When you decide to build a home, keep in mind that you are also embarking on a significant financial investment. You must take every step of the process meticulously, which is why you need to avoid common financial pitfalls, so your dream home does not turn into a nightmare. 

Here are some steps to guide you so you don’t make costly mistakes in building your dream home: 

Save up and Pay with Cash

The best way to pay for new home construction is to pay in cash. It is beneficial when you are bidding for a property where you’ll build your home. You can get more significant discounts from a bank or lending company if you pay in cash, even if you are not the highest bidder. 

Improve Your Credit Score or Portfolio

If you cannot pay in cash, taking out a loan would be the next best option. Before applying for a loan, you need to get your credit scores up and your portfolio in order. Banks will not release a housing loan if your financial records don’t show proof of ability to pay. 

If you have debts to pay, it’s better to pay them off ultimately before starting a major investment such as new home construction. 

Don’t Borrow the Maximum Amount of Your Mortgage Loan

Even if you get approved for a particular loan amount, it is wise to loan less than that amount. During home construction, there may be unexpected or extended expenses that you would have to pay. It includes a home inspection, which is necessary to ensure your new home is up to standard. 

Don’t go beyond 25% of your gross monthly income on construction expenses, however, so you have enough to pay for what your family needs and home construction costs such as insurance and property taxes. 

Avoid Taking Out a Second Loan or Making Expensive Purchases 

Ideally, you should be able to sell your present home before you have to begin making payments on your new mortgage. Renting an apartment for a few months is typically preferable over owning two residences at the same time.  

It’s also best to avoid having two mortgages on the same property, as you might put yourself in a pickle when you cannot pay one or both. Unpaid mortgages can lead to property foreclosure. 

Once pre-approved and your bank or lender knows your credit score, maintain it until the loan is approved. If you make substantial purchases during this time, it may influence your credit score, impacting loan acceptance.

Do Not Use Your Savings, Family Fund, or Emergency Fund

Having savings is very important for every family. When you decide to build your new home, don’t even think of touching your family’s savings or emergency fund. You need to have separate savings for your home construction, so this milestone does not turn into a millstone that brings your family under. 

Don’t start construction without having put away some money in reserve for that project alone. You need to have home construction funds and extra cash for closing costs, taxes, moving fees, HOA fees, insurance payments, home inspections, and the like. 

Design Your Home with Cost-Efficiency in Mind

A big house may be a dream, but remember that big homes come with significant expenses too—from mortgages, tax, utility bills, maintenance costs, heating or cooling, and so much more.

When you have your new home designed, make it spacious without going too big. Remember too that when your children grow up and move out of the house, you might be left with so much needless space. Some empty-nesters end up selling their family home for a much smaller space to keep living expenses within their budget. 

You can also create convertible spaces in your home—like an outhouse or a basement that can be converted into a future rental. Build your home in a way that increases property value if you decide to resell it in the future. 


Buying a home is a big life and financial choice. It will take a lot of your time and your resources, but you don’t need to lose peace over it. Make sure you also hire a real estate agent that can help you go through the process with ease. It’s also best to work with reputable home builders to ensure that every penny you spend on your new home will be worth it. 

Duke Homes is the best custom home builder in Greenwood, Indiana, backed by more than 35 years of experience in new and luxury custom homes. We have a team of professional house builders creating one-of-a-kind homes for our numerous clients. Contact us today!