The home building budgeting process should begin the moment you even consider building a home. It should be a part of your goal setting process, until you own your own home.
The earliest step to your home building budgeting process is financial responsibility. In this economy it can be difficult to impossible to have a perfect credit score, but do your best to:
• Pay your bills on time.
• Do not forget to pay balances on doctor bills, dental bills and hospital bills. Call and check to see if you owe anything after the insurance has paid. Owing 15 dollars to the local medical care facility for years because you didn’t know, can ruin your credit score.
• Be careful with online purchases, and avoid giving out your personal information.
• Stop carrying a balance on your credit card.
• Avoid overextending yourself with extraneous payments.
• Maintain and improve your credit scores.
• Avoid car payments by paying cash for your cars, or paying them off quickly.
• Start a savings account and start saving 35 percent of your income each month. This is how much a house payment is. Become accustomed to paying this amount to your savings each month.
Prequalifying is simply figuring out the maximum house payment you can afford. Any bank can help you pre-qualify, or you can get a rough estimate of your ability to pay based on this simple formula: Your monthly income times 35 percent, minus the total of your other monthly debt payments, equals the most your bank will allow you to pay in monthly payments. Use a mortgage calculator and current interest rates to determine how much payments would be on different mortgage amounts. You do not have to borrow the maximum amount, and you really shouldn’t. 25 percent of your monthly income is a much more practical number in today’s economy.
Part of the home building budgeting process is thinking about a down payment. You will have to make a down payment before you can purchase your home. If you can qualify for an FHA loan your down payment will be between three and nine percent. If you are a veteran you can qualify for a VA loan and pay no money down. With these exceptions you will probably be required to pay between 20 and 30 percent of the home’s cost in the down payment. This is why you’ve been saving your money to buy a home.
Research is critical to the home building budgeting process. Make sure to research the local home building and housing market to discover what you can afford. If you find your income is insufficient at first consideration, do not be discouraged there are many ways to cut the cost of construction without compromising quality. Here are some money saving options if you come up short.
• Build a smaller house, not only for money savings, but also for energy efficiency. Today’s trends are for small air tight houses that do not waste fuel. Save money and be trendy by building a small home.
• Build a very small house on a rural lot, and add on as needed. Building a starter house is an age old process, and as long as you choose a plan that lends to building part now and part later, you should have no problems.
• Build a shell home or a shell kit. Hiring a contractor to build the shell only can save a lot of money. The shell is merely the frame, the exterior siding and the roof. You will also need a contractor to build the foundation, probably as a separate purchase. You will also have to hire a plumber and an electrician since those tasks require a license. Sometimes insulation and drywall is included in the price of the shell, but sometimes not. Be sure to calculate the cost of what is not included when comparing the price of different shells. After the shell is built, you will be responsible for the labor of finishing the home. Therefore you pay materials only, and do the majority of labor yourself. You can save up to 50 percent by buying a shell and finishing your own interior. Many different types of shells are available, including traditional framing, log homes, insulated concrete panels, and structural insulated panels. Be sure to keep R-values in mind when selecting a home. The dollars saved on your utility bills are dollars you’ll have to pay your mortgage, and other expenses.
• Consider alternative materials, on a rural lot, as part of the home building budgeting process. Used shipping container homes are really inexpensive, and you might be able to use your saved down payment to set up a couple of those on your rural lot, pay for a well and septic, and use your income to fix up the property as you can afford it. There are many recycled materials ideas on line, but one of the best is the used shipping container route.
• Another idea for recycled materials is to use salvaged windows and doors. Often construction salvage stores have great deals, but stay aware of prices at your local home improvement store as well. Sometimes home improvement stores have sales on shop worn, or discontinued display models. This is a great way to save on cabinetry, plumbing fixtures and other materials.
• A vastly neglected recycling idea is to purchase a home that needs a lot of work, and essentially re-building it to your liking, as you can afford it. You may still need a contractor for some of the heavy work, but your costs will be lower and more controllable. Part of the home building budgeting process is checking to see if you qualify for a government loan or grant to fix up your home as well.
For more information on these and other topics please download our 98 page free book, and enjoy the other articles on this site. Essentially by using creativity and your own labor, you can save on housing costs, plus feel a sense of great accomplishment and pride in your home. Home building budgeting can be fun, not just a task.