How does your builder determine how much your home will cost to build? That is the number one question homeowners ask when they decide to build a home. To determine this, is simple. Sit down with the contractor and go over everything.

The construction loan package has many forms and one in particular is the Estimated Cost Breakdown. The form breaks down costs that include:

• site work such as septic, well, etc.
• foundation and drive ways
• lumber, doors and windows
• frames
• all plumbing and pipes
• heating systems
• electrical wiring
• painting and landscape
• builders profit and contractors fees

If cost is not taken into consideration, overspending on the budget can occur. Overspending can lead to ending the construction of your home.

The builder will complete the form and tell you exactly what each item will cost to build your home. You then place bids on the items with a 5% contingency. This percent is calculated just in case the costs run over budget.   The builder will send a copy to each of their contractors. After the bids and numbers return, the builder will fill out the Estimated Cost Breakdown. This form is gone over with you and each cost is explained in detail.   To insure that everything agreed upon is set in stone, the builder will draw up a contract. Two specific contracts are used in home construction, a cost plus contract and fixed contract.

Cost Plus Contract
A cost plus contract is for large constructions. If the homeowner wants to make changes as the home is constructed, they have more room to do so. Builders prefer this type of contract because it covers costs over a longer period. Usually up to 18 months.

The downside to a cost plus contract is that contractors can charge more for work. The extra cost is placed on the homeowner, who cannot dispute it.

Fixed Contract
A fixed contract, which takes the total cost and places that number within the contract. Along with the contract is a list of expectations. This contract is better than a cost plus because whatever is initially agreed upon, stays the same. No extra costs can be added on unless the homeowner accepts it.

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