Building your dream log or timber home can be one of the best experiences of your life. If you’re not strict about budgeting, it can also create an enormous financial mess.

To avoid some of the headaches, take some advice from those who have been through it on a regular basis. Tracy Keyser, vice president of the systems-built division at M&T Mortgage, has witnessed many setbacks with customers who are in the middle of building their log home.

“We advise customers to take out an overrun fund,” she says. “This will cover any surprises that can and do occur during the long building process.”

Sometimes it can be as little as a change in the grade of carpeting or as big as searching for water on your property. Even the littlest change will affect the price, says Keyser. She warns that if these changes are not planned for, they will be coming out of your pocket when it is time to close the construction loan.

One of the most significant areas of cost overrun occurs during site selection. Several factors need to be investigated before even purchasing your land:

1. Distance from community — construction site
2. Local building codes
3. Local taxes
4. Covenants
5. Site on land from nearest utility line
6. Excavation problems with rocks
7. Depth of well
8. Perk test

Keyser advises that the overrun fund should help give you peace of mind. Many times customers choose to upgrade the materials they have selected for flooring, countertops, windows, and even bathroom fixtures.
She also reminds homebuilders to check the date a quote was given from a log home or timber frame manufacturer. If it was over a year ago, construction costs may have fluctuated. Unless you lock in your quote and get it in writing, the price of building materials can skyrocket, especially if there is an unplanned demand for materials, such as after Hurricane Katrina.

“Make sure you and your contractor are on the same page when it comes to what type and size of log you want,” she says.

“Get it in writing” is also emphasized to help keep your budget intact. Make sure that the wording in the contract clearly states that the builder will construct the home using the plans and specifications you have provided and signed. The contract should reference the itemized cost breakdown showing the step-by-step phases with line item costs for all aspects of the job, including labor.

An internet tool that can help give you a ballpark figure on most of your expenses before you get serious is the “building-cost calculator.” It takes you through a series of questions about the home you are planning.
It begins with the size and shape of the home and its location (a planned subdivision or outside a populated area). The calculator then provides a detailed description of the quality of materials you will be using in 35 construction cost areas. (The National Building Cost Manual published by Craftsman Books provides the website tool with the most current dollar information.)

According to the calculator, the costs for the same 2,500-square-foot home with one fireplace, attached garage, and basement with top-of-the-line materials will vary greatly from one side of the country to the other.

Note that materials costs stay roughly the same across the country, while labor costs tend to vary. The earlier you can determine where your home will be, the size of home you want, and the site preparation costs, the more accurate you can plan for overruns.

And if you’re smart about budgeting and planning, chances are good you won’t use all of your overrun fund. Keyser says that if there is money left, it can be applied directly to the principal, thus reducing your loan.

The old adage still works: Plan for the worst and hope for the best!