How much dirt and how much house?

Dear Dave,

My wife and I own a small catering business. We have a few big corporations as clients, and our company has been very successful over the last two or three years. Now, we are planning to build a house. I was wondering what you think about how much should be spent on the land itself versus the construction of the actual house.

Lee

Dear Lee,

When the whole thing is done, the payment you end up with shouldn’t be more than 25% of your take-home pay on a 15-year, fixed-rate loan. The ratio of land to house can vary, and that part’s up to you. If you’re buying a big piece of land, you’re probably going to have a higher ratio of land cost to home cost than if you bought a simple lot and put a really nice home there.

Generally, a standard subdivision lot is going to be around 20% of the total price. If you spend $100,000 on the lot, you’ll end up with a total project cost of about a half-million. Now, keep in mind that’s just a fairly standard ratio. It’s not a rule.

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