Sit down with your financial adviser or an adviser at your bank; look at your budget, your income and expenses, and determine how much house you can afford before you have a house plan drawn up. Your income and expenses should let you know how much mortgage you can comfortably afford to pay every month. You don’t want to have a mortgage so large that you can’t afford to eat or feed your children. The size and scope of your house should be determined realistically by your house budget, rather than by the size of your dreams or your land.
If you cannot afford to build your dream house, you may have to wait until you can afford to do so or you can get a design that will allow you to add more rooms or another floor in the future. You can also downsize your house to meet your actual budget.
Even if you can build your house without getting a loan, you should have a budget before you do anything else.
Calculating how much house you can Afford
There are several different methods that financial experts use to determine how much house you can afford. A lender’s main concern in their calculations is that you will have the ability to repay the mortgage.
Generally, lenders compare your monthly income to your monthly expenses; this comparison is called your debt-to-income ratio. This gives an idea of how much monthly mortgage you can reasonably afford to pay. The debt-to-income ratio is used to determine how much they will lend you.
Financial advisers say your total mortgage should be no more than approximately two and a half (2½) times your annual gross salary. For example, let’s say you and your spouse’s combined salaries equal $90,000 a year. You should be able to afford a home in the $180,000 - $225,000 range. (90,000 x 2½ equals 225,000)
One of the most common calculations used by financial experts is to calculate your monthly mortgage as a certain percentage of your monthly income. Your monthly mortgage should not be more than 28% of your gross monthly income. Say you make $40,000 a year. The maximum amount for your monthly mortgage-related payments at 28 percent of gross income is $933. ($40,000 multiplied by 0.28 equals $11,200, and $11,200 divided by 12 months equals $933.33.)
Whatever formula you use, your house budget must reflect the real amount you can reasonably afford to spend on a house.
House budget from start to finish
Now that you’ve determined how much house you can afford, you can move on to the next step of building or buying your house. You should now do a detailed breakdown of your house budget that includes all the various costs associated with building or buying a house from beginning to end. For building, these will include the costs for architectural designs, surveyors, engineers, construction, plumbing, electrical, furnishing (furniture and appliances), retaining walls, driveway, sidewalks, landscaping, and bank and legal fees among others. For buying, these will include the cost of the house, inspection, repairs, furnishing, and legal and bank fees. Include costs for labour and materials, y cataloguing exactly what will be needed and its price. You can obtain market quotations on the labour cost of a particular sub-project. Thoroughly survey all building materials, potential laborers and service providers that you will need to employ. You should also add in costs associated with acquiring and preparing your land. If you have not yet acquired land, see the section on buying and selling land in the BVI. Remember, everything should add up to less than the amount in your original house budget.
Building costs in the BVI vary between $250 and $300 per square foot for quality construction and finishes. An average sized swimming pool may cost upwards of $25,000 to construct. Several first class architects and contractors are based in the BVI and good, skilled laborers are available. There are no restrictions against using your own laborers, providing you abide by the labor code. Architect fees will vary according to the architect’s level of involvement, responsibility and the complexity of the work. Fees for design and supervision will generally be about 10%.
Most building materials are imported through local merchants. Materials may be imported directly and will be liable to import duty levied at rates between 5% and 20%. From the planning stage, a house may take 9 to 18 months to complete. Remember the longer you take to build your home, the more likely the cost will increase. For example, if, in your budget, you priced steel with a company in Miami in January 2011 and it cost $680/ton, but you waited until April to place the order and buy the steel, the cost might have increased to $770/ton. That’s a $90/ton difference you could have saved had you bought early. Along with increasing costs of materials, you will have to employ and pay labour for a longer period. It is therefore important that you ask around and get contractors and professionals with reputations for doing good quality work on schedule and within budget.
Your Costing Plan
A costing plan prepared with your quantity surveyor or building contractor should detail all stages of the building process for the project along with estimated costs of materials and labour. After you’ve done your costing plan, it’s best to purchase all the materials you will need as early as possible. Below is a check list of common budget items that might appear on your building costing plan.
- Laying the Foundation
- (Any Additions – Pool)
- House Tax
Handbook for the Homeowner
The Town & Country Planning Department has a great resource, the Handbook for Homeowner. The handbook provides information about safer home building, home-ownership and home maintenance. It includes information on the home-ownership process, building regulations and home disaster preparedness. You should pick up a copy!