Friday, March 2, 2012

Step Seven: Determine your Costs

Before we even purchased our property, we spoke with a mortgage broker to determine how much money we might be able to borrow to finance our dream home construction. She provided us with a loan amount she expected we could get based on our credit scores and the estimated purchase price of the property. As we began working with the architect, we kept that number firmly in our minds and did our best to keep our estimated costs significantly below that number. Our architect gave us an estimate based on the square footage of the construction, with the caveat that this was only a ballpark, and we would need to have a contractor review the plans to give us a more accurate estimate. Still, this rough estimate helped us compare the relative costs of our various options and certainly influenced our choices when making decisions.

Once we had finalized the general floor plan and determined the mechanical systems for our home, our architect drew up a schematic plan that was submitted to a contractor for a more detailed estimate. After waiting several weeks, we received the contractor's estimate, which includes line items and estimates for most of the components of the construction. While this estimate is still not set in stone, it is more accurate than a simple estimate based on square footage, and will carry more weight with the bank when we begin applying for a loan.

I'll admit we panicked when we saw the contractor's estimate. Not so much because of the number, but because of all of the things not included in the estimate. For example, the current house that will need to be partially demolished has asbestos siding. The estimate did not include the cost for dealing with the removal and proper disposal of the siding. It also noted that normal waste removal was not included, which was a bit surprising to us. We had discussed with the architect that we would purchase the kitchen appliances and provide them to the contractor for installation. We believe this will allow us to get a better deal on the price of the appliances, but because we planned on doing this, the kitchen appliances were also not included in the estimate. When we started adding in all the things not covered in the estimate, we were sure we were going to be over budget.

Our architect pointed out that the contractor's estimate includes a contingency amount for items not included in the estimate. While it seems for now that this contingency amount will cover the known items not included in the estimate, it gives us concern that if unknown costs arise, we may not have the money to continue. We agreed that as we move forward with the design plans, we will keep a careful eye on the cost of each material and finish we select to make sure we come in as much under budget as possible.

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