Saturday, April 3, 2010

Construction Budgeting - Contingency Reserve

The Importance Of a Contingency Reserve

Throughout the processes of remodeling, renovating, or building your own home, some homeowners discover unforeseen obstacles or repairs not noticed during the initial home construction. In most cases, a contingency reserve will be needed to help cover unanticipated costs that occur during this crucial time period. A contingency reserve should be considered early in the home construction process as part of a home construction loan.

Before making the final decision on how to remodel or construct your home, you should first consult a contracting company if you have not yet done so. This step is necessary for input on how your contractor can help fit the plans into your budget, which then ties into your contingency reserve. Once you are aware of the total budget, you will know what percentage of your budget should be placed on reserve for unforeseen costs in the future.

Contingency reserves can range anywhere between 5% and 15% of the initial budget of your overall home construction or remodeling plans. These percentage rates coincide with the total home construction loan and also with the overall costs to build. This is necessary to insure that all extra costs, including inaccurate prices, missing items or overdrawn accounts, are covered and paid in full in case emergency usage is required.

Contingency reserves can save most homebuilders money in the long run. If you were to put a certain percentage of your initial budget away for safe keeping and emergency use, when the time came to use the money, you wouldn’t have to wait for the time it would take to go to your loan officer. This saves time, work, and money in the long run because there is no panic about where the money to buy new materials will come from because you’ve already planned ahead.

These contingency reserves are key in establishing and maintaining the construction of new and old homes and should be one of the first steps considered when thinking of building or remodeling any kind of home.

For help in building your budget contact Ken at 250 859 6062


Mark said...

Just as with any other projects, it is very wise to keep an emergency reserve in cases of unforseen expenditures. I also work for the industry and as the one who agrees with this post, I have the tools like a Sage Master Builder software to cover for every project's aspects.

Indeed, contingency reserve saves time, effort, and money in the long run. For every construction situation that suddenly arises, the resource is ready to cover it. Good thing, there are things like Sage Timberline Office for efficient and accurate construction accounting and budgeting.

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