Assessing Cash Reserves and Available Credit

This short assessment helps you determine how much money you can contribute upfront and how much financing you may need. You can also use our EcoHome project planner to help you understand what you want to build and what you can afford, or get started with our calculator.

Here's a breakdown of the steps to assess your cash reserves and available credit:

• Cash Reserves: Begin by reviewing your savings and investment accounts to determine the amount of cash you have readily available. This includes checking accounts, savings accounts, and any short-term investments that can be easily liquidated without incurring significant penalties or fees. Keep in mind that it's wise to maintain an emergency fund for unexpected expenses, so don't plan on using all of your cash reserves for your home construction project.

• Home Equity: If you currently own a home, you may have equity that can be tapped to help fund your custom home project. Home equity is the difference between the market value of your home and the outstanding balance on your mortgage. You can access this equity through a home equity loan, home equity line of credit (HELOC), or by selling your existing home.

• Available Credit: Assess your available credit by reviewing your existing lines of credit, such as credit cards or personal loans. This can give you an idea of how much additional credit you can access if needed. However, be cautious about relying too heavily on credit cards, as they often have high interest rates that can make borrowing expensive.

• Retirement Accounts: While not ideal, some people choose to borrow from their retirement accounts, such as a 401(k) or IRA, to help fund their custom home projects. Be aware that borrowing from your retirement accounts can have significant tax implications and may jeopardize your long-term financial goals.

• Gifts and Loans from Family: If you have family members willing to help finance your custom home project, you might consider accepting gifts or loans from them. Be sure to discuss the terms and expectations of any financial assistance to avoid misunderstandings and potential conflicts.

Once you've assessed your cash reserves and available credit, you can determine how much money you can contribute towards your custom home project. This will also help you understand how much financing you'll need to secure and assist in creating a realistic budget for your project. Remember, it's crucial to maintain a healthy financial cushion and not overextend yourself, as unexpected expenses can arise during the construction process.