Planning Your Budget For Home Building


What Is Your Budget?

A budget estimate is a financial plan for your entire Design/Build process. It is the dollar equivalent for all the work it takes to design and build your new home. You are NOT expected to create this document accurately at the outset of your experience so it\’s best to begin with estimates and refine your financial plan as time goes by.

Construction Loan

Create your own building budget by visiting a bank or other lending institution so that they can pre-qualify you with respect to just how much money you can borrow in today\’s lending environment. Add to this loan amount the equity in your existing home and you have a number you should not exceed. The equity in your existing home is the amount of money you will have left over after you pay off your existing mortgage and pay any sales commission.

Bear in mind that unexpected surprises, cost overruns and price increases can create financial hardships during a building project. Create a 10 percent slush fund to cover these contingencies. Multiply your not-to-exceed number by 90 percent to arrive at your building budget.

Most builders will provide allowances for fixtures and other items that you need to select like carpeting, cabinets, counter tops, faucets, hardware, etc. A method of determining realistic amounts for different allowances is to break the cost of the entire house down into its separate parts. Each aspect of building a new home can be represented as a fraction or percentage of the total cost. Lenders and appraisers that verify construction loan payments will know this and as work progresses on your new home, they assign a value to each completed component. They work from a checklist that tells them what things are worth on a typical new home. 

The following budget list represents cost categories to which you must assign preliminary dollar amounts for the work to be accomplished:

  • Private Septic or Public Sewer
  • Private Well or Public Water
  • Electrical Service from Utility Company
  • Private Fire Sprinkler or Public Hydrant
  • Gas or Oil Service from Utility Company
  • Drawings & Specifications Development
  • Permits & Special Fees from Building Department
  • Site Access and Street Culvert as well as Driveway
  • Excavation/Backfill/Grade
  • Foundation/Structural Slab-on-grade
  • Flat Concrete/Aprons/Patios/Sidewalks
  • Frame Lumber/Trusses/Labor
  • Decks/Porches/Veranda
  • Roofing/Flashing/Ventilation
  • Windows/Skylights/Solar tubes
  • Siding/Exterior Trim
  • Gutters/Downspouts/Storm water
  • Fireplace/Stove/Insert
  • Plumbing and Trim Fixtures
  • Heating/Ventilation/Air Conditioning
  • Electrical and Trim Fixtures
  • Exterior Doors & Garage Doors
  • Weatherization/Firestuffing/Insulation
  • Drywall/Tape/Texture
  • Paint Interior/Wallcoverings
  • Paint/Stain Exterior
  • Cabinets/Counters
  • Interior Doors/Trim/Hardware
  • Floor Coverings
  • Appliances
  • Bath Accessories
  • Clean-up/Recycle/Landfill
  • Landscaping
  • Contingency
  • Superintendence
  • Profit/Overhead
  • Sales Tax (if applicable)

With your budget in place, you can now call Realtors or visit new home builders to see if the amount of money you have available will “buy” the necessary space you need. If you fall short for some reason, you many have to purchase an existing home. Pre-owned homes almost always provide more space/square footage for the dollar.