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Is It Cheaper To Build or Buy A House?: The Pros, Cons And Prices You Need To Know

Lauren Nowacki10-Minute Read
December 15, 2021

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The home build prices listed in this article are based on the most recent information from HomeAdvisor, as of September 16, 2022. The median home sale price is based on the Census Bureau’s most recent Monthly Residential Sales Report, published August 23, 2022 for July 2022.

Is it cheaper to build a house or buy one? It’s a common question many people ask when they’re ready to get a new home.

When searching for a home, it can be difficult to find one that has everything you want and need – especially when you have a specific location, limited budget or unique wish list in mind. It may be tempting to just start from scratch and build your own home, one with everything you could ever want in a living space. But this may not be as easy or cost-effective as you think.

There are several factors to consider before deciding whether building a home is a better option for you than buying one. These include the pros and cons of each and if it’s really cheaper to buy land and build a house instead of buying an existing home. Are you on the fence? Read on to determine what the best option may be for you.

Is It Cheaper To Buy Or Build A House?

According to the U.S. Census Bureau, the median U.S. home sales price is about $439,400. On the flip side, the average cost to build a new home is about $280,271 (though it typically ranges from $111,696 to $450,911). What these statistics don’t include is the cost to buy land and prepare it for building.

As you consider your options, remember that these are averages. How much it will cost to build your home will depend on a number of factors. That may not be the answer you’re looking for, but the costs that come with building a home will depend on what type of build you choose, the location, how much you want to customize the home and what size the home will be.

If you're on the fence about buying versus building a home, it can help to shop around and see what numbers you're working with. Many builders can provide quotes if you have an idea of what you're looking for and starting the approval process with a mortgage lender can be a great way to see what you could afford if you decide to buy.

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Types Of Home Builds

There are three main types of home builds you can choose from:

  • Manufactured home: A manufactured home is built in a facility and transported to the home’s location in one piece. It’s then placed on a frame that can be picked up and moved to another place.
  • Modular home: While a modular home is also built in a facility, it’s transported to the site in multiple pieces and put together on the home’s location. Different from a manufactured home, a modular home is placed on a permanent foundation and can’t be moved to another location after.
  • Site-built home: Also called a stick-built house, a site-built house is a home that’s built on its permanent location. Of these three build types, a manufactured home is typically the least expensive to build. Site-built homes are usually the most expensive build types.

Whichever type of house you choose to build, you’ll have to find and buy land to build a home on and pay to have that land prepared for construction. This preparation may include clearing trees, connecting to water and sewer systems or building a foundation.

You’ll also have to pay for interior and exterior finishes once the home is built. And keep in mind that the more custom-built you want your home, the more expensive it will be.

Other Costs To Consider

You’ll also need to consider additional costs that may not come with purchasing a home. These expenses may include installing a driveway and garage, landscaping, buying new appliances and hooking up utilities like water, electricity and waste removal.

Another expense to take into consideration is any temporary housing you may need while your house is being built. If you can’t move in right away, you may have to rent. This can get expensive depending on where you rent, especially if there are any unexpected delays.

Pros And Cons Of Building A House

Building a home can be an adventure. And with any adventure, you’ll experience your fair share of ups and downs throughout the process. Here are a few pros and cons to building a home you can expect and should consider.

Pros Of Building A House

Building a custom home offers many different benefits right from the start. Here are a few of the top advantages of building your dream home:

  • You’ll get the features you want. The biggest advantage of building a home is that you can get exactly what you want as long as it fits in your price range. Since you’re building from the ground up, you can customize the home by creating the layout, choosing the flooring, picking the colors and customizing features to meet your needs.
  • Construction methods have improved. Newer homes are built to meet current building codes, are more energy-efficient and have updated features.
  • You can pick your builder. When you’re building a custom home, you’ll be able to hire home builders that you can trust to bring your vision to life.
  • You’ll be the only owner. You’re the first owner of your home and have a hand in creating it. You’ll never have to worry about any maintenance previous owners may have overlooked.
  • There’ll be less maintenance. You shouldn’t have to worry about repairs and replacements any time soon because everything is new. Even better, many of your appliances will still be covered by the manufacturer’s warranty, saving you money if things do break unexpectedly.
  • You won’t deal with bidding wars. There’s no competition with other home buyers. This means you won’t have to spend time negotiating with sellers or bidding against other interested buyers.
  • It’ll have better building materials. New homes won’t be built using toxic materials like asbestos or lead paint. You and your family will be able to reduce your exposure to potentially hazardous substances.

