If a new home is in your future – or in your dreams – cost is certain to be one of your primary concerns. While there are numerous variables, there is enough similarity in the home-construction process to offer a framework for a budget.

But before you start, it makes sense to consider some of the elements that can significantly affect cost – and that you may be able to control with your up-front choices.

• LOCATION. Where you choose to build is likely to be one of the biggest variables. It affects property costs (your lot), the cost of construction materials, equipment and labor, as well as permitting costs. If your property is unimproved, you may have to pay for utility lines or even roads.
• DESIGN. Whether you purchase a stock plan online or work with an architect or building designer to create a custom home, the design of your home – square footage, number of stories, roof lines, materials, finishes, amenities (pool, decks, guest house, out buildings), etc. – will contribute substantially to its cost.
• THE UNEXPECTED. We take a lot for granted in our homes and tend not to notice things unless they’re a problem – the garage door rumbling next to the bedroom, the stove hood that’s too low for the tall cook (or the cabinets that are too high and require a stool every time). The more thoroughly you think through and make notes about the details of your home and how you live in it, the less likely you will be to require change orders during construction. Still, the unexpected can happen – a vendor or transportation strike, a natural disaster – that can mean extra days or weeks added to your construction time and dollars as well as the extended cost of your during-construction housing. Include a minimum of ten percent over quoted costs (and times) for such contingencies.

Building a budget

The National Association of Home Builders (NAHB) periodically conducts surveys of construction costs. The most recent study, in 2015, divides the process into eight subcategories for the major stages of construction, which are further divided into a total of 36 sections. The resulting chart indicates the percentage of cost by item. While this can certainly vary, it may be helpful in understanding where your construction dollars are going. In 2015, the nationwide averages for the major stages of construction were:

• Site work – 5.6%
• Foundations – 11.6%
• Framing – 18.0%
• Exterior finishes – 15.0%
• Major systems rough-in – 13.1%
• Interior finishes – 29.6%
• Final steps – 6.8%
• Other – 0.5%

You can see what’s included in each of the categories by viewing the NAHB study.

Of course this is just the construction. Your budget also needs to include the cost of the lot, the cost of construction loan financing, and insurance.

Use our Borrowing Power Calculator and our Mortgage Budget Planner Calculator to quickly evaluate how building a new home might fit into your specific financial situation. And be sure to talk with a loan officer about what you can afford and the construction financing options available to you. That information will be extremely helpful as you begin looking for a lot, working with an architect or designer, and interviewing contractors.