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Building A House Vs Buying: Is It Cheaper To Buy Or Build A House?

Victoria Araj5-minute read

June 01, 2022

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You’re ready to move into a place to call home, but you’re on the fence between building a house versus buying a house. In a seller’s market, it’s reasonable to consider building your own house, rather than fighting for an existing home. That said, if time is a factor, you may be better off holding out for an existing house.

With so many factors to consider and decisions to be made, we’ve spelled out the key pros and cons to consider before buying or building your new home.

Buying An Existing Home, At A Glance

Pros

Cons

Move-in condition

 

Seller’s market makes home buying stressful

Generally less costly

Compromise on home style might be necessary

Home renovation options

Maintenance issues

Closer to urban centers

Less energy efficient

Mature landscaping

Potentially contains hazardous materials

 

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Building Vs Buying A Home: Is Buying Better?

When looking to move into a new home, many consider the option of buying a home first. Of course, there are some advantages and disadvantages when it comes to buying an existing house.

We’ll lay out the facts so that you can come to a decision on what matters most to you.

Pros Of Buying An Existing Home

Here are the pros you should be aware of when buying an existing home:

  • Move-in condition: If you are hoping to move quickly, buying an existing home is probably your best option. Construction projects will require some time to complete, and that’s the same whether you’re building a home or buying a fixer-upper.
  • Less costly: In general, you’ll likely find it cheaper overall to buy an existing home, but that also depends on the market. A home loan is less risky than a land loan, and typically comes with a lower down payment and better interest rate.
  • Home renovation options: You can make upgrades to the home when you have the time and money available.
  • Closer to urban centers: If you want to be close to downtown, it may be difficult to find a lot to build on. In some areas, all the suitable lots have already been turned into homes. Buying an existing home can place you in the area you desire.
  • Mature landscaping: An existing home will likely have some landscaping, eliminating that expense. If you like mature shade trees and rhododendrons for days, you might want to stick to buying a home over building one. It will take years for new landscaping to match the beauty of mature plantings.

Cons Of Buying

Of course, there are also drawbacks to buying a home. Consider the following:

  • House buying stress: Searching for the right home can be time-consuming, and it can be stressful. Currently, the real estate market belongs to sellers, who are fielding multiple clean offers above asking price within days of listing their homes. Buyers, on the other hand, are facing high prices, bidding wars, and multiple rejected offers. It’s not necessarily going to be easier to buy than to build. Working with a good real estate agent can make the process easier and quicker.
  • Compromise on home style: Finding a home you like and that reflects your taste is tough even when you have a wide variety of choices. With few homes for sale versus the demand for homes, you’re unlikely to find many choices available.
  • Maintenance issues: With older appliances, plumbing and electrical systems, you may run into major maintenance issues sooner rather than later. One possible solution? Consider a home warranty. With a home warranty, you know exactly how much to budget for home repairs and who to call if a problem arises.
  • Less energy efficient: Older homes are more likely to be less energy efficient, which can lead to higher energy costs. You’ll likely not be able to achieve the same energy efficiency you could get with a new, sustainable home, but there are many steps you can take to reduce your older home’s carbon footprint.
  • Potentially contains hazardous materials: Older homes may present health hazards from years back that the previous owner might be completely unaware of. Homes built prior to the 1970s probably contain lead paint. If you have children, you’ll want to take that into consideration when buying an existing home.

Building A New Home, At A Glance

Pros

Cons

Complete customization

More expensive financing

Less competition

Unexpected costs and delays

Less ongoing maintenance

More time and stress

Healthier home

More effort

Better energy efficiency

 

Building Vs Buying A House: Is Building Better?

As with buying a home, building a home will come with advantages and disadvantages. We’ll lay out the facts so that you can come to a decision on what matters most to you.

Pros Of Building

Here are the pros of building a home:

  • Complete customization: If you have a dream floor plan in mind in a particular location, then building a home will give you the control you’re seeking. You can make the decisions when building the home, so it will reflect your tastes accordingly.
  • Less competition: Once you buy the land, you won’t have to deal with any competition for your dream home. However, you’ll be competing against other home builders – and paying more – for limited construction supplies and labor.
  • Less ongoing maintenance: A newer home can mean fewer maintenance costs on the horizon. Generally, new home construction comes with a builder’s warranty for major systems. New appliances will likewise come with guarantees.
  • Healthier home: You won’t have to worry about materials such as asbestos or lead paint in a brand-new home.
  • Better energy efficiency: Newer homes are built with energy-efficiency in mind. If you are concerned about your environmental impacts, you can make choices throughout the build to prioritize green architecture and sustainability in your home and future.

