How to Budget for a Custom Home

A common question we encounter from potential clients is: What is the actual cost of building a custom home? The answer is complex and can be influenced by various factors throughout the design and construction process. Although we typically avoid discussing "cost per sq ft," here's a general overview of how to create a custom home budget.

To simplify, consider these components when creating your budget:

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

Think of your "Total Project Cost" as a straightforward equation:

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

Here are some general investment rules to help you plan your budget more effectively:

• The cost of your land should not exceed 25% of your total budget for land and construction costs. This rule may not apply if you purchase a large acreage or a unique parcel of land with higher values due to rarity or distinctiveness.
• Allocate 5% to 15% of your land and construction costs for post-construction items such as decor, furniture, and landscaping. While these expenses are optional, it's beneficial to have funds set aside in advance if you plan to purchase new furniture, landscape your yard, install a pool, or invest in window treatments. You can also integrate these expenses into your construction loan financing.

Using a $1.2 million build budget as an example, the equation might look like this:

Land Cost (25%): $300,000 + Design-Build Cost (75%): $900,000 = $1,200,000 for Land and Construction Budget.

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

The Total Project Cost in this example ranges from $1,200,000 to $1,350,000.

By following the equation above, you can establish an initial high-level budget based on your design-build location, then start looking for land and planning your home based on your established budget.

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