Creating a Budget

After getting pre-qualified for your loan, or looking at your bank balance, you now have a pretty good idea of the price you want to pay for your new home.  Now it’s time to start looking at plans.  Your public library and the internet are good resources.  Your realtor can provide you with recent sales prices on homes which are comparable to your ideas of size and construction.  You’ll be tracking a list of things that the home “must have”, “wish it could have”, “can be flexible having” and “doesn’t need”.  With these ideas in mind you’ll find an architect and General Contractor who will be able to advise you the cost of the project, and will develop a cost breakdown along with plans and specifications for your lender.  Of course, if you are acting as your own General Contractor you will be developing your own budget.  Some lenders don’t allow you to be your own General Contractor so make sure to be clear upfront.

There are several components involved with creating your budget:

• The cost of the land and any loan costs
• Hard Costs of Labor and Materials
• Soft Costs of Fees, Services, Taxes, etc.
• Construction Loan costs of points, interest, settlement costs, etc. and remember some lenders may require reserves for interest and contingencies

Depending on the type of home to be built, whether modest or grand, costs of products and materials will correlate to that type.  If you are acting as your own General Contractor it is advisable to get at least three bids for every phase of your project and to try where possible to get bids from local suppliers.  Hidden delivery charges may be a big surprise.  The following represents a rough estimate by percentage of Hard Costs.  Even if you are not acting as your own General Contractor you should be familiar with these estimates as a way to keep costs under control.

Budget Estimate - Hard Cost

Phases	% of Cost	Description
Excavation	3%	Full Basement
Structural Concrete	7%	Footers, Walls, Flatwork
Framing	23%	Floors, Walls, Sheath, Trusses
Roofing	3%	3 Tab Asphalt Shingles
Windows	4%	Vinyl
Plumbing	5%	Rough & Finish
Electrical	5%	Rough & Finish
HVAC	5%	Rough & Finish
Masonry	1%	Decorative
Siding	4%	Walls & Exterior Trim
Insulation	2%	Floors, Walls, Ceiling
Drywall	5%	Hang, Tape, Finish, Texture
Sewer Hook-up	1%	Ditch & Connectors
Water Hook-up	1%	Ditch & Connectors
Paint / Stain	2%	Interior & Exterior
Trim Package	12%	Cabinets, Counters, Doors, Millwork
Garage Doors	1%	2 With Openers
Floor Covering	7%	Vinyl and Carpet
Appliances	4%	Standard & White
Deck	1%	Structural & Finish
Storm Water	1%	Gutters, Downspouts, Drains
Exterior Concrete	2%	Garage Apron & Sidewalk
Final Grade	1%	Machine & Hand Work
	100%

Budget Estimate - Soft Cost

Phases	% of Cost	Description
Permits	8%	Depending on County
Builder's Overhead & Profit	10%	to 15% or Higher
Site Survey	1%	Depending on Subdivision or Pinned
Off-site Utilities	10%	Investigate Before You Buy!
Clean-Up / Refuse	1%	Interior & Exterior
State Tax	8%	Depending
Landscaping	2%
Architect	10%	Will Vary
	50%

Know When to Splurge

Your budget is limited, but there are some areas where cutting corners isn't worth the immediate savings.  Sure, you could hire your friend's cousin who dabbled in architecture to draw up your house plans, but you might pay for it later.  A solid framework for your home reduces the chances of expensive structural problems in the future.  Spend more on accurate home building plans and the main systems of the home, such as: the electrical, heating and cooling, and plumbing systems; the foundation, and the roof.  Insulating the home also saves you money down the road on utility bills.

Use Reclaimed Materials

"Reclaimed" is eco-speak for recycled building materials.  Reclaimed bricks, doors, mantels, barn boards and many other home elements give your new home character, while saving on your construction budget.  Look for a local salvage yard specializing in construction materials.  You also make your home more eco-friendly by utilizing construction materials that are already manufactured.  You prevent new resources from being harvested and keep old items out of the trash.  Reuse Marketplace is a website that allows people to post ads for their salvage items.  Habitat for Humanity has ReStores that sell recycled, or excess, building materials that are donated by builders and homeowners.

Build in a Buffer

The best-planned budgets leave room for error, because underestimating a few expenses could suddenly push you over budget, forcing you to shell out more of your own cash, or cut back.  Building expenses often go over the estimates, so you should build a buffer into the budget.  The extra money covers any unexpected expenses, or projects that end up costing you more than you thought.  If you don't need the extra cash, think of it as free money to spend on that new living room furniture you've been eyeing.

The Decision

You've made the decision: You want to build your own home or complete your own remodeling project.  You know the size of the house you want, you know where you want to build and you've talked to a lender about a home construction loan.  Now it's time to get a handle on all the costs involved.  A budget is best completed at the beginning of your project so that you can estimate your costs, including everything for your new home or renovation, and then hone your financial plan as your project progresses.  Putting a budget in place, even at the estimate stage, will help you control your costs before the first nail goes into place.

You need to consider two factors. First, there are hard costs, which are defined as the labor and material required to complete your home.  Then there are soft costs, which take everything else into consideration.  Your budget estimate for your hard costs will give you a foundation for drawings and specifications.

Look at your first budget estimate as a way to consider the feasibility of your project.  It's a way for you to determine your design and building options.  Once you begin to review your budget, you can use this process in every facet of your project.

• Identify your priorities. If you know that you simply cannot live without imported marble tile in your kitchen, make that the top "must have" on your list of priorities.
• If an item on your "must have" list is more expensive than you imagined it would be, determine what you would trade off.  In other words, you might sacrifice a second fireplace downstairs as a trade-off for the marble tile.
• Complete a cost / benefit analysis. What will be the features you want add to your family life or the overall appearance of your home? Or when, many years from now, you may consider putting your home on the market?  In other words: Are these features worth the cost?
• Take these changes into consideration when revising your cost estimates.

Remember, with every product you choose there is a cost range. For example, if your cost range is in the "luxury" arena, you may want to include the imported tile.  But you also have other range options:

Build in a Buffer:  These features will get the job done for the lease amount of money.

Modest:  These products will be of better quality but will be the "no-frills" versions of these products.

Custom:  These are features that will be personalized according to your wishes.  These are not products that are available off-the-shelf.

Luxury:  These materials are the highest quality and will be the most expensive.

Matching the materials and items with the price category that you can afford will help you determine your budget estimate.

Budgeting for the design / build process is about sharing your vision so you can communicate with others in nurturing, sustainable relationships.  The art and craft of home building requires that you sit down in face-to-face discussions with all the folks who’ll be involved in your project.

As you do this, what will first appear as vague notions of what you want to achieve slowly emerge as best guesstimates of what may be required for your project.  Pay attention to the people who are willing to listen to your vision.