New Custom Home Building Budget — What it Includes?

If making a huge investment like building a new house is a dream of yours, you want it to be a perfect fit for you and your family. Given the extraordinary planning involved, there's a lot to consider when deciding what's best for you—and setting a budget is perhaps a crucial part that kick-starts the process. After all, every consequential decision comes down to finances. 


How much it will cost you to make your dream home a reality is an unclear concept that can be complicated to navigate. And it is often this question that drives homeowners away before they truly comprehend their custom-build budget and have explored what they can feasibly accomplish. With a concise budget, you set a plan in motion that's realistic and achievable. 


In relation to the home building market, the cost of building a custom home from the ground up is largely influenced by its size, type, and location. As per the Forbes Home article "How Much Does It Cost to Build a House In 2023?" the national average cost to build is about $300,000 or $150 per square foot. On the other hand, the average cost to build a house in California is $405,440 for roughly 2,000 square feet. In another report by HomeAdvisor, building a house in the Golden State ranges between $400,000 - $2,400,000—while the average price for a 2,700-square-foot custom-built house is $1.35 million. These figures exclude land costs, excavation, pulling permits, and other expenses.


Working with a custom home builder to determine a budget and review each cost ensures two things: a stress-free building process and a fitting home for you and your family built around your desired price. 


Identifying What you Want from your New Home Building 

new home building

Building a new home entails more than putting up walls and a roof. Like any major project, taking the time to fashion ideas that you envision for your "ideal home" is a step in the right direction. Identify your exact needs, specifications, and preferences regarding what land you want to build on, its size, architectural style, number of rooms and their function, as well as the design elements and product features you desire.


A custom home of any kind is a huge quality-of-life investment, so coming up with a prioritized list of what's most important to you is essential to its success. It's also important to familiarize yourself with all the aspects involved in new construction to be better prepared to engage with a building contractor.


Speaking of custom home builders, it's crucial to your project to hire a reputable, trustworthy, and licensed professional who prioritizes clear communication, acts with integrity and has the expertise to see your project to successful completion. In our post "Choosing a Builder for your Home in California," we share the different ways to find the right builder for your custom construction. 


So if you're gearing up to build a new house and want an extremely rewarding experience, it's imperative to educate yourself, identify your wants and needs, enlist the right construction team for the job, and remain realistic with your expectations. 


Breaking Down a New Home Building Cost 

home building budget

Below is a breakdown of new home building costs to look out for: 


Cost of the lot

Deciding on the right lot to build is one of the crucial steps of the construction process. As you might have guessed, the land purchase will be the first expense you'll encounter and can be a large part of your overall budget. Innumerable factors like land preparation, soil quality, accessibility, and size will help you get a clear picture of the amount you're likely to spend on a lot. An article titled "How Much Does It Cost to Build a House" by Bankrate indicates that based on these factors, you may spend anywhere between $3,000 to $150,000 buying land. 


Cost of any excavating, building tear-down, or lot prep

Any custom home builder will tell you it's ideal to purchase land that is just about ready for building. This is because the costs and effort involved in making a lot build-ready—land clearing, surveying, and connection of utility systems—can take a hit on your wallet. The article "How Much Does It Cost to Clear Land?" for HomeGuide reveals that the average cost to clear land for construction is between $1,150 and $3,680, excavation between $1,600 and $4,400, and land preparation between $950 and $1,680. 


Cost of the new home build

According to Home Advisor, the national average cost of building new is $283,737—while the cost of building a house per sq ft is between $100 to $155. These costs can go up or down depending on location, size, and the complexities of the project. For instance, the average cost to build a house in California is $400,300, while the cost to build a house in Washington is $325,000. Custom home building costs associated with materials and labor account for most building budgets. Other aspects to factor in include construction drawings, permits, and all works involved in building—from foundation to roofing. 


Cost of finishes, selections, and appliances

Building new means you get to choose finishes and appliances that are specific to your aesthetic and lifestyle needs. This part of the project turns your structure into a home and can easily impact your finances. For this reason, it's important to make your selections from the outset and set aside a budget. According to New Home Sources, interior finishes alone can cost from $50,000 to $175,000, though the cost may go higher depending on the customization. 


