Tips for Staying on Budget When Building a Home

Going over budget is a big concern when building a new home. Seeing the costs add up to more than you expected takes the fun and excitement out of making your dream home a reality.

Keeping your budget on track during a lengthy and complicated home build is an exercise in vigilance and restraint. Even when you’re meticulous about your accounting, unexpected expenses almost always pop up. Setting aside a contingency fund of at least 10 percent of your overall budget is a good way to mitigate the financial strain of those inevitable surprises.

It may be a challenge to stick to your home building budget. But if you lay the budgeting groundwork ahead of time and stay committed through each phase of construction, it’s doable. Here are our top tips to avoid stressful budget overruns when building your new home.

Have a Detailed Plan

This may seem obvious, but building often kicks off before many decisions about design or interior finishes have been finalized. Without a clear plan that includes blueprints, a work schedule and all materials, you’ll find yourself making adjustments on the fly that could easily derail your budget.

“Changes can be very expensive and time-consuming,” says The Money Pit podcast host Tom Kraeutler. “Having a plan you can commit to is fundamental to keeping your budget on track from Day One.”

Michael DiMartino, Power Home Remodeling senior vice president of installations, also emphasized playing a long game when finalizing your plan. “It’s important to have a clear understanding of your end goal before you begin,” he says.

Establish Non-Negotiables

A key factor in arriving at a plan you can stick to is establishing priorities, from style and function to finishing materials, according to architect Ibrahim Greenidge at BOLT Architecture in Brooklyn. That way you and your builder know what aspects of the build you could skimp on if necessary to allow for a splurge in non-negotiable categories.

You may want a finished basement at some point in the future, for example, but are willing to leave it unfinished to invest in better energy efficiency.

Work with the Right Professionals

From your architect to your plumber, hire professionals who respect your vision, prioritize your non-negotiables and work within your budget. Never be afraid to ask questions if something is unclear.

“Unfortunately, a lot of architects and other professionals speak in a language that many laypeople don’t understand and things can get lost in translation,” Greenidge says. “It’s important that everyone involved in the project understands the entire approach so it can be completed in a timely, affordable manner.”

When everyone is on the same page from the outset, you can avoid costly miscommunications and changes down the road. Builder and residential general contractor Tim Bakke from The Plan Collection says, “Work with a reputable builder with a solid track record on completing homes of similar design and budget. Successful project management is essential for staying on budget when building a house.”

Be Realistic About the Cost of Each Stage

Be sure your final plan includes a breakdown of each stage of construction and line-item costs within that stage, as close as you can get to the final penny. It may be tempting to do a quick online search of national averages, but remember the cost of labor and materials may be different in your area, and survey data is often published a year after the fact.

Find the most updated data and prices based on your location by evaluating competing bids, asking around about recent nearby builds and talking to designers and tradespeople who understand real-life costs.

Choose Finishes Before Breaking Ground

It may seem tedious, but the more you dive into the nitty-gritty of choosing finishes before you begin construction, the less likely you’ll be to run into budget overruns.

According to the National Association of Home Builders (NAHB), interior finishes take the biggest chunk out of your total building budget. Planning for every penny down to the last bathroom tile and kitchen faucet means no budget-busting surprises, and you can immediately suss out where you need to tighten your budget and where you can splurge.

“It’s easy to go over budget if you haven’t researched all of your options in advance,” DiMartino says. “I recommend looking at all your options and categorizing them according to their quality and price point.

“For instance, if you want to base the majority of your budget on a range of ‘good’ products, you may be able to splurge on a few ‘best’ product purchases. Although these best-rated products will be more expensive, having a categorized system from the beginning will help your overall project stay on budget.”

Avoid the “May as Well” Quicksand

“As long as we’re spending this much on the kitchen, we may as well upgrade the countertops,” you may be thinking during your build. Although a couple of hundred dollars here and there may not seem like much, these items will quickly add up and spell the collapse of your budget.

A detailed plan that prices out even the smallest details in advance curtails this type of budget-blowing scope creep.

Don’t Be a Perfectionist

You’ve sunk a significant amount of time and money into your new house, so it’s only natural you want every detail to be impeccable. Sometimes sweating the small stuff and focusing on perfection requires extra time and money that just doesn’t make sense in the big picture.

Before you sacrifice your budget to a small detail, ask yourself if it really matters to your overall satisfaction with the final build. Often you’ll find that you’ll be just as happy in the long run if you let these little issues go.

Keep the Lines of Communication Open

If you’ve chosen the right architect, general contractor and other professionals, you shouldn’t have any huge issues about the scope and budget. Still, checking in regularly during each phase of building brings problems to light before they become large enough to derail your budget.

A quick update about how the project is going gives you peace of mind and an opportunity to reiterate your priorities and agree on any small adjustments, if necessary. If you do decide to make a change, document it in writing and communicate it precisely to your builder or subcontractor.

“Make sure you have a change order,” Kraetler says. “This is simply a document that says, ‘Our contract calls for X but we’re going to do Y, which will result in a credit or additional charge of Z.’ “

Track Your Spending

Keep your eye on your budget during each phase of your home build by tracking expenditures and flagging any overruns early. “I find that mapping out your expenses on a monthly basis and writing everything down keeps the project on track and organized,” DiMartino says.

A paper planner or notebook is an easy, low-tech way to keep track of all purchases and costs. Or you can download expense-tracking software on your computer or the app on your phone or tablet, then upload invoices, receipts and other spending there.