1. Interest on building loan.

2. Payment on reduction of loan.

3. Interest lost on owner's money which he invested in the lot and building.

4. Fire insurance.

5. Up-keep, usually about 1 1/2 per cent.

6. Taxes on property and water-supply.

7. Possible assessments.

8. Maintenance cost, such as coal, gas, and electricity.

The above list of expenses should be frankly faced in the beginning, tabulated, and duly considered by every prospective owner of the small house. There are some architects who for fear of discouraging their clients from building will not sit down with them and show them a plain statement of the money they will have to invest, and when all of these minor items begin to pop up during the progress of the operations, the client begins to lose confidence, wonders where the next unexpected bill will come from, and blames the architect for having misrepresented conditions to him. Any prospective owner who has to be blindfolded to the costs which he must meet in order to muster up courage to build ought to be left alone, for he will do the architect no good, but considerable harm. Individuals who have their castles in the air so high that they cannot reduce their dreams to dollars and cents before they begin, ought never to build. These are the kind that start the cry that it always costs more to build than one ever figured on in the beginning.

But coming back to the question of securing the building loan, it will be found that nearly all lenders will insist that the owner put his money in first. That is, he must meet the first payments to the builder himself, until he has put in all of his share. The rest will then be taken up by the financing institution, but always enough will be held back to assure sufficient funds for the completion of the house and the payment of all bills. The lender generally states at what periods of the construction money will be passed over, and this schedule is generally adopted as the one for the periodic payments to the builder. Of course the contractor must be consulted on the matter and his approval secured, but there will be little difficulty on this score, for he will recognize the power of the financing institution to dictate the dates of payment.

As to the matter of contracting for the construction of the small house, there is little doubt that for so small a building the method of securing one general contractor to assume the responsibility of the whole work is the best. There are many who believe in employing day labor, and hiring the services of a supervising builder. The cost is itemized and the contractor adds a percentage as his share. This insures better-class work, but in practically all cases it is more expensive, and no assurance can be had of the final cost.

When the plans are let out to various contractors for bids, there should be no obligation attached to them that the lowest bidder will secure the job. This is a protection, for the human element often enters into relations of this kind, and the lowest bidder may not be the most trustworthy personage, nor have the best reputation.

When the contract is finally let, there are a number of things which it should cover that are intended to protect the finances of the owner. For instance, the contractor should be required to maintain insurance that will protect him from the claims under workmen's compensation acts, and from any other claims for damages for personal injury, including death, which might arise from the operations of building. The owner should also maintain a similar liability insurance to protect himself.

The owner should carry a fire insurance on the entire building and materials to at least 80 per cent of the total value.

When there is doubt as to the financial strength of a contractor, he should be required to furnish a bond covering the faithful performance of the contract and the payment of all obligations.

Then, too, it is customary to set forth cash allowances in the specifications to cover certain items, like plumbing fixtures, hardware, and electric-light fixtures. The contractor should be made to declare that the contract sum includes these cash allowances.

Careful understanding with the contractor should be arranged as to the method by which he will be paid. Generally, as was previously stated, the financing institution has control over the schedule of payments, and, once this is agreeable to the contractor, he should be required to submit to the architect an application for each payment, with receipts and other vouchers, showing his payments for materials and labor, including payments to subcontractors, at least ten days before each payment falls due. It is the duty of the architect to determine the accuracy of each one of these applications for payment before he issues the certificate of payment for such amount as he decides is properly due. There are some architects who make it a practice to hold back a certain percentage of the first payment, and continue this with every later payment, until the last, in order to have a club over the head of the contractor and also a factor of safety, lest the builder has rendered an application for payment in excess of the amount of labor and material delivered. This, of course, will cause hard feelings sometimes, and create friction between architect and contractor, a thing studiously to be avoided, and for this cause such procedure should be dropped when the architect knows the character of the contractor.

The architect should always reserve the right to withhold part or all of the certificate of payment when defective work is not remedied, or when any claims are filed, or there is reasonable evidence that claims will be filed, or when the contractor fails to make payments to subcontractors, or to dealers for materials, or when there is a reasonable doubt that the contract can be completed for the balance unpaid, or when any damage involving liabilities has been done by one contractor to another. The architect should also hold back the final payment, if there are any liens existing against the building, until they are removed.

In order to avoid many of the trivial and annoying expenses which occur in a building operation, the contractor should be required to pay for all permits and licenses (but not permanent easements) which are necessary according to local laws. The contractor should also be made to pay all royalties on patents, if there are any, and all license fees.

But, probably, the most difficult part of the building operation to finance are the extras. When something is found to have been omitted from the plans and specifications, and the contractor did not cover it in his bid, or when the owner changes his mind and requires an alteration, then this extra work must be paid for at a high rate, for nearly all contractors look upon such extras as good pickings. In fact, there are some contractors who deliberately go over the plans and specifications to note what extras may be needed, and then counting upon their profits from these extras, they put in a low bid, so that they can beat their competitors, secure the job, and then proceed to make up their losses with bills which they put in for the extras. Likewise, a contractor who is honest, if he finds himself losing money on any building operation, will try to ease his losses and gain profit with the extras.

There must, therefore, be some basis upon which estimates for these extras will be determined. The values for these extras or changes in the work may be determined by a submitted estimate and acceptance in a lump sum, by a unit price named in the contract or subsequently agreed upon, or by the cost and percentage, or by the fixed-fee method. If the contractor claims that any instructions, by drawings or otherwise, involve extra cost under his contract, he should be required to give the architect written notice of it before proceeding to do the work, within two weeks after receiving such instructions.

A final problem of financing should be considered, and that is the emergency which might arise should the contractor neglect to prosecute the work properly or fail to perform any provision of his contract. If such is the case, the owner should reserve the right in the contract, that after three days' written notice to the contractor he may make good such deficiencies and deduct the cost from the payment due the contractor at that time. Of course every contract should provide for the owner's right to terminate the contract should the contractor fail to do his work, or prove bankrupt, or persistently disregard laws, or continually violate the provisions of the contract.