The position of the water tray can be dependent on the type of incubator. In small commercial incubators the water trays are typically incorporated into the base of the unit as a space saving function. They tend to be small enough that the location doesn't really matter. In cabinet incubators, the location is normally the top shelf in direct line with the air flow after it passes over the heating element. The bottom of a cabinet incubator is reserved for the hatching tray as it is usually the coolest area in the cabinet incubator.
In my homemade one I made from a cooler, I put pan with a sponge in it in the bottom. @R2elk is correct. It depends on what kind of incubator you are making. Not sure what you're using as a heat source. I used two 15 watt incandescent bulbs. Originally I had one bulb in the bottom but once it burnt out during incubation and a dimmer switch but it was rather difficult to regulate the temperature. I modified it and put two bulbs with a wafer thermostat. There are many good threads.