Cons Of Building A House

Though building a home is a great option, it’s not without its challenges. Here are some of the downsides of building versus buying a house:

  • It can take longer. Because you’re building a home from the ground up, it can take much longer to move in than if you were to buy an existing home. The S. Census Bureau found it typically takes about 7 months to build a home from start to finish.
  • You’ll have to find a place to stay. Since you can’t move into the home until it’s finished, you’ll have to find somewhere to stay until construction wraps up. That can add a significant expense to your budget.
  • Unexpected costs may pop up. Supply chain issues may lead to unexpected costs and price increases if you aren’t careful. You’ll need to stay in communication with your builder and be prepared to discuss any changes in cost as they occur.
  • It’s a hands-on process. You’ll have a lot of decisions to make from plotting out the land, creating a floor plan and choosing building materials, finishes and colors. This means you’ll have to be involved from day one and can’t rely on the home builders to take care of everything for you.
  • Landscaping will be brand new. You’ll have to create a new landscape which can be extra work or expensive if you don’t have a green thumb.
  • The prices are hard to negotiate. While you don’t have to deal with a seller, you may not have the opportunity to negotiate a lower price. Remember, the builder has to pay for materials, labor and other incidental costs for the project. That means they’ll have less wiggle room on their prices.

If you do decide to build, make sure you find a professional contractor you trust, and don't hesitate to shop around and see who can get you the best quote.

Ready to talk details?

Connect with local custom home builders on HomeAdvisor.

Pros And Cons Of Buying A House

When it comes to weighing the pros and cons of buying a home, it often boils down to whether you’re willing to compromise and whether you can afford after-purchase expenses that may pop up. Here are a few things to consider.

Pros Of Buying A House

As exciting as it may be, building a home can also be a taxing and stressful experience. Buying an existing home offers several advantages over building one from the ground up. Here are a few benefits you need to be aware of:

  • Buying can be less stressful. When you buy a home, you won’t have to deal with the stress of purchasing land, working with a builder, making all of the design decisions and doing everything while staying within your budget.
  • You’ll have a faster move-in time. You may be able to move in sooner since it takes less time to purchase and close on a home than to build one.
  • The home comes with established landscaping. You won’t need to grow a lawn or wait for trees to mature since your home will most likely already have landscaping.
  • There may be more flexibility on price. You may be able to negotiate a lower sale price with the seller since you’re not having to pay for labor or for the building materials themselves.
  • You can upgrade slowly. You can make upgrades while you live in the home when you have time and money to make them. This allows you to prioritize certain upgrades and makes it easier to identify which parts of the home you want to change.

Cons Of Buying A House

Though buying a house can be cheaper and easier than building a new home, it’s not a perfect option for everyone. Here are a few of the downsides of buying a house rather than building one:

  • You’ll have to compromise. When you buy a home, you most likely won’t get everything on your wish list and you may have to compromise on a few things if you want to proceed with the purchase.
  • Everything might be older. Buying a home means you may end up with older appliances, pipes and electrical systems that may require more maintenance, repairs and replacements sooner.
  • You may have to compete for the home. If you’re looking in a sought-after neighborhood or are buying a home in a seller’s market, you’ll have to compete against other buyers for the property. This can drive prices up and make it harder for you to get into the home of your dreams.
  • You may have higher utility bills. Since your heating and cooling system is likely older, it may be less efficient. This may result in higher energy costs throughout the year.

How To Tell If You’re Ready To Build Or Buy A Home

Just because you want to buy or build a new home doesn’t mean you’re ready just yet; you’ll want to make sure you’re in the best financial position to do so. Start by looking at your personal situation.

At a minimum, you’ll want to have a steady job and money saved up to cover any upfront costs you may incur. You’ll also need an emergency fund in place to cover unexpected repairs as soon as they happen.

If you’re confident that your finances are in good shape, you can start thinking about which option is right for your goals and your budget.

