Building a house vs. buying one: It’s a question that faces many who enter the housing market.
Whether you’re a first-time homebuyer or looking for something that better fits your family’s needs, it’s a decision you’ll likely have to consider at some point in your life.
Every person is completely unique, meaning what you decide won’t necessarily match what other people do — and that’s okay! Whatever direction you take, it’s important to compare the benefits that come with building vs buying a house and make the choice based on your and your family’s situation.
To help you compare your options, let’s take a look at the pros and cons of both building and buying a house and inspect the price difference between the two.
Is Building Better for You?
If you’ve looked around at the available housing market and really don’t see a home that sparks your interest, then maybe the right choice is to build your own. When you create your dream home from the ground up, you get complete control over what the house looks like both inside and out, making it a prime choice for families who want unique elements or additions that other homes may not have.
In fact, 1,330,000 building permits for new residential construction were granted in 2022 alone, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
Advantages to Building a Home
But, it’s not just the ability to design the building’s blueprint and floor plan that makes this an attractive avenue — there are several other factors that play into this option’s favor. Here are a few of them:
- Customization: When you build a home, you have input on the design and can ensure the final construction includes all the features you want and need. During this process, you can work closely with the designers and architects to ensure the new construction meets your expectations.
- Up-to-code: Newer homes are built to meet all current building codes, and you have the ability to make sure that your home includes energy-efficient features that will save you money in the long term. Getting an existing home to meet the proper requirements can sometimes be costly and challenging, so building one from scratch prevents this headache altogether.
- No competition: Currently, demand for an existing house is higher than the number of homes available for purchase, meaning prices have gone up and competition is fierce. Houses are on the market for shorter time frames, and you’re more likely to face competing bids. When you build a home, you eliminate that competition — once you own the plot of land, it’s yours for good.
- No need for immediate repairs or renovations: You won’t have to worry about scheduling repairs to fix issues found during a home inspection. You also won’t have to budget for renovations to add features to the home because these will be built into the space already. Your custom home will most likely come with a warranty which should cover any repairs that do come up during the first year after the house has been built.
- Potential for a higher return on investment: Typically, there’s a higher demand for newer homes, so if you ever choose to sell, the value of your home may be much higher than that of older homes on the market.
Disadvantages of Building a Home
Although there are several benefits of building a new house from scratch, it doesn’t come without a few disadvantages. Here are some of the important factors that you should consider before diving headfirst into a building project:
- Unexpected costs or delays: You should receive an estimated cost upfront, but this price is called an estimate for a reason: There may be items or factors that hike up the bill once the project begins. It’s also fairly common to have production delays which can be a result of supply chain issues, labor shortages or any other unforeseen circumstances.
- Expensive financing: When you build a home, you don’t have collateral, which means that loans may be harder to get. They’ll also often come with a higher price tag due to an increased down payment and interest rates. Buying land and embarking on a new construction home generally requires home builders to get a few different loans, including a land loan and a construction loan, all on top of purchasing building materials and paying a traditional mortgage.
- Slower process: You’ve heard the saying “Rome wasn’t built in a day,” and the same can be said for any new home. It takes time to go through each stage of the building process, and it requires a lot of patience. It also takes more time than simply buying a home because you have to delegate work to several different people to complete various parts of the project.
Is Buying Better for You?
After looking at the pros and cons of building a house, you may feel that buying an existing home is the better choice for you and your family. This is often people’s first thought when they want to call a space home. Just like building a new home, buying an already-built home comes with its advantages and disadvantages.
Let’s assess if this is the right course of action for you by looking at all the facts.
Advantages of Buying an Existing Home
A home is a huge investment, but it can be worth every penny if you find the right place. When it comes to buying a pre-existing home, here are some of the benefits you can expect to enjoy:
- Lower cost: On average, buying an existing home is much cheaper than building one yourself. That’s because you can avoid all the extra expenses that come with the building process, like land loans, construction loans, construction fees and unexpected price increases, to name just a few. With this option, you’ll be working with fewer people throughout the process, making it easier to keep the cost manageable and low.
