Putting Together Your Budget
As I mentioned in the post about financing, you’ll need to put together your budget to submit to your lender as part of the approval process for your loan. You do not need the budget for pre-approval but will need it to get the project approved. At the bottom of this page is a link to a sample budget for a 2 story, 1600 sq. ft. house.
This budget most likely will be put together by your builder but you will still probably be heavily involved with the process. Many builders do what’s called a “Cost +” build. What this means is that they add money above the cost of labor and material to cover their fee for building the house. The added cost can be a fixed cost or it can be a percentage cost. Often times it’s 20%. So if it costs $200k to build your house, the builder gets $40k.a
It is very important to keep this in mind when considering the items you pick for your house. The items you cannot impact the cost of are the frame, foundation, roof, and rough-in. Those items are going to be pretty standard and can be bid out for best prices but in terms of materials, you can’t really impact the cost. You can impact the sheet rock phase by requiring a high level finish. Paint can be impacted by the number of colors the painter is painting – apparently they have to clean equipment between colors.
Areas where you do impact the cost of your house are in finishes, i.e. floors, electric/plumbing fixtures, windows, doors etc. These items area going to be part of your budget. If you have a cost + contract with your Builder and it’s a % basis, then the more expensive the finishes you pick the higher his fee. Windows, doors and floors can be very expensive and you want to research your options for them. You can get quality finishes without breaking your bank but you need to know your options.
When putting together the budget, you need to know what your line items include. For example, you’ll have a budget for electric. Part of that will be rough-in. Rough-in means “to bring in the various lines (Plumbing pipes, duct work, electrical conduit) to the space, but not make the final connections”. The other parts are the labor to connect the fixtures and the cost of material. You need to know who is paying for the electric fixtures – lights, ceiling fans, door bells, switches, plates, etc. If the budget includes the cost of the fixtur
es, you need to make sure you know what you can spend for them and stay within that budget.
Remember, the bank is only paying money against the budget. So if you go over budget on an item, your loan can cover it only if you go under budget somewhere else.
Know that your bank cannot reimburse YOU for costs to build your house. The bank can only pay money directly to your General Contractor. The reason the bank cannot pay you is because it would be considered getting cash back on your loan. However, they can pay your credit cards. And if it comes to it, they can pay money directly to sub-contractors. It is very important to have a conversation with your bank about this scenario in the event you end up having to take over the build of your house.