How to Budget for Building Your Own Home

When you are building your own home, especially if you have never done it before, it can be very easy to accidentally overlook some major expenses in the planning phase. Today I want to talk about some important factors to consider if you are looking into building a custom home. 

How to Budget When You Are Building Your Own Home

1. Custom costs more upfront. Please do not look at the prices of new homes in planned communities in your neighborhood and assume you can get the same thing for the same amount of money. Remember, the “McMansion” communities are relying on bulk pricing, established business relationships, and experience with local governments when it comes to things like permits and road paving. Chances are, you probably don’t have those business relationships as a private homeowner, so your price will be higher than theirs. BUT as a trade-off you get to design every single little detail about your own house. 
2. You need to consider the cost of the land carefully. Land does not always add as much equity to your property as it costs to buy. The cost of the land plus the cost of the house does NOT automatically equal your property’s value if you ever find yourself in the position to want to sell quickly after building. For example, if you spend $100,000 on an acre of land and then build a $250,000 3-bedroom, 2 bathroom house, in many areas of the country you will still have a $250,000 property. It might take years to recoup the money you put into your build. This was the case for us, but we chose to build our home knowing that we intended to live here for over 30 years before we reached retirement age. By then the mortgage will be fully paid and hopefully during those years we will have acquired a good bit of equity as well, which we can put towards retirement or pass on to our children. 
3. Assume the cost of the permits and design fees are at least twice what you expect. As a rough estimate, I would recommend setting aside at least $30,000 for this. (Although I hesitate to say that because things are so much different in every state and every county. If possible, do some research into your own area to get a better estimate.) Maybe you’ll get lucky and it will cost less and save you a bit, but those fees can very easily be more. We are fortunate because my husband is a civil engineer, so he was able to do things like our erosion and sediment control plans. But if you don’t have an engineer at your disposal willing to work for free, then you need to look into the costs of building permits for your county, erosion and sediment control, drainage, sewage, etc. Then I would highly recommend adding a few extra thousand dollars of padding in that budget just in case something happens to increase your costs. These are expenses you can’t avoid so you want to make sure you have enough in your budget to cover them. It’s better to budget high and have the funds available and not need them (or use the extra towards something fun like marble countertops) than to not have them when you need them. 
4.  Understand that you will spend a bulk of your money on things you don’t ever see. It is worth the investment to pay for a quality foundation, insulation, a good electrician, plumber, and great drywallers. Maybe you won’t see the pipes in your wall once the house is finished, but that is not a corner worth cutting. It might not be ideal, but sometimes it is worth sacrificing a high-end finish like a bathroom counter that can be easily replaced later (at least in comparison to new duct work) in order to stay within the budget. 
5. If you decide to make an upgrade, then make a sacrifice somewhere else to off-set the cost. I talked about staying on budget a little more in this post. It really does make a big difference in the end and help you achieve what you want without breaking the bank. 

Although it was a higher up-front cost, we have no regrets about choosing a custom home. I love that everything in our house is specifically designed with our family in mind.  

I hope this post was helpful! Don’t forget to pin or share it to save for later. 

For more home-building tips, please also visit Ten Things I’m Glad We Did While Building A New Home.