Home Building Budget – Take These Five Steps to Know How Much House You Can Build

Having an accurate assessment of what it will cost to build or remodel at the outset, will save you headaches, hassles, and heartbreak. I’m not suggesting that you figure the numbers yourself, there are resources you can tap, and like always, I suggest you also use a homebuilding coach to help with the process I outline here.


With proper planning and the right approach, you can pre-determine probable costs and build in reserves for potential fluctuations. Follow these steps and you’ll have the “bottom line” you’re looking for.


STEP #1: Get pre-qualified with a lender to find out how much of a loan you can get. This is probably something you’ve done in the past. The difference this time is that you’re dealing with a construction loan and the interest rate could be a bit higher and this could result in qualifying for a slightly smaller amount. Good credit and your income are the biggest factors here.


While getting pre-qualified, take the initiative to ask the mortgage broker to explain the fees, the interest charges, closing costs, and the reserve dollars required for a construction loan. This is important because this essentially “takes away” from the amount available with which to build.


STEP #2: Get estimates on bringing improvements to the building site. Improvements refer to utilities. In some cases these improvements will have been made by the land developer and all you’ll need to do is find out what the local building agencies charge to tap into “their” services.


When wells need to be drilled, septic systems installed and propane gas brought in, you must find out these costs. With a few calls to local companies, contacts with real estate agents, and queries to friendly neighbors, you should be able to get a close approximation on these costs.


STEP #3: Contact the local building authorities to get a list of the fees they charge for permitting and inspections. There may also be special fees to be aware of. Make sure you ask them for a complete list of fees. Depending on where you live and build, these fees can range from a few hundred dollars to tens of thousands! While you’re checking the fees, find out how they can change depending on the size of the home.


STEP #4: Use the internet, the phone book, local residents, architects, and local lumber yards. Find a few names of local General Contractors or builders that have a good reputation. These professionals can give you a pretty good idea of the average cost per square foot for what you want to build.


Let them know that you are interviewing builders for the job of building your home even though you don’t have plans yet. Find a model home somewhere that closely approximates the size, style, and interior finish that you want. Give them your basic house plans and pictures of this model. Better yet, get them to visit the model with you and explain your desires. This will give them enough to go on. They’ll be able to tell you within about 2{17ef88a264f735d53e23f577c1aef39f82da91f2d0cb03d25ab21c9f41dcfb41} the cost of building your home (subject to major fluctuations).


STEP #5: Simply put everything together. You now have estimates on the cost of the loan, the cost of land improvements, the cost of building department fees, and the cost to actually have your home built by a builder. Once you get this number, add 10{17ef88a264f735d53e23f577c1aef39f82da91f2d0cb03d25ab21c9f41dcfb41} for fluctuations and under-estimations.


The final thing to do is make sure that this amount is at least 5{17ef88a264f735d53e23f577c1aef39f82da91f2d0cb03d25ab21c9f41dcfb41} under the amount you can qualify for on your construction loan. Plan on making this a wonderful experience! Don’t cut the budget too closely. Hire a home building coach. Talk to the right people and educate yourself.