Dave Davis, Realtor, Columbia, Missouri

Construction Cost Over-Run

Did you know that about 90% of custom homebuyers exceed their budget or don't finish on time? No matter how sharp your pencil is, odds are you'll need to plan for that in some fashion. And there are ways to do that don't involve liquidating your bank accounts or running up expensive credit cards.

By now, when you've read the articles on this web site, you've found a wealth of advice and warnings regarding accuracy in your contract, plans and budget. Why are we warning you that no matter what you do, you’ll still go over budget?

Quite simply, you’re going to change your mind about something after you sign the contract and break ground. Flooring, Kitchens, Colors, Countertops, and Lighting are common areas where your creativity and imagination continue to work, especially as you see your home take shape. For the same reason, it’s quite possible that your builder may make recommendations or suggestions. Worst case, you encounter something that was unexpected and requires you to spend more money. If it’s not covered by your contract, how will you pay for it?

You cannot increase your loan amount without refinancing—which will be expensive and delay payment to your builder. You want to keep your builder paid promptly so that relations between you, your builder and his subcontractors stay cordial.

With the right loan program, you may be able to build a cushion into your loan amount prior to your settlement. The average amount of over-run is about 10%. Build what you can into your loan and keep a reserve for the balance in your savings account during construction. Your Custom Home loan officer can help you structure your finances accordingly.