Have you wanted to build a custom home, but didn't know how much money you need? What about even how to cost out the pre-construction planning? Here we go into it, and talk about the cash / money required to build your custom home. This is not about how to finance it through a bank. This is about your ability to afford to get it into planning and start designing it.

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But in a custom infill project, where you’re buying either bare land or a tear down in an established neighborhood, the upfront money that I was mentioning is the amount you’ll need to not only buy the land before hand, but also to put down as a deposit with the builder.

So let’s talk about the land. Most large financial institutions will not financing bare land. This means that you have to buy it outright before you start the planning process. This can be done with a home equity line, or another debt product, but remember that the amount you have to pay in debt servicing will go against your ability to borrow money for the builder or completion mortgage. If you’re planning to buy a lot that has an existing house on it and your going to tear it down, ensure that you add the additional costs in there.

For us, a 2000 sq ft bungalow is about 10-15 thousand dollars to tear down, and about 20-25 thousand for a two storey. A little professional tip here: if you’re gonna buy a property to tear down, make sure that you make your offer conditional on environmental or asbestos testing because that’ll severely add to you costs if it comes back positive and you require abatement. You can also use this a a negotiating point to bring back to the table to get a lower purchase price.

Then, in order to get the ball rolling, you’ll have to pay for design and planning services. As a custom home builder, we’ll enter into a design and planning agreement (also referred to as a preliminary agreement) and start designing and planning their home.

There’s many different price points here. Should you want an architecturally designed home, then you’ll pay anywhere from 5-12% of the total estimated budget, depending on the architect and their scope of work on the project.

You could commission an architect for a flat fee, or an hourly rate to work on your project, but that’s generally not how most of them work. AND you’ll have to pay estimating fees on top of that once the design is done. We love working with architects and the world requires their creative minds. Unfortunately, not everyone will be able to afford an architecturally designed home. That said, if you choose not to use an architect, you’re still looking at about 25-35K for preliminary planning, estimating and design work. Remember, we are not talking about cookie cutter, suburbia homes here. This is to design a luxury custom home

The final part of your cash projection requirement is the deposit to your builder. This ranges from about 5-10% depending on the scope of work, the builder and the contract. So, add the cost of your land, $30,000 and about 7% of the total estimated cost to build, and that’s how much you should have in cash, or available to put down to get your new luxury custom built home into planning and design.

Let’s run through an example. if your lot is $250,000, and your estimated budget is $800,000 that you can afford to finance, then it looks like this.

$250,000 to buy the land (remember you can’t get a mortgage on bare land) $30,000 for planning, estimating and design services

And then another $56,000 as an initial deposit to start construction. That’s a total of $336,000 in saving or accessible cash to start.

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