Cons Of Building

  • More expensive financing: Because of the lack of collateral, land loans may be harder to obtain, and they often come with a higher down payment and a higher interest rate to offset the risk to the lender. Next, you’ll need a construction loan to finance the actual building. Finally, you’ll get a traditional mortgage on the house once construction is complete, using the house as security for the loan.
  • Unexpected costs and delays: Although you may receive an estimate of the costs upfront, it is not unusual for unexpected costs to crop up throughout the project. There will almost certainly be delays – especially with pandemic-related supply chain issues – and cost overruns. Expect to pay more for almost everything, starting with lumber. Labor shortages will likely also make wages go up, so expect that to be reflected in your costs.
  • More time and stress: Building a home will not happen quickly. It will be a much longer process than simply buying a home and moving in. In general, it may be more stressful, though in the end, you’ll have exactly the home you want.
  • More effort: Building a home requires a more hands-on approach. You’ll have to work with a variety of people to create the home of your dreams and make countless decisions along the way. You’ll have to approve all specifications, and review contracts. You’ll have to manage the financial aspects of the build as well.

Is It Cheaper To Buy Or Build A House?

The median sales price of new houses sold – houses built for the home owner and then financed through a mortgage –  in February 2022 was $400,600 and the average sales price was $511,000, according to U.S. Census Bureau figures.

The average sales price of an existing home as of February 2022 was $357,300. That’s a 15% increase since February 2021, which speaks to the high demand for homes. Of course, to fairly  compare the cost of an existing home versus building your own, you’d need to consider the cost of renovations needed to make those homes livable, and the higher costs of maintenance in existing homes.

Of concern was a 7.2% decrease in the number of sales of existing homes, which speaks to the low inventory of available homes. Expect still higher prices with a lower number of sales until the market works itself back into a balance.

Cost of Building A House Vs Buying

With so much uncertainty, it’s a bit of a toss-up on which is actually more budget-friendly. The actual cost could look very different for you depending on your location and the type of build you want to complete. If you’re looking to buy a home, there are some costs of homeownership that will stand out. Let’s take a closer look at the costs involved with each option.

Costs Of Buying

If you’re looking to buy an existing home, there are some costs to consider:

  • Maintenance of older elements: With older elements in your home, you should expect more maintenance and repairs. Building materials will lose their strength with time.
  • Less-efficient major appliances: Older appliances are typically less energy efficient. Plus, you may not have a home warranty that covers these older items.
  • HOA fees: An existing home may come with a homeowners association (HOA) and the attendant fees.

Costs Of Building A New Home

The bulk of the cost to build a home are likely tied to the following:

  • Building materials: The basic materials you need to build a home will add up quickly.
  • Multiple loans: You may need to take out two separate loans to fund the construction of your new home: a construction loan and a land loan.
  • New major appliances: You won’t have older appliances to live with for now. Instead, you’ll have to purchase new appliances when you move in.
  • Permits and utilities: It can be expensive to add connections for basic utilities. Plus, the permitting process for new builds can be expensive.
  • Excavation: The land you buy may have land issues such as drainage along with foundation issues that can be costly to resolve before building.
  • Preparing the landscape: You may have purchased an idyllic site for your dream home, but preparing a lot for building is an expensive proposition. You won’t know what lies beneath the earth until your contractor starts to dig. You’ll also need to install hook-ups to utilities or an on-site alternative, like a septic system instead of connecting to a sewer system. Construction will also require removal of a great deal of the existing landscape and you’ll need to consider the cost of planting trees later on your currently wooded lot.

The Bottom Line: Should You Build A House Or Buy?

As you move forward, the decision to build or buy a home can be tricky. Since both options have positives and negatives, it will really come down to your unique situation.

Building an affordable home may be the only way to realize your dreams for custom features and unique satisfaction. While you should expect a more expensive process that will require more energy and effort on your part, you can typically expect a higher return on your investment when you sell.

Buying a home can help you move forward quickly, which can come in handy if you are pressed for time. Although you may have to compromise on the perfect floor plan, buying an existing home is usually less time-consuming and less stressful.

Interested in buying, or still on the fence? Get preapproved for a mortgage to see what you can afford and the kind of loans you might qualify for.

Get preapproved to see what you can afford.

Rocket Mortgage® lets you do it all online.

See What You Qualify For

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.