If you are building your own custom home, the importance of having an adequate amount of cash on hand can't be stressed enough. There is nothing like a lack of cash to slow your project down, or even end it.

Why do you need cash if you are planning on getting a construction loan? Because there will always be restrictions and procedures holding that money up. Having cash on hand will ensure your project isn't held up as well. You'll also need some money before your loan is even approved to cover things like permits. In addition to your construction loan, it's a good idea to have as much as 40 percent of your total budget in cash. What will you use it for? Well, here's a not-so-short list!

• You'll need a down payment for your land before you even get you loan. And don't forget to factor in the closing costs for this land.

• It will take sometime to close on your construction loan, but in the meantime you'll need to make your loan payments and pay your taxes. You should have enough cash to cover these expenses for four months.

• Before your loan goes through, you'll need to pay for things like your architect, plans, and permits.

• You'll have monthly costs during construction including property taxes, homeowners' fees, and the house payments of the house you are living in while your new house is being built.

• Your bank lender will give you money after a particular part of the project is completed. You'll need to fund these out of your own pocket up front, and then get reimbursed later.

• You'll always see something bigger or better along the way. You may want to upgrade as you build your house—you may see flooring, appliances, cabinets that you like better than those in your original plan—and it's nice to be able to have the cash to do so.

• The project will probably cost more than you think. No matter how hard you try to stay on budget, if you are like 95 percent of the other home builders, chances are you will go over budget. You'll want some cash on hand for that.

• Something may go wrong. You may have a conflict with your contractor that costs money to work out, or you may run into issues that cause you to make costly changes.

Hopefully this list has you convinced that in order for your home building process to go as smoothly as possible, you need a little cash on hand. Don't make the mistake of relying only on your construction loan.