Cost of Landscaping 

It's easy to underestimate landscaping, but on average, boosting curb appeal can sot you between $3,000 and $16,000, according to HomeGuide. Remember that contractors provide minimal landscaping, so you may have to engage a professional landscaping company to finish off your home's exterior look.

Five of These Costs That Commonly Sneak Up on Homeowners 

home building cost

It's worth noting that no budget is set in stone until your custom home contractor has provided a final contract price. Even then, unexpected costs (soft costs) that you may have overlooked when drafting a budget may become apparent when construction is underway.  


Home building and design fees

Feasibility studies, design work, and master planning account for about 10-15% of the overall new construction budget. The cost allocated for this part of the project vary greatly based on construction size and complexity. In some instances, the general contractor fees for a house may include design work which can significantly save you money. 


Inspection fees and permits

Whenever building new, it's always a good idea to find out what permits are needed to ensure your home is built in accordance with local ordinances, building codes, and structural requirements. Obtaining building permits isn't free—worst still, failure to acquire them leads to multiple issues outlined in an article by Angi titled "What Can Really Happen if You Don't Get a Permit for Your Home Project". Your building contractor can pull a permit, but fees related to application and inspection must be paid by yourself and should be factored into the project budget. 


Land and real estate costs

The average cost to build a house on your land varies. In the case where you'd first need to shop for the right plot of land, its purchase price, real estate fees for finding and acquiring the lot, and any land preparation works are costs attached to your overall budget. 


Loan fees

More likely than not, homeowners will require financial assistance in the form of a construction loan to make their dream a reality. It's easy to overlook loan-generated interest, accounting expenses, broker fees, permanent commitment fees, and bank transaction fees.


Taxes on materials and services 

The last hidden cost that most homeowners fail to account for is the tax on building materials, subcontractors, and service providers. Taxes based on material and labor rates should be accounted for when drafting a budget. 


Points to Consider While Deciding Budget on your New Custom Home

new home building cost


Being meticulous about your construction budget is a good way to mitigate the financial strain that often takes the excitement out of turning your vision into a reality. Below are a few points to consider when laying the budgeting groundwork for the project ahead: 


Purpose of your new home

As with any big investment, it's easy to second-guess your decision to build a custom home—particularly when considering the cost involved. Rather think of all the features that would make life easier for you and your family. Prioritize what's important to you and the purpose of building a new house when drafting out a budget. 


Quality of the construction

Paying keen attention to the quality of construction is fundamental to getting the most out of your investment. It's natural to want an impeccable building process, but if you sacrifice your budget on details that won't matter to your overall satisfaction, you risk the quality of your future home. Instead, consider all the features that will last longer and enhance the quality of your life, such as using eco-friendly, high-quality materials to build a sustainable home as well as installing energy-efficient systems. 


Space you get

Perhaps the best part about building from scratch is the space you get to accommodate your lifestyle needs. Planning for a house design that affords you the space you need and factoring that into your budget ultimately results in a satisfactory outcome. 


Extra amenities you want to spend on

It's important to identify the amenities that matter most to you ahead of time to keep your budget on track. One effective way to go about this is to create a "needs vs. wants" list, from style and function to finishing materials. With this as a start, you can then draft a list of non-negotiable amenities you're willing to spend on. 


Permission you need 

Ensuring your home construction is in accordance with local building codes, zoning laws, and regulations means permits need to be obtained before breaking ground. Depending on the state or city, pulling necessary permits can add up.


Type of home builder you need 

For a successful project that's well within your budget, it's imperative that you engage a home builder as soon as possible. You are bound to get caught up in the intricacies of setting a feasible budget, so having a knowledgeable contractor on board helps you run your ideas by them and get a clear idea of how much you're likely to spend. For example, a trustworthy custom home builder in California with a solid track record of completing construction projects of similar design and budget will ensure there are no costly miscommunications from the start and down the road.

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