- Takes less time: Building from scratch can take months (or years), depending on the home’s design. Buying and closing on an existing home can be far less time-consuming, and you’re able to move in as soon as you’ve closed on the house. Although it does still take a good amount of time, that’s simply because you want to guarantee you’re making the right choice and taking every precaution. According to Zillow, it can take about four and a half months to purchase a house from start to finish, but this timeline can obviously vary depending on the situation.
- Convenience: When building a new home, you have to consider every detail, including where to purchase land, the home’s design and all of the fixtures, trims and features you want to include. These decisions are already made when buying an existing home, which can make it a less stressful process.
- More room for negotiation: A real estate agent can help negotiate the price of an existing home so you get the best deal possible. There’s less space for negotiation when dealing with contractors tasked to build a new home, but you have some wiggle room when working with a homeowner interested in selling their space.
- Can make upgrades over time: While an older home may not have every feature you want, you can take time to make upgrades as they become necessary and as you’re able to afford them. Once you buy an existing home, you have the freedom and flexibility to make it your own within your budget and time availability.
Disadvantages of Buying an Existing Home
Although buying a home is such an exciting time, there are cons to choosing this method over building your own. Here are a few factors that you should think about before purchasing an existing space:
- Finding the right option: The housing market is a somewhat stressful world to enter. The demand for existing homes is at an all-time high, and people are snatching properties up the minute they become available. That makes finding your home sweet home a particularly difficult ordeal. It’s also time-consuming to comb through endless trusted home-buying sites and select one that catches your eye and meets your budget.
- Not customizable: There’s no such thing as a perfect house, but building your own allows you to get pretty close to that. By purchasing an existing home, you don’t enjoy the same level of customization that comes with helping a designer draw up the house plans. But, that doesn’t mean there aren’t great homes on the market! With people constantly selling, you’re bound to find a home that fits the bill.
- Less energy efficiency: In older homes, you’re most likely not going to have the latest and greatest energy-saving appliances or technologies installed, which can increase energy and utility prices. Although new construction gives you the freedom to personalize your sustainability efforts, there are still ways to lower your costs in existing homes.
- Maintenance: Sadly, purchasing a home that’s been standing empty for at least a few years will most likely mean something will break or need repairs. Whether you buy a house that’s been around since the 1920s or get one that was built last year, houses need regular maintenance and upkeep to continue working properly. This can result in extra expenses that you didn’t see coming when you bought the home.
The Cost Difference Between Building and Buying
Even after comparing all the pros and cons of both building and buying a home, your decision may come down to cost: What’s going to work best for your budget in the long run? The cost is an extremely important factor to consider — you definitely don’t want to overspend on a project or mortgage that leaves you in debt for years to come.
So, what’s the cost difference between buying a home and building one? Obviously, this number varies based on your location, desired home type and timeframe, but we’ll be looking at the national average cost of built and bought homes.
According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, the average price of houses newly built for homeowners and financed through a mortgage is $528,000, and the median sales price of new houses is $442,000.
As for the average cost of existing houses in the United States, the National Association of Realtors found that to be about $366,900. This is a 2.3% increase from December 2021’s average price, due to the rise in house prices over the past year. Now, this average cost is for all different house types, from one bedroom to seven — so, it may not reflect the actual prices that you’re seeing in your area.
Which Option Is Right for You?
With that knowledge in mind, if you’re attempting to keep your cost lower, then buying an existing home may be your best bet. In addition to being less expensive, you can also close on the home faster, endure less stress and decision-making and make adjustments over time as needed. But, if you’re really want the freedom to customize your home’s design and layout, don’t mind having a longer project time frame and desire a completely sustainable and updated space, then building a home is probably the correct choice for you.
Essentially, it all boils down to your budget, your necessary timeline and the aesthetics that are important to you. These factors (among others) will help you make the right decision. And, don’t stress! Buying or building a home is a huge investment in terms of time, energy and finances, but it’s also a very exciting decision to make.
Beginning the home-buying journey for the very first time can be a bit intimidating, but it doesn’t have to be. Check out the First-Time Homebuyer’s Handbook; it takes you through every step of the process, from pre-qualification to move-in.
Whether you decide to buy an existing home or build new, we can help you with financing. Talk to a Mortgage Banker so you know what to expect.
Post updated. Originally published June 10, 2019.