it is constructed indoors in a factory. The factory completes everything they can build indoors and then ships or provides the rest of the materials with the home for delivery to the final home site.

However, there is the cost to get the home to the site and the cost of the crew and the crane to move the modules from the carrier to the foundation. What’s that about a foundation? Yes, there is work to be done even before the home arrives. This includes the foundation, the excavation, a basement (if requested), grading the site, utility connections (water/sewer/gas/electric), installing driveways, sidewalks, etc.

For the interior of the home, you will have to connect the utilities to the interior connections of the home, finish the sections where modules go together, and finish any custom work or unique flooring that needs to be done. While many luxurious kitchens and bathrooms are completed at the factory, many items are saved to be completely custom built onsite.

All of these costs may not have been included in the initial price of the custom built modular home but most all are needed. It is important to understand the standards for a specific home and what is really included in the price.

When the Cost of your New Custom Home Changes

When it comes to building a home onsite, the costs and what is included can really start to get hard to determine. For custom homes, there are dozens if not hundreds, of decisions that have to be made. Most people find it difficult to have to make so many decisions in a short time frame. Because site building spreads the timeframe of construction over a longer period, decisions can be delayed.

For a custom builder to give a potential homebuyer a price, he needs to know what it is he is building. This includes items such as exterior finishes, flooring, wall finishes, bathroom fixtures, light fixtures, kitchen cabinets, sinks, counter tops, trim, etc. When a homebuyer can’t make decisions, a builder will introduce something called an “allowance”. They are an easy way to finalize a budget. Can’t pick a counter top for the kitchen? In goes a $3,000 allowance for a counter top.

The great thing about this method is that a contract price for a new custom home can be created quickly. Now the downside. In a few months, your home is being built and it comes time to actually pick the counter top for your kitchen. The pressure is on and the builder needs a decision in one week to get the order in for delivery or the construction of your home will be delayed. Now the pressure is really on because you are about to learn what an allowance really is. You find the exact counter top you want at a nearby kitchen shop. It costs $8,000. Your contractor only gave you a $3,000 allowance. You have to have this counter top so you agree to a change order. Your home’s cost just went up by $5,000. Now play this out over every allowance in your custom home contract. A typical custom home will cost 10-30% than the original contract price by the time it is completed.

Costs to Consider with an Existing Home

Buying an existing home is not without additional costs to be considered. Used homes come with gifts all their own. When buying or building a new home, a homebuyer typically has the comfort of knowing that there is a least some period of home warranty. With a used home, that concept doesn’t typically exist. Because of this, the home inspection process was created to attempt to uncover actual or potential problems before a home is purchased.

The theory is that if there are any issues, the potential buyer can require the home seller to make repairs or they will refuse to purchase the home. Depending on the type of market that exists at the time, a buyers’ market or a sellers’ market, the seller may or may not be willing to make any such repairs. If you want the home and the seller refused repairs, those costs will now have to be added onto the cost of the homes purchase price.

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Now, what about the future issues not disclosed in a home inspection? Are you buying a home that is more than 10 years old? That is about the useful life of a stove or refrigerator. A little older? Will the furnace or heat pump need to be repaired or replaced? What about the water heater? A water heater with a bad thermostat can cost a couple of hundred dollars to repair. A water heater that leaks at the wrong time can cost thousands of dollars of repair work. Just remember, when you buy a used home everything that is in it is used. Aging appliances, older heating systems, and hidden water damage can turn that existing home bargain into a money pit.

Loan and Closing/Settlement Costs

Many people don’t really think about it but it costs money to actually get a loan for a home. It doesn’t impact most home buyers because the lender takes all of the loan fees and closing costs and bundles them (just adds them) into the loan. For example, need a loan of $300,000 to purchase a home and the loan fees and closing costs are $8,000? You will be making payments on a $308,000 balance. While this is convenient, just remember that you are paying interest, not only on the money you borrowed but also on the money it cost you to get the money you borrowed.

Loan and closing fees are standard and necessary to get a mortgage in today’s world. However, you have some control on how much you have to pay by selecting the right lender and the right lending program. Learn about mortgage loans and then shop around to find the right construction loan at the lowest overall cost for your situation.

All Homes Cost More than the First Price

All homes cost more than just the first price you see. Evaluate your options for getting a home that is new to you. A new modular home offers the ability to contain costs and get just about any custom style you desire. Just understand that because it is built in a factory and delivered up to 85% complete, it will take more time in the planning stage to make all of your color and option decisions. A custom, site built house is an option for many but it can be easy to delay decisions to match the longer build process. Be on guard for a creep in price as tastes change and new options come available during the build process. Existing homes, while initially cheaper, aren’t necessarily cheaper to maintain.

Evaluate your options. Different circumstances can make some options more attractive than others. Evaluate the true costs of a new home and make the right decision for you.