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II. Financing

I. Cost

Budgeting Essentials - Budgeting is a crucial aspect of home building that requires careful consideration and planning. It involves estimating the costs associated with the entire construction process and ensuring that financial resources are allocated appropriately.


Key Components of Budgeting:

  • Site Preparation:

    • Clearing and grading the land.

    • Excavation and foundation preparation.

  • Construction Materials:

    • Breakdown of costs for essential materials like concrete, lumber, steel, etc.

    • Comparison of material costs based on quality and availability.

  • Labor Costs:

    • Understanding skilled and unskilled labor requirements.

    • Wage considerations and labor market analysis.

  • Permits and Fees:

    • Identifying necessary permits and associated fees.

    • Budgeting for inspections and compliance requirements.

  • Professional Services:

    • Architectural and engineering fees.

    • Legal and consulting services related to the construction process.


Tools and Techniques for Effective Budgeting:

  • Utilizing budgeting software and tools.

  • Regularly updating and revising the budget as the project progresses.

  • Seeking professional advice for accurate cost estimations.


Estimating Construction Costs


Methods of Estimation:

  • Detailed Quantity Takeoff:

    • Breakdown of every component's quantity and cost.

    • Requires collaboration with contractors and suppliers.

  • Unit Price Estimation:

    • Assigning a unit cost to each construction element.

    • Easier for quick estimations but requires accurate unit costs.

  • Parametric Estimation:

    • Estimating costs based on project parameters.

    • Useful for early-stage project planning.


Factors Influencing Construction Costs:

  • Geographic location.

  • Project size and complexity.

  • Economic conditions and inflation.


II. Contingency Planning


Importance of Contingency Planning:

Contingency planning involves setting aside additional funds to cover unforeseen expenses or changes in the project scope. It is a crucial aspect of financial management to ensure the project stays on track.


Determining Contingency Percentage:

  • Industry standards typically recommend a contingency of 10-15% of the total project cost.

  • Adjusting the percentage based on project complexity and risk factors.


Common Contingency Scenarios:

  • Design Changes:

    • Unforeseen alterations to the initial design.

    • Addressing design-related issues during construction.

  • Market Fluctuations:

    • Sudden changes in material and labor costs.

    • Mitigating the impact of economic uncertainties.

III. Lending


Types of Home Construction Loans


Overview of Construction Loans:

Construction loans provide financing for the building phase of a project and are different from traditional mortgage loans.


Types of Construction Loans:

  • Construction-to-Permanent Loans:

    • Converts into a permanent mortgage after construction is complete.

    • Offers a single loan for both building and home ownership.

  • Stand-Alone Construction Loans:

    • Separate loans for construction and mortgage phases.

    • Typically have higher interest rates during the construction phase.


 Choosing a Lender

Criteria for Selecting a Lender:

  • Experience in Construction Financing:

    • Reviewing the lender's history with construction projects.

    • Seeking referrals from industry professionals.

  • Interest Rates and Terms:

    • Comparing interest rates and loan terms.

    • Understanding the impact on overall project costs.


Loan Application Process

Step-by-Step Loan Application Guide:

  • Preparation:

    • Gathering necessary financial documents.

    • Preparing a comprehensive project plan.

  • Application Submission:

    • Completing the loan application form.

    • Submitting required documents to the lender.

  • Review and Approval:

    • Lender assesses the project's viability and risk.

    • Approval process and timeline considerations.


IV. Creative Funding


1. Crowdfunding Options

  • Exploring crowdfunding platforms for real estate and construction projects.

  • Creating compelling project presentations for potential backers.

2. Partnership Opportunities

  • Seeking partnerships with investors, developers, or construction firms.

  • Defining roles and responsibilities in a partnership agreement

3. Grants and Subsidies

  • Researching available grants and subsidies for sustainable or affordable construction.

  • Navigating application processes and eligibility criteria.

 

Inumidun Obikoya

City Planner, Civil Engineer, Community Advocate

​

Real Estate Sales Professional

Referrals Only

Licensed in Virginia 

(Based in Arlington, Virginia)

eXp Realty - Central Office

1320 Central Park Blvd, Suite 200, Fredericksburg, VA 22401

Cell:  571-261-6780 (mobile)Office Toll Free: 866-825-7169 

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©2023 by Bridget Obikoya

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