"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.
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,
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
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.
When you decide how much cash you will need to buy a home, do not
forget incidentals. The list can get long:
- Window coverings (shades or curtains)
- Shower curtains
- Bed and bath linens
- Light fixtures and ceiling fans
- Trash cans
- Lawn equipment or lawn service
- Cable or satellite TV
- Vacuum cleaner
Some incidentals are more important than others, but if anything on
the list is important to you, make sure you budget for it. Do not make
the mistake of spending all of your money on the down payment and
closing costs for the house, leaving nothing for incidentals.
Unfortunately, the next mistake is usually to buy these incidentals on a
Remember that a beautiful house filled with beautiful
stuff is not going to make you happy. Learn to be content with what you
have. A tangible sign of contentment is a willingness to save for
incidentals rather than buy them on credit.