How to Budget a New Home Project
If you’re planning to build a home, you’ve probably already done some preliminary research about how to budget for the project. It’s an intimidating process, but one that is vitally important. Fortunately, budgeting a new build isn’t as hard as it looks. It’s more a matter of creating a detailed outline and then filling in each blank with the right numbers.
What Can You Afford?
Before you buy house plans or start shopping for a nice home site, the first step is to figure out what you can afford. Most experts agree that you should keep your housing costs at or below 25% of your income. Since there are so many elements wrapped up in a mortgage payment, that means you need to learn more about each before settling on an amount to borrow.
Start by having a loan officer check your credit score. Use that score to shop around for different interest rates. You should also speak with an insurance agent about homeowner’s insurance, and if you expect to have a down payment less than 20%, speak to a lender to learn how much private mortgage insurance will cost you.
With these numbers, you can use an online mortgage calculator to zero in on the amount you can safely finance.
Make a List
The next part of the budgeting process is to make a thorough list of all the costs that you’ll run into from the start of your project to the finish. Examples include:
The purchase price of a buildable plot
Survey and site preparation fees
Utility access fees
Construction costs, both materials and labor
Extras like landscaping or a deck
Your list of expenses will be much longer than this, and it should also include extra money for things like delays and cost overruns. In fact, you should plan for a cost overrun of at least 10% to cover any unexpected expenses.
Nailing Down the Numbers
With thorough list of potential expenses in place, you’ll be ready to start estimating actual costs. Rather than guessing at the numbers, rely on various experts to give you a better picture of the things you’ll need to pay for.
Realtors can help you with land prices while mortgage professionals should be able to tell you about loan fees and closing costs. Call your insurance agent for a quote and your designer for more information about the cost of home plans and various engineering fees. And, once you’ve picked out potential home plans, shop them out to builders for bids. Look for at least three bids so that you have both high-end and low-end costs. It’s a complicated process, but well worth the time and effort.
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