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The Budget

"For which of you, intending to build a tower, does not sit down first and count the cost, whether or not he has enough to finish it" (Luke 14:28). Having a budget before you undertake a building project is not a new concept. Those words were spoken approximately 2,000 years ago. And yet today, most people trust their mortgage broker with the decision of how much house payment they can afford.

I regularly run across couples who are upset because the wife wants to quit work to stay home with their baby, but they cannot afford to lose her income because of a home payment, two car payments, and several credit card payments.

Two years

Before you build a house, let me recommend that you live at least two years on a budget first. Pay off all of your debts, including your automobiles. Two years will give you enough time to learn how much you regularly spend on groceries, medical expenses, insurance, entertainment, automobiles, etc.

My wife and I were debt free when we bought our first home. We didn't start our marriage debt free, but we used our 11 month engagement plus the first six months of marriage to pay off all of our debts.

After we paid everything off, we began a new lifestyle. We paid our credit cards in full each month, and we saved for cars instead of buying them with a loan. We owed no money to anyone. To help the process, my wife quit work when we got married so that we could get used to living off one income. We gave ourselves two years in an apartment. That allowed us to save for the down payment, closing costs, and incidentals. It also allowed us to adjust our budget until we found a good fit.

The housing budget

In general, your mortgage payment should not be more than 27% of your net take-home pay (take home minus charitable giving). You've still got taxes, utilities, insurance, maintenance, and incidentals that should eat up another 10-11%. That's a total of 37-38% on housing expenses. If you are spending more, then your spending plan probably doesn't include categories for clothing (5%), cars and repairs (15%), groceries (12%), savings (5%), debt repayment (5%), medical expenses (5%), life and disability insurance (5%), entertainment (5%), and miscellaneous (5%). Why do you need 5% for miscellaneous? You won't need it if you plan to go without haircuts, makeup, postage, gifts, magazine subscriptions, etc.

For more help with a spending plan, please read The Complete Financial Guide for Young Couples by Larry Burkett. He also has versions for singles and college students. My wife and I read the book together when we first got married and decided that it sounded reasonable. We have been following the principles that he set forth ever since. I also recommend that you check out www.crown.org and Grocery Money.

The purchase price of your home

When building a custom home, there are many items that go into the final purchase price. They include the lot, architectural design, interior design, foundation, framing, air conditioning and heating, electrical, plumbing, pre-wire, cabinetry, brick and stone, insulation, flooring, appliances, paint and wall coverings, and lighting, among others. I have tried to cover all of these items here. Take your time and make as many of these decisions as you can before you sign a contract to build a home.

I recommend leaving 5-10% of the purchase price of the home unbudgeted so that you can afford changes you think of during the building process. For example, if your budget says that you can afford a $500,000 home, make sure that you only sign a contract for a $450,000 home. This will leave $50,000 for all of the things you didn't think of. That might sound like a large amount, but you can blast through that faster than you think.