Want to Build Your Dream Home?
The very first step in planning the construction of a new home is the construction budget. Developing a preliminary budget spells out the allocation of funds for your project in broad terms.
Knowing your spending limits and developing a home building budget will go a long way towards keeping you out of financial trouble on your project, especially during the preparation of your plans and specifications. Your final "working" budget will be developed when you complete the cost estimating process.
Determine Your Cost Limit
Developing a budget for a new home starts with deciding how expensive a home you can afford to build. If you are like most people, you want the most home you can afford. On the other hand, you may be able to afford much more home than you really want or need. Everyone's situation, of course, is unique. Most people already have some idea about how much they want or can afford to spend.
A good way to figure this out is to calculate your take home pay for your household. Your mortgage payment should never exceed 27% of your net income. Taxes, utilities, insurance, maintenance and incidentals will then take up another 10-11%. Therefore, your total housing expense will be around 37% of your income.
Now that you know how much you can afford, you need to know how much house you can afford. It is truly aggravating loving a house plan and then getting estimates to find out it is not in your price range.
Contact local builders who are building the size and style home you would like to build and ask them how much they charged per square foot. Do not forget to ask them about pricing on garages, patios and decks as the price will be slightly lower but it needs to be added to your construction cost. Too many times consumers buy house plans, the square footage stated is only for the heated and cooled space, and their home ends up costing thousands more because of added areas not calculated on the house plans.
All of the below items need to be added to your per square foot cost.
- Private Septic or Public Sewer
- Private Well or Public Water
- Electrical Service set up
- Gas Service
- Drawings & Specifications Development
- Permits & Fees from Building Departments
- Site Access: Street Culvert & Driveway
- Excavation: Backfield & Grade
- Foundation Slab or Wood
- Patios & Sidewalks
- Decks Porches & Veranda
Always leave 5-10% of your purchase price unbudgeted for changes that you may make during the building process. This is such an important tip. Trust me when I say that changes will be made and you will need the extra money to pay for the changes. The finished cost of a home is usually more than the original price.
A good down payment is 20% of the contracted price. Some lenders may want you to take out mortgage insurance if you do not have the 20% down payment. This is a guaranty that insures lenders against the loss in the event the borrower defaults on a mortgage. Save your 20% so you can avoid mortgage insurance premiums, as this could be a large and unnecessary financial burden.
Knowing your construction cost and how much house you can afford will make your building process less stressful and will help you maintain your budget for years to come.
Use Robins Financial Credit Union’s free home buying calculators to determine a payment you can afford, or apply for a mortgage loan today with our online application. Our mortgage checklist will ensure you have everything you need to start the application process. Home construction loans by Robins Financial Credit Union help you go from an empty lot…into your dream home.