The Art of Construction Budgeting & Financing
In this essential episode of The Art of Custom, Kim Hibbs pulls back the curtain on two of the most important parts of building a custom home: budgeting and financing.
Estimator Drew Paget explains how a professional builder develops an accurate, transparent budget that protects both the client and the builder. From pre-construction meetings and allowances to collaborating with designers and architects, she reveals what goes on behind the scenes to bring your dream home from estimate to contract.
Then Kim talks with lenders Tricia McConkey and Ace Alec about construction and permanent loans, jumbo vs. conforming limits, down-payment requirements, and how to prepare financially for the build process.
Whether you’re just starting to plan or ready to break ground, this episode helps demystify the numbers so you can make confident, informed decisions about your custom home investment.
EPISODE TOOL BOX
LINK: Four Things Your Should Know About Construction Lending
Season Three Episode Three | Transcript
Inside the Budgeting Process
Guest: Drew Paget, Senior Estimator, Hibbs Homes
A well-built budget is more than numbers; it’s about aligning expectations among client, builder, designer, and field team.
- A strong budget defines finish levels, scope, and profitability while meeting client goals.
- Transparency and regular communication prevent friction as selections and costs evolve.
- Hibbs Homes delivers multi-page, open-book budgets before locking into a fixed-cost contract.
Why it matters: “Budgeting takes weeks because accuracy matters,” says Drew. “Every category, from site work to finishes, must reflect real vendor pricing.”
Designers & Selections
Selections drive accuracy. Clients who make choices early help the estimator create reliable allowances and firm numbers. Collaboration between client, designer, and builder can shorten the timeline and raise budget accuracy to nearly 99%.
Estimate vs. Budget
An estimate is a broad cost comparison. A budget is a vetted, line-by-line cost document used for contracts and lender approvals.
Integrating Design and Cost
Bringing an estimator into the design phase is essential. Architects focus on form; estimators ground those ideas in cost realities and ensures every plan is designed to the correct budget from day one.
Tip: Transparency and two-way communication between client and builder keep the project on track from design through delivery.
Financing Your Custom Home
Guests: Tricia McConkey, Associated Bank in St Louis and Ace Allak, People’s Home Equity in Utah
Types of Lenders
- Portfolio Lender: Lends its own funds, keeps servicing in-house, and can customize programs for jumbo or construction loans.
- Mortgage Bank/Broker: Packages and sells loans to Fannie Mae or Freddie Mac; offers highly competitive rates and clear parameters.
Conforming vs. Jumbo Loans
“Jumbo” loans exceed federal conforming limits and require special programs. Portfolio lenders can often price these close to conforming rates and retain flexibility on terms.
Loan Documentation & Pre-Approval
Expect to provide:
- Two years of tax returns and W-2s
- Recent pay stubs and asset statements
- Documentation for down payment and reserves
Pre-approval for your construction loan saves time and prevents designing beyond your budget.
ProTip: Lenders verify a two-year work history. Staying in the same field with consistent or better pay avoids delays. Gaps under six months are acceptable.
Fixed Cost vs. Cost Plus Contracts
- Fixed Cost: Builder guarantees a maximum price.
- Cost Plus: Client shares in savings or overages.
- Hybrid: Most realistic—transparent allowances within a capped structure.
Modern Construction Loan Options
Newer lending tools:
- One-time close construction loans combining build + permanent financing.
- Extended rate locks up to 12 months.
- Recast options after selling an existing home.
- Adjustable-rate mortgages (3-, 5-, 7-, 10-year ARMs) with conversion to fixed rates.
Timing and Preparation
The recommendation is to start with a lender before you shop for land. If documents are ready, pre-approval can take as little as a day.
Typical Down Payment Guidelines
- Land Loan: ≈ 20% down.
- Construction Loan: ≈ 10% down on total cost (land + build).
- Equity Still Counts: Existing land equity can offset cash requirements.
Appraisals & High-Performance Homes
Both lenders emphasize partnering with experienced appraisers. Energy-efficient or high-performance homes merit special review for operating-cost savings and build quality—factors that improve appraised value.
Final Tips for Budgeting and Lending
- Get pre-approved early. Don’t design or shop for land blind to your financing limits.
- Treat budgeting like a consultation. It’s collaborative, not adversarial.
- Transparency pays off. The more open both sides are, the smoother the project.
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