8 hidden expenses of newly built homes

A study by the National Association of Home Builders (NAHB) in 2008 showed that during the first year after moving into a new home, owners spent an average of $12,332, approximately 2.8 times the spending in one year of a homeowner who has not moved and about $3,400 more than buyers of existing homes spend during their first year. Interestingly, new homebuyers continue to spend more than other homeowners in the second year after purchasing their new construction home.

The NAHB study also showed that higher level of spending on furnishings and appliances tend to persist for two years after households move into a newly built home. In the case of buyers of existing homes, only furnishings registered a statistically significant higher level of spending that persists for more than a year after a home purchase.

New home spending

You may think that because a newly constructed home has never been lived in that it would be in perfect, move-in ready condition, but if you are considering a new home, you should consider the list of items that new owners commonly pay for:

1. Landscaping. Many homes come with only minimal landscaping, so you'll need to pay for professional help or learn to landscape on your own.
2. Window treatments. Most new homes do not come with window treatments, which can range from under $100 to several thousand dollars.
3. Major appliances. A new home may not include your washer and dryer or refrigerator, or it may come with a cheaper model than you want.
4. Light fixtures. If you want extensive recessed lighting or upgraded fixtures in your kitchen and baths, you will likely have to pay extra to have them installed.
5. Fences. You may not think you want a fence until your neighbors move in; then you'll want privacy.
6. Decks and patios. These items are commonly optional features rather than included in the base price.
7. Upgrades. Bay windows, hardwood flooring, granite kitchen counters and stainless steel appliances are commonly on display in a model home but will often cost extra for buyers.
8. Finished basements and attics. If you want to expand your living space with a finished lower level or a loft level, you should anticipate paying more than the base price.

Financing new home improvements

As a new home buyer, one of the most important steps you can take is to find out what items are included in your home purchase. Plenty of novice buyers have been burned by falling in love with the features shown in a model home only to discover that their new objet d'amour will cost tens of thousands more than they expected.

Once you find out what's included in the base price, get a list of what the builder will charge you to upgrade your finishes and features. Use this baseline and then consider these financial options:

• Negotiate your options. While most builders provide a list of costs for optional features, many offer to include a few optional features as an incentive to purchasers. While you may not get every optional feature you want, having some included frees the cash to buy others.
• Ask your builder to pay closing costs. Instead of using your cash for closing costs, see if the builder is willing to pay those costs. That way you can keep your cash for your desired options.
• Consider financing your options into your mortgage. If you can qualify for a higher mortgage balance and comfortably afford the payments, you may want to extend the payments for your upgrades. For instance, if you have a $200,000 30-year fixed-rate mortgage at four percent, you can add $20,000 in options to the balance for just $95 more each month.
• Delay some improvements. Options that add square feet to your home or have a structural component may be more costly to do in future years, but you may want to postpone other upgrades. For example, you could have a rough-in for a lower level bath and finish it when you can afford it in a few years.
• Consider the do-it-yourself option. If you're handy, you may be able to spend less than your builder will charge for features such as a deck.

If you understand your options and their costs, you can make an informed decision about which home improvements to undertake now and which to delay.