Having an accurate assessment of what it will cost to build or remodel from the ground up will save you headaches, hassle, and heartache. I’m not suggesting you crunch the numbers yourself, there are resources you can take advantage of, and as always, I suggest you also use a home building coach to help with the process I’m outlining here.
With proper planning and the right approach, you can predetermine likely costs and build reserves for possible fluctuations. Follow these steps and you’ll get the “bottom line” you’re looking for.
STEP #1: Pre-qualify with a lender to find out how much you can get on a loan. This is probably something you have done in the past. The difference this time is that it is a construction loan and the interest rate could be a little higher, which could result in you qualifying for a slightly lower amount. Good credit and your income are the most important factors here.
As you prequalify, take the initiative to ask the mortgage broker to explain the fees, interest charges, closing costs and reserve dollars required for a construction loan. This is important because it essentially “takes” from the amount available to build.
STEP 2: Get estimates for construction site improvements. The improvements refer to public services. In some cases, these improvements will have been made by the developer and all you have to do is find out how much local building agencies charge to access “their” services.
When it is necessary to drill wells, install septic systems, and bring in propane gas, you need to find out these costs. With a few calls to local businesses, contacts with real estate agents, and consultation with friendly neighbors, you should be able to get a close approximation of these costs.
STEP #3: Contact your local building authorities for a list of the fees they charge for permits and inspections. There may also be special rates to consider. Be sure to ask them for a complete list of fees. Depending on where you live and build, these fees can range from a few hundred dollars to tens of thousands! As you review rates, find out how they may change based on home size.
STAGE 4: Use the Internet, the phone book, local residents, architects, and local sawmills.. Find some names of local general contractors or builders who have a good reputation. These professionals can give you a pretty good idea of the average cost per square foot of what you want to build.
Let them know you are interviewing builders for the job to build your home even if you don’t have any plans yet. Find a model home somewhere that closely matches the size, style, and interior finish you want. Give them the basic plans of your house and photos of this model. Better yet, ask them to visit the model with you and explain your wishes. This will give them enough to continue. They will be able to tell you to within 2% of the cost to build your home (subject to large fluctuations).
STEP #5: Just put it all together. You now have estimates on the cost of the loan, the cost of land improvements, the cost of building department fees, and the cost of having your home built by a builder. Once you get this number, add 10% for fluctuations and understatements.
The last thing you need to do is make sure this amount is at least 5% less than the amount you can qualify for on your construction loan. Plan to make this a wonderful experience! Don’t cut your budget too much. Hire a home construction trainer. Talk to the right people and educate yourself.
