FOUR STEPS TO TAKE BEFORE YOU DESIGN – STEP 4: DETERMINE A BUDGET

Budgeting your project will be a back-and-forth process based on what you can afford vs. what you want. Many times the likely cost of our dream homes are bigger than our budget. When that happens you’ll need to revisit your dream and whittle down material qualities, decide what can be postponed until later, and as a last option reducing the size of your home.

This exercise will take some effort and will likely involve others to obtain realistic budget numbers. Let’s cover all of this below.

For Step 3 see the article “Four Steps to Take Before You Design – Step 3: Select Your Property“.

A WRITTEN SUMMARY

At this stage you DO NOT need a floor plan. However, it’s best to have a written summary of everything you’ve determined so far; this will be used as the basis for preliminary budget costs for construction. This will include such things as:

• Your list of rooms and what’s to go in them (excluding furniture) as built-in components. Be sure to include your anticipated lineal footage of cabinetry, quality level and number of large appliances, any built-in’s such as shelving, types of lighting, number of plumbing fixtures, any special electrical service beyond minimum standards, and any special systems such as security, intercom, etc.
• Describe the types of systems you want for the home such as forced air heating and cooling systems, any radiant heating for floors, driveways, and walkways, any special electrical requirements beyond standard, any specialty systems such as security, exterior lighting, landscape lighting, solar or wind generation, and irrigation. Be sure to include any septic or water well requirements.
• Write out what you want for the property such as a general description of the landscaping you want, materials for paving, fencing, etc.
• Your square footage tabulation.
• Your materials list by room (floor, ceiling, walls), house exterior, and exterior spaces.
• Any inspirational material such as photos and articles.

Be as thorough as you can to describe what you want. Realize, though, that you won’t get every little thing, and that’s OK. Each step of the design process will lead to more detailed information about what you want. The costs for unknowns at each stage of design will be covered by contingency funds.

Your project description should be put together in a format you’re comfortable with, whether it be digital, a print-out of the digital placed in a binder, or even hand written. Be sure to organzie it in such as way that you can easily find information.

KNOWING THE BUDGET

Your budget is what you can afford. Construction costs are only part of the budget. You need to determine everything you’ll likely spend on the project from start to finish.

Your budget will include such items as:

• The funds you have available for your project. This will be the basis of what you can actually afford
• The construction costs.
• Any costs associated with the project that won’t be in the construction numbers, such as loan costs, zoning approval costs (if needed), professional services costs for architects, decorators/interior designers, engineers, soils testing, etc., and insurance costs that you’ll need to carry during the project.
• Costs for installations you might pay for directly rather than through the contractor, such as window coverings, art installations, specialty floor coverings, decorating installation, etc.
• New furniture purchase costs
• Moving costs from your old home to the new house.
• Likely new monthly costs (mortgage, utilities, insurance, homeowner association fees, property taxes, etc.) compared to your current costs and your available monthly income.

FINDING COST SOURCES

There are a variety of ways to determine these costs. This will involve checking various sources and then balancing the range of numbers you get to best represent what you’re likely to spend.

Contractors

You should research contractors in your area who specialize in building custom homes at the quality level and size that you want. You should interview the ones you think best represent what you want to build and ask if they could help you with an initial construction number range based on your written summary.

You should also ask to review some of their finished work. If the interview goes well be sure to let them know you’ll want them to bid on your project. Be aware that contractors are busy people. Some might want a small fee to put together a number, but not likely at such an early stage.

Note that some contractors can provide design-build services. Be sure to ask about that and what their process is if you’re interested. See our article “Your Ultimate Guide To Design Build” for more information.

Architects

Architects can be a good source for early budgeting. However, be sure to know if you’ll want to have an architect to design your home for you or if you want to design it yourself. They likely won’t be as interested in the project if they won’t be involved. Do know that you can hire architects for limited services. See our article “The Ultimate Guide to Hiring an Architect” for more information.

If you’re interested in using architects you’ll need to research potential candidates in your area and then interview a select number of them. Similar to the contractors, ask if they can assist you with an initial budget based on your written description, ask that you visit representative projects, and be sure to let them know you’ll consider them for whatever services you’ll want. However, don’t waste their time if you don’t really plan on using an architect.

Model Homes/New Home Open Houses

You can visit new homes that are open for public viewing to get a sense of what you like, quality level, and style. You can ask what the cost of each home is to get a sense of cost differences between quality levels, materials used in the design, and home sizes.

Be aware that the costs of these homes are their ‘list’ price and also include the developer’s overhead and profit. Also, developers and contractors who build a lot of spec homes for sale to the public often get discounts on construction materials that won’t apply to custom homes. Again, such visits are best for cost differences between types, not actual construction numbers.

Local Authorities

Your local jurisdiction will have a building department that you can contact to obtain numbers for various fees that might apply to your project. If any rezoning is involved for your property you can contact the zoning department for likely fees.

The Others

Contact real estate agents to get a sense of likely costs of land in the area you want to build. Get in touch with interior designers or decorators to get an idea of their fees. For any specialties such as window coverings, specialty flooring installation, art installation (picture hanging), specialty systems, etc., contact each one to get a sense of what it might cost for the size of house and types of installation you’ll want. Contact a few moving companies to get a realistic budget number for moving from your current house to the new house.

Be sure to be clear with everyone that you’re at the beginning phase of budgeting so that they can give you realistic ranges of costs.

BUILDING THE BUDGET

Building the budget will require you to look at the ranges of each type of cost and select a number you think best represents what you want. Don’t just assume the lowest number, but rather the ranges of each at least averaged out and then adjusted a bit as you feel best.

You should also carry a sizable contingency line item to cover the unknowns. If you haven’t designed a new home before you should look at a high range of 15 to 20 percent at this stage. The contingency number will reduce with each stage of design since you’ll know more and more with each step.

THE AFFORDABILITY TEST

Only you can determine what you can afford. If you’ve been diligent with obtaining numbers you’ll have a good sense of likely costs for your type of project. Be sure to compare the likely costs against your available funds. If you need to adjust your dream be sure to do that reasonably.

The best starting point is to reduce materials costs, swapping out higher cost/quality materials for less expensive. Then look at installations you could postpone until you have funds available. These could include specialty finishes such as wainscoting and trim work on walls, lower quality cabinetry that you can upgrade down the road, swapping specialty light fixtures for standard light fixtures, delaying the outdoor kitchen, adding a back porch or deck later, simplifying exterior paving, and reducing some but not all landscaping (you don’t want a new home just sitting in dirt). If these types of reductions don’t get you there, only then look at reducing your square footage.

Top photo from U.S. Federal Reserve.

Feature photo of calculator with budget from Pixabay via Pexels.