Most builders will tell their prospective clients about the importance of having a realistic budget for building their new custom home. If you don’t have a realistic budget (one that you can truly afford and yet is generous enough to include the things you really want in your home), your homebuilding plans are dead in the water.
Most homebuyers understand that. And there are plenty of mortgage calculators out there that can help prospective homebuyers figure out how much home they can truly afford. There are a variety of free calculators you can use. You can choose one from Discover Card, or you can use the Zillow Affordability Calculator to figure out what you can really afford.
Creating a budget is a great first step, but keeping to your budget is a whole different ball game and a lot of homebuyers wonder if they will overspend their budget. The truth is that you probably will! Is that necessarily a bad thing?
First of all, let’s be clear that unrestricted spending on your home isn’t a good thing, and we’re not encouraging that. But here are a few reasons why you may over-spend your budget and why that may not be terrible.
- You May Want to Make Changes: Part of the great thing about building a custom home is that you get to include things that make it right for you. Sometimes you’ll want to make changes after plans have been drawn up that will make your home more comfortable or suited to your lifestyle. There are a lot of details involved in planning your home and you may not be able to track all of them from the beginning. If you can make a modest change that will make a big difference for years to come, you’ll probably want to do that—even if it costs a little more than you budgeted.
- It Will Never Be as Inexpensive Again: This is related to the first point about making changes. Maybe your circumstances changed during the planning. Perhaps you have another child on the way, or you have a mature member of your family coming to live with you. Adding space, or making rooms larger is much more reasonable while you’re in the process of building than if you have to come back later and add on. Maybe it wasn’t in your original budget, but it could be the right thing to do.
- The Unexpected Happens: No matter how carefully you plan, unexpected issues can pop up. The price of materials can increase without warning. Your builder may find that he or she needs to do more grading or preparation work for the foundation. The fact is that you can’t control everything so you have to be able to adjust.
These are all reasons why it’s good to have a contingency plan for your budget. It’s kind of like having a safety net. How much should that be? It’s generally a good idea to plan for between 10 and 15 percent of your initial budget. You may not use it all—and if you don’t, you’re in great shape. But not planning for it can put you in a difficult situation.
So create a realistic budget, but make sure it includes some buffer for “over-spending”—not on frivolous things, but on unforeseen adjustments you’ll need to make to ensure that you truly end up with the home of your dreams.