(Guest blog – Mark Ferguson, The Ferguson Team at MVB Bank, https://mferguson.mvbmortgage.com)
New construction, both ground – up and renovation, is an exciting experience, providing homeowners and buyers the opportunity to build something of their very own. From architectural design to interior selections, the custom construction journey is unique. In most cases, I find that clients who build new or renovate are doing so for the first time and need guidance as it relates to affordability. Below are a few things to consider when budgeting for your construction project:
Understand what’s included in the construction budget
There are numerous things that go into a build project so it’s important to know what’s included in your budget. Items to consider could include architectural design, site work, permitting, demolition, interior design and construction. Some of these may be handled by companies outside of your construction contract so it’s important to know the total cost of the project up front. It’s also valuable to include allowances/contingencies in your contract (I recommend 10% of the build price) for two reasons. First, there can be cost overruns that the builder can’t properly account for up front and/or you may want to make decisions on features (upgraded flooring/cabinetry/countertops/appliances) later in the build process which having an allowance for in the beginning would make budgeting easier to plan for.
What additional considerations are there during construction?
During the construction phase you will likely have other expenses to consider. If you’re doing a large scale renovation, you may need to live elsewhere temporarily until the project is complete. It’s important to budget for rent and additional housing expenses accordingly. If building a new home, planning ahead for your move in is a good idea. You may have a few additional things to have money saved for when you move in, to include window coverings, furniture, etc.
Can construction be financed?
Absolutely! Construction financing is a great resource to provide affordability for your project. Having financed hundreds of custom construction projects for both new homes and renovations, I know first hand the value of having a trusted partner to be at your side during this journey. Typically, a construction loan will act as a funding vehicle throughout the build, reimbursing your builder as work is complete. Monthly payments are based on construction progress (determined by a draw schedule), so that you’re only paying as work is complete. When construction is complete, your construction loan is transitioned into the long term financing of your choice. Be sure to consult an expert in this arena. You wouldn’t settle for a builder without a great reputation and you should treat your financing relationship the same way.
Begin with the end in mind.
Be sure to think about the long term, particularly what to expect when construction is complete. Affordability is not just about paying for the build, but what expenses (mortgage/utilities/etc.) will exist when it’s time to move in! The counsel you seek in the planning stages of your construction project will provide the greatest long-term value. You’re ready to write the first chapter in the story of your new home (and yes, renovation is a new home!). Planning properly, particularly as it relates to affordability, will ensure that story has a happy ending.
As a trusted Paradigm Homes partner, Mark Ferguson is the Vice President/Senior Loan Officer for The Ferguson Team at MVB Mortgage. Since 1992 he has been working to help ‘house-hunters’ become Home Buyers. In the industry at-large, he is honored to have been part of regional and national advisory councils providing a forum for discussion of, and advocating change within the mortgage industry. Mark is a resident of Loudoun County, Virginia with his wife, Tammie, and their four children.
As a full service home builder, Paradigm Homes has the network of trusted professionals to guide you through the entire construction process to make your building project efficient and affordable. To get started, give us a call today at (703) 476-5877 or submit an online form.