One of the most important steps you will take in the process of building your new home will be adequate budgeting. The biggest reason construction projects fail is costs are underestimated. Plan your budget carefully and be as informed as possible about one of the most critical phases of your building project: FINANCING!

The first thing you have to do is figure out how much you can afford to spend and how much building your new home is likely to cost. If you plan to act as general contractor, you will have to obtain a construction loan and a home mortgage. If you have good credit with your bank, you may be able to secure both loans from the same bank. If not, you may have to deal with two different lending institutions.

To get a general idea of the average cost per square foot for new homes in your area, call your local chapter of the National Association of Home Builders or check with local contractors and developers. Multiply the desired square footage of your new home by the average cost per square foot to arrive at a general cost. Developing a budget and calculating costs will take some time and research, but it is a crucial step in the home building process.

Do You Qualify?

When you finally figure out your budget, adding a minimum of a 10% contingency to the total cost in order to cover the unforeseen changes, additions and upgrades that inevitably occur, is a very wise thing to do. And don’t forget to budget for landscaping, including decks and patios, window treatments and furnishings—something many people overlook or leave too little for – since they are at the end.

The first loan you should get is the home mortgage because without long-term financing it will be impossible to get a construction loan. Some important terms you should become familiar with are:

Mortgage Payment-to Income Ratio (MR) is the ratio of your proposed PITI (Principal, Interest, Taxes and Insurance) payment to your gross monthly income. Depending on the lender this usually varies between 28 to 30 percent.

Total Debt-to-Income Ratio (DR) is the ratio of your total monthly debt payments to your gross monthly income. Depending on the lender this ratio usually varies between 36 to 41 percent.

Loan-to-Value (LTV) is the ratio of the total value of the house to the loan amount which is usually 90 percent or less. So the requested loan should be less than 90 percent of the appraised value of the home. On larger homes many lenders will only offer 80 percent or less.

The lender you choose may use one or a combination of these methods to determine if you qualify for your mortgage.

About the Author:

http://www.thehousedesigners.com are independent architects and designers who joined together to provide you the best home plans at the best price.

---