Couple Budgeting for New Home

Building a custom or semi-custom home is a very exciting experience and investment! However, navigating the financial process of building a custom home can feel daunting and sometimes confusing. Learn about some of the most common ways people budget for and finance a custom home in this blog post.

Determine Your Budget

When beginning a custom home budget, setting realistic expectations and understanding what you can comfortably afford is critical. Of course, various factors influence the overall cost of a custom home. Still, you must decide how much you want to spend on a home and be prepared to add 5-10% to that budget for overages, new furniture, additional purchases/upgrades, and so on.

To estimate your home budget, simply multiply the cost per square foot by the home’s square footage. The cost per square foot varies greatly depending on a variety of factors. The price per square foot includes the finishes you choose for your home, such as countertops, flooring, exterior materials (brick vs. siding), etc.

Additional features such as an elevator, an outdoor kitchen, a theater room, and luxury appliances are typically not included in this estimate and must be purchased separately. The cost per square foot can also be affected by the job site; for example, a hillside home will be more expensive to build due to higher excavation and foundation costs than a home on a flat lot.

For Example:

Clients pay an average of $225-250 per square foot for moderate to high-end finishes. If you were constructing a 3,400-square-foot home at $225 per square foot, you would multiply $225 by 3,400 sq. ft. to get $765,000.

The $765,000 figure does not include the cost of land, which can vary depending on where you want to build your home.

A good builder will be upfront about pricing and fees and will assist you in creating a line-by-line budget with allowances for every item in the home to keep your project on budget.

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Just like when purchasing a built home, you must find a home construction loan to fund your project if you cannot pay for your custom home in cash. Many people need a home construction-only loan of some kind, and there are a few options available depending on your financial needs and qualifications.

Construction-Only Loan

A construction-only loan is a short-term loan only intended for the approximate year your home is being built. Once the home is completed, you need to apply for a standard mortgage loan.

Construction-To-Permanent Loan

A construction-to-permanent loan funds construction and then converts it to a permanent mortgage. The borrower makes interest-only payments during construction and then regular mortgage payments once the home is completed.

At Redknot Homes, we help clients work with our preferred banking partners to secure reliable and efficient funding for their new home construction.


  • Estimated Construction Costs/Budget

  • Approved Home Plans

  • Proof of Income/Debt to Income Ratio

  • Credit Check

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Upfront Expenses

Before you can even apply for a home construction loan, the bank will require an estimated budget to determine how much money to lend. The bank will also require approved home plans to ensure you’re building a solid investment. This means that you will almost certainly begin working with a builder before you have a construction loan.

Designing and Budgeting for Your Home

To design and price out your new home, you need to enter into a professional services agreement with either an independent architect or a builder. At Redknot, we recommend designing with your builder because it often helps projects stay within budget and get built on time. You also need to secure a plot of land for your home, which many builders can assist with. None of these costs can be covered by a construction loan because they happen before a loan can be obtained.

Most builders require a deposit of some kind to begin working with a client. At Redknot Homes, we require a retainer for designing a home, which varies depending on the price of the home.

Down Payment

Similarly to purchasing a pre-built home, most lenders expect a down payment of 10-20%, though some may accept less. This money cannot be paid for with a construction loan because it is paid for upfront.

Financing Your Home

Let us help you consider your custom home financing options with a free consultation. We can provide general pricing of our existing homes, homes currently under construction or provide feedback on your potential project.