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Build on your land: Getting honest about your budget

The budget is a really critical part of building on your land. As we've said before, most people's dream for what their forever home will look like typically exceeds their budget. So there are always compromises to be made, but first you and your builder need to know what your budget actually is.

Disclosing your budget

Many people think that disclosing their budget puts them at a disadvantage for negotiating. That might be a little bit true very early on in the process, but if you want a builder who can give you his best advice and squeeze the most house out of your budget, he needs to know what he's actually working with.

In the past, I've turned customers away because their budget was so unrealistic it would have been a waste of their time to continue the process. Months later after talking to a lot of other builders, some of them come back to me. Then I discover their real budget! It turns out it's something we can absolutely work with. If they'd been realistic about their budget up front, we could've started the process months earlier!

Finding your budget with your bank

You might be unsure what your budget actually is up front, but there's a good way to find out. Building on your land requires a construction loan, and that's very different than getting a mortgage to buy an existing house. You'll need a relationship with a bank that knows construction loans.

Your builder knows who those bankers are, so talk to your builder then go talk to the bank. Then you'll know exactly what you can borrow and how much you're comfortable borrowing so you don't create a house plan you can't really afford.

It's also good to realize that what you want and what you can afford are two different things.

If you fall in love with some wonderful internet house plan, you're bound to get disappointed. A few weeks ago I visited with a nice family who brought in a plan for a gorgeous house. It was about 3,400 square feet, had a huge covered front porch, outdoor living space in the back, and a detached two-car garage with a breezeway. It had everything they wanted, but their budget was $250,000.

Nowhere close to what they needed to build that house!

It's much better to start with your budget. Tell your builder your real budget and let them design something that meets your needs AND fits into your budget.

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