What Should I Budget for Unexpected Costs?
How big a contingency to carry, what it typically absorbs, and how to avoid needing it.
We recommend setting aside a 10 to 15 percent contingency. It isn't padding and it isn't a sign that the estimate is soft. It's the buffer that lets you say yes to a good idea in month four without the whole budget wobbling.
What a contingency typically absorbs
- Site surprises. Rock, poor soil, drainage, an unexpected utility run. These are the ones that genuinely cannot be fully known until you dig. See site preparation.
- Material upgrades. Almost everyone upgrades something once they see it in person at the design center.
- Design changes. Standing in the framed space changes minds. See how change orders work.
How to spend less of it
- Get the homesite evaluated early. The earlier the site is understood, the fewer surprises get discovered by an excavator.
- Finalize selections before construction. Late decisions cost more than the same decision made early. See selection deadlines.
- Understand your allowances. An allowance set below what you actually want is a budget overrun waiting to happen. See how allowances work.
- Know what the quote excludes. See what's not in a builder's quote.
Where the contingency should live
It should be money you can actually reach. Talk to your lender about how contingency is handled in your construction loan, since some lenders build it into the loan amount and some expect it to come from your own funds. See how construction loan draws work.