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My brother-in-law in Atlanta just got a construction loan with a 10% contingency fund and I'm not sure that's enough.
We were at his house last month and he showed me the paperwork. The bank approved a $350,000 loan but only set aside $35,000 for overruns. He said the loan officer told him 'that's the standard buffer'. Given how lumber prices can jump, I'm worried that 10% won't cover it if something major changes. Has anyone else done a custom build recently and found they needed a bigger cushion?
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the_mark7mo ago
Did he factor in the cost of permits and inspections potentially eating into that 10% before any materials even arrive?
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henry1897mo ago
But that's the whole point, the 10% is the buffer for exactly that stuff. If permits eat into it, then it did its job. The number isn't meant to be pure profit, it's there to cover the surprises so the main budget stays safe. A good plan expects those costs and the buffer absorbs the hit. If you don't set aside that cushion, you're just setting yourself up to go over budget later. Calling it a waste ignores why you have a buffer in the first place.
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carter.terry7mo ago
Wait, so you're saying the buffer is SUPPOSED to get used on known stuff like permits? That's wild to me. Permits aren't a surprise, they're a line item you can look up. If your cushion is gone before a single real problem hits, you have no cushion. You just under-budgeted the main project. The buffer should be for the actual unknown things, like a rotten wall you find. Using it for predictable costs means your plan was wrong from the start.
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