How to Budget for a Custom Home

One of the most common questions that we get from our prospective clients is; How much does it actually cost to build a custom home? The answer to this question is, of course, complicated and can be affected by pretty much every factor of the design–build process. Though we typically like to avoid the "cost per sq ft" question here is a general overview on a custom home budget.

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To break it down simply, there are a few areas that you should budget for in advance:

1. Land Cost
2. Land Loan Cost and Closing Costs (if applicable) 
3. Design Cost (architectural and interior as applicable) 
4. Construction Cost
5. Construction Loan Cost and Closing Costs (if applicable) 
6. Decor, Furniture, and Landscaping Costs Including the Pool 

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Think of your “Total Project Cost” as a simple math equation:

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Total Project Cost = Land Cost + Design–Build Cost + Decor / Furniture / Landscaping Cost

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Here are a couple of general asset investment rules to follow that will help you plan your budget a little better:

1. The cost of your land should typically not exceed 25% of your total budget for land plus construction costs. This would not apply if, for example, you purchased a large acreage sum or a unique parcel of land where land values are higher due to their rarity or uniqueness.
2. Budget 5% – 15% of your land plus construction costs for post-construction items such as decor, furniture, and landscaping—these items are optional, but if you’re planning to buy new furniture, landscape your yard, put in a pool or buy window coverings, it’s good to have the money set aside ahead of time in your mind and even integrated into your construction loan financing. 

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Here is an example of what this equation might look like for someone with a 1.2 mm build budget:

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Land Cost (25%) $300,000.00 + Design–Build Cost (75%) $900,000.00 = $1,200,000.00 for Land and Construction Budget.

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Optional budget for decor, furniture, and landscaping including pool (5% – 15% of Land + Construction Costs) = $50,000 – $150,000.00.

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Total Project Cost for this example equates to $1,200,000.00 – $1,350,000.00.

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Following the equation example above, you should be able to determine an initial high-level budget depending on your design–build location, and you can then begin looking for land and planning your home based on your established budget.

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