Questions To Ask Yourself

Everyone’s situation is different, and some people may benefit more from buying a house than from building one. When deciding whether to build a home or buy one, ask yourself the following questions:

  • How long can I wait to move in?
  • Am I good at making decisions? Will I like having to choose a floor plan, colors, cabinets, flooring and more? Or will I feel overwhelmed and stressed with these additional responsibilities?
  • Do I want everything in my home to be brand new?
  • Do I want everything on my wish list or am I willing to compromise?
  • Am I able to care for new landscaping and willing to wait for grass and trees to grow?
  • Do I have money in my budget for any repairs or replacements needed if I purchase an older home?
  • Do I mind that someone has lived in my home before me?
  • How much can I afford?
  • After laying out all the costs of building a home based on what I want, will it be cheaper for me to build a home or buy one within my budget?

Once you’ve answered these questions, you’ll be better equipped to decide if buying or building a home is the right choice for your needs and your homeownership goals.

How To Pay For Your New Home

Once you decide whether you’ll buy a home or build one, you’ll have to figure out how you’re going to pay for it. Knowing what you can afford and creating a budget is one thing, financing your endeavor is another. The type of financing you choose depends on whether you’re buying or building your home.

Paying For An Existing Home

When you’re buying an existing home, you have two main choices: you can pay for the house with cash or finance the purchase with a mortgage. A mortgage is money loaned from a bank or financial institution to purchase a home.

When you take out a mortgage, your lender pays for the home upfront after you pay an initial down payment. You then pay back that money through monthly payments that include interest over an agreed-upon amount of time.

The qualifications for a mortgage will depend on what type of loan you get. However, there are some basic requirements you’ll need to satisfy regardless of the type of mortgage you’re applying for. First, you’ll most likely be required to make some sort of down payment. Depending on the type of loan you get, you’ll likely need a down payment of at least 3% – 3.5% of the purchase price. Second, you’ll typically need to meet a certain debt-to-income ratio (DTI) and minimum credit score. You’ll also be asked to verify that you have a steady income.

Get approved to buy a home.

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Paying For A New Build

You can’t get a mortgage on a home that doesn’t yet exist. Instead, you can pay for a new build with a new construction loan.

This is a short-term loan that provides money at different stages of the building process. A new construction loan can help pay for the costs associated with building a new home including permits, contractor work, framing and foundation costs, interior finishes and other building materials.

These loans last about 1 year and usually have higher interest rates than a typical mortgage. New construction loans will also have different qualification requirements. You may be asked to supply a construction timeline, your planned budget and the building plans as part of the application process.

Like many loans, you may also need to have a good credit score, low debt-to-income ratio, reliable income and a significant down payment.

Once the home is built, you can refinance your new construction loan into a permanent mortgage. Along with the typical mortgage qualifications, your mortgage lender may have a few additional requirements.

For example, your property may have to be completed at closing and you may be asked to supply a final certificate of completion and a photo of the completed property. You may also need to have an appraisal and final inspection completed before closing.

If you’re considering a manufactured home, keep in mind that some lenders don’t provide financing for manufactured homes. You may have more difficulty finding a loan for this type of home.

FAQs About Building Vs. Buying A House

If you’re still on the fence between buying and building a home, here are a few common questions you can ask yourself to help with the decision.

How much does it cost to build a house?

In 2022, the average cost to build a house ranges from $111,696 – $450,911. When comparing the cost of building a new home versus buying an existing home, you’ll also have to budget for land, floor plans and more.

Is building a house cheaper than buying?

If you already own prepared land, building a house can be cheaper than buying an existing home, though that can vary depending on factors like the state of your local market and the kind of house you build.

Is it cheaper to buy land and build a house than it is to buy in a new development?

It can be cheaper to buy land and build a house from the ground up, but it depends on where you’re buying land, the types of improvements that need to be made to the property, and the type of home you want to build. In some areas, it may be cheaper to buy in a new development.  

The Bottom Line

Deciding between building or buying a new home is no doubt a difficult decision for any prospective homeowner as they navigate their journey. There are so many factors to consider before deciding which path you want to take.

Whether you’re ready to commit to buying or you're still on the fence, getting insight into what you qualify for and can afford is a crucial next step. Start the approval process at Rocket Mortgage to find out what a home loan for you could look like if you decide to buy.

Lauren Nowacki

Lauren is a Content Editor specializing in personal finance and the mortgage industry. Her writing focuses on reporting the best places to live in the U.S. based on certain interests and lifestyles. She has a B.A. in Communications from Alma College and has worked as a writer and editor for various publications in Philadelphia, Chicago and Metro Detroit.