Should You Buy Or Build A House? Here’s How To Decide
Lauren Nowacki9-Minute Read
September 09, 2019
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Should I buy a home or build one? It’s a common question many people ask when they’re ready to get a new home, and it’s a question my husband and I have been asking ourselves lately as we think about buying our next home in the near future.
We never considered building our own home until we decided we wanted a house on the water. We are Michiganders, after all; lake life is in our blood.
And who would’ve thought that, in a state where you’re never more than six miles from water, it’d be so difficult to find a waterfront home that meets our needs and our budget?
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.
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
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 the home from the ground up, you can customize the home from creating the layout, choosing the flooring, picking the colors and customizing features to meet your needs.
For example, you can make the doorways 36 inches wide and install a wheelchair-accessible shower if you use a wheelchair. Other advantages of building a home include:
- Newer homes are usually built to meet current building codes, are more energy-efficient and have updated features.
- You’re the first owner of your home and have a hand in creating it.
- You shouldn’t have to worry about repairs and replacements anytime soon because everything is new.
- There’s no competition among other home buyers.
- New homes won’t be made with toxic materials like asbestos or lead paint.
Cons Of Building A House
Because you’re building a home from the ground up and customizing certain features, it can take much longer to move into the home than if you were to buy an existing home. The U.S. Census Bureau found it typically takes about 7 months to build a home from start to finish.
However, the building process could take even longer if you come across bad weather, a natural disaster or human error. On the other hand, the average time to close on a home purchase is 45 days, according to Ellie Mae®.
Along with having to wait longer to move into a new build (and possibly needing a place to stay during that time), there are a few other disadvantages to building a home you should consider:
- There may be unexpected costs and price increases if you aren’t careful.
- You’ll have a lot of decisions to make from plotting out the land, creating a floor plan and choosing materials, finishes and colors.
- You’ll have to create a new landscape which can be a nuisance or extra cost if you’re not a green thumb.
- While you don’t have to deal with a seller, you may not have the opportunity to negotiate a lower price.
- 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. Sure, you’ll get to custom build your living space, but that also means you’ll take on several responsibilities and stresses in order to do it.
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.
If you’re unorganized or you despise picking out tiles and flooring, buying a home that already has that taken care of may be a major advantage and stress reliever for you. Here are a few additional advantages:
- You may be able to move in sooner since it takes less time to purchase and close on a home than to build one.
- You won’t need to grow a lawn or wait for trees to mature since your home will most likely already have landscaping.
- You may be able to negotiate a lower sale price.
- You can make upgrades while you live in the home when you have time and money to make them.
Cons Of Buying A House
While it can be stressful to build and design your own home, you’ll get to have everything you want. 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.
Not getting exactly what you want is one of the biggest drawbacks of buying a house. Here are a few others:
- Older appliances, pipes and electrical systems may require more maintenance, repairs and replacements.
- You may have buyer’s remorse if you settle or compromise on too many things.
- There may be housing market competition – especially if you’re looking in a sought-after neighborhood or buying a home in a seller’s market.
- Since your heating and cooling system is older it may be less efficient, resulting in higher energy costs throughout the year.
Is It Cheaper To Buy Or Build A House?
When you look strictly at the statistics, purchasing a home is typically cheaper than building one. According to the National Association of REALTORS®, the median U.S. home sales price in June of 2019 was about $288,900. On the flip side, the average cost to build a new home is about $295,820 according to HomeAdvisor (though it typically ranges from $150,354 – $441,956).
Don’t let that discourage you from building just yet. Remember, these are averages. Whether it will be cheaper 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.
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, electric and waste.
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.
Are You Ready To Buy Or Build Your House?
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. Some signs that you may be ready to buy or build a home are when you have a significant amount of money saved, a stable job, steady income, an emergency fund and a plan to stay in the home for at least 5 years.
Once you know you’re ready to buy or build, you’ll want to choose what to do.
Questions To Ask Yourself
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 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. Luckily, there are a few options.
Paying For A Pre-Existing Home
If you don’t have enough money to buy your home outright, you can get a mortgage on the house instead. 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 up front 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. First, you’ll most likely be required to pay some sort of down payment. Second, you’ll typically need to meet a certain debt-to-income ratio and minimum credit score. You’ll also be asked to verify that you have a steady income.
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 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.
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.
No matter how you choose to obtain your next home, moving into and owning a home is a big step that takes some thoughtful consideration. Whether a new build or an older house, you’ll be able to make it your own. And that’s one of the best parts of homeownership.
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