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Tips to Financially Prepare to Build a Home

Jun 1, 2021, 12:04 PM
Post _ author:
Tim Bakke
Jun 1, 2021, 00:00 AM

Figure Out What You Can Afford?

  • Before outlining the budget, ask “What can I afford?” Most homebuyers don’t have the luxury to pay for a house build from cash. A mortgage or construction loan will be needed. Use the “28% Rule” - no more than 28% of monthly gross income should go to the mortgage payment — principal, interest, taxes and insurance.

Get Your Home Building Budget In Order.

  • To prepare for the unexpected, include a 15-20% contingency in the budget.
  • Square footage typically represents the single biggest driver in determining home building costs. Go online and talk to contractors to find out what the cost is to build a house in the area. For example, most recent data from the U.S. Census indicated the median price per square foot for a contractor-built, single-family home was $116.16. However, the price per square foot ranged from a low of $102.93 in the South to $139.36 in the West!

Get House Plan Blueprints.

  • House plan blueprints are essential for getting final approval on a construction loan. The bank will want to see detailed construction drawings and a lot plan.

Get Three Bids From Contractors.

  • Share your house plans with contractors to first solicit feedback and then get formal bids. It is best to get at least three bids from reputable builders who have experience in your area. The formal bid document from your contractor should serve as the basis for the detailed budget and construction timeline. However, it is not all-inclusive.

Get A Reputable Builder.

  • A reputable builder will be expected by the bank. It is not unusual for a bank to have the builder complete a builder review application as part of this process. The lender wants to make sure that your builder is licensed, insured and has a successful history of completing similar projects.

Be Prepared To Make a 20-25% Down Payment.

  • Be prepared to make a down payment of 20-25% of the total house build cost with the bank as part of receiving the construction loan.

Remember That Details Matter When Seeking Pre-Approval For A Construction Loan.

  • There are multiple types of construction loans in the marketplace. The most popular type is perhaps the “construction-to-permanent” loan. The loan finances the construction of the house. Upon completion, the loan is then converted into a mortgage.
  • To get approved, homebuyers need to be organized, well prepared and have very good or excellent credit.

Backup Your Budget With A Detailed Timeline.

  • When you submit your detailed construction budget to the lender for review, be sure to include both hard and soft costs. Back up your budget with a detailed timeline. 

Tim Bakke is Director of Publishing for With more than 30 years of publishing experience in magazines, books and online, Tim regularly writes about house plans, home design, new home construction, home remodeling and achieving your dream home.

The Plan Collection offers more than 22,000 affordable house plans developed by the nation’s most talented architects and designers. Through the use of pre-drawn yet customizable plans, both builders and those looking to build can develop their dream homes at a lower cost. In addition to the wide selection of available plans, the site offers detailed how-to articles and knowledgeable customer service representatives to help visitors find swift answers to their questions. For more information, visit


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