Is it cheaper to build or buy a house?
With the median sale price for a home above $428,500, you’ll want to make sure you’re spending your money on a home that meets your needs.
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Micah Murray has over six years of experience in personal finance. His work has been published by Newsweek Vault, New York Post, and Bankrate.
Updated September 13, 2024, 3:12 PM EDT
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Senior editor, Credible
Reina Marszalek has over 10 years of experience in personal finance. She is a senior mortgage editor at Credible.
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If you’re considering homeownership you might still be deciding whether it’s cheaper to build or buy a house. According to July data from the National Association of Home Builders, the median price for a newly constructed home was $429,800 while an existing home was $428,500. To make your choice in the battle of buying vs. building a house, you’ll want to consider factors like your budget and timeline.
What are the costs of building a house?
Home construction costs can add up quickly, with many who choose to build easily spending hundreds of thousands of dollars before their home is complete. Although you might qualify for construction loans that can help you cover the upfront costs, you’ll need to account for all of these expenses when planning to build:
Land
Often the first purchase in the house-building process, the cost of buying land is significant. The actual amount you’ll pay depends on the location, size, and whether it’s ready to be built on. If you buy land not prepped for building, you’ll also want to account for expenses like land clearing and grading, which could cost between $1,399 and $6,159, HomeAdvisor reported.
Project management and labor
If you don’t plan on completing your home build entirely on your own, you must prepare for project management and labor costs. General contractor and project manager fees vary widely depending on how complex the work that needs to be done is and where you’re building. In addition to hiring someone to oversee your home build, you’ll also need to account for labor costs to cover all the workers building your home.
Architect and design fees
Whether hiring an architect or a designer, you’ll need to pay someone to draft blueprints for your home. This cost will depend on the type of home you’re building, how big the house will be, and if any obstacles need to be designed around. Angi reported an architect’s fees could range from $2,189 to $11,643.
Permits and licenses
You’ll need to get permits and licenses, depending on local regulations, before your home build can begin. These might include building permits, environmental permits, and zoning permits. If you’re working with a project manager, they can help you navigate this process.
Foundation
Your home’s foundation will cost you, requiring excavation, concrete pouring, and steel reinforcement. The cost of your foundation will depend on the price of labor, soil conditions, and the type of foundation you need.
Framing
Framing shapes and supports your home (think of it like a skeleton for your home) and includes your walls, floors and roof. The cost of framing varies based on factors like the price of materials, the size of your home and the cost of labor.
Exterior finishes
Finishes like siding, windows, doors and roofing can add up, especially for large houses. How much you’ll pay for exterior finishes will depend on the type and quality of the materials you choose.
Plumbing and electrical installation
Plumbing and electrical will need to be installed and connected to ensure you have running water and power to your home. Plumber and electrician fees vary based on experience, location and the difficulty of the project.
Heating, ventilation, and air conditioning (HVAC)
To keep your home comfortable and ensure the air is clean, you’ll need to pay for HVAC installation. You’ll have many different choices, with more intricate systems costing more.
Interior finishes
The overall look of your home’s interior will depend on the interior finishes you pay for. This includes flooring, backsplashes, molding, appliances and more.
Landscaping
After your home is built you might choose to improve its exterior by adding grass, trees, walkways and outdoor lighting. You’ll need to pay a landscaping company to install your landscaping, unless you plan to do it yourself.
What are the costs of buying a house?
Buying a home comes with many costs, but not quite as many as building a home. Still, you’ll want to account for the following in your budget:
Earnest money
Earnest money is a deposit made to the seller to show you’re serious about purchasing their home. This money is held in an escrow account until closing, when it’s applied toward your down payment or closing costs.
Down payment
A down payment is an upfront payment toward your home that reduces the balance of your home loan. Depending on the loan type and what the lender specifies, down payment requirements often range from 3% to 20%. If you’re buying a home that costs $428,500, the down payment could be between $12,855 and $85,700.
Closing costs
Closing costs are fees paid at closing that cover appraisal fees, title insurance, attorney fees, title searches, and loan origination fees. These fees will need to be paid out of pocket and are typically 2% to 5% of the home’s sale price. For a $428,500 home, you should expect to pay $8,570 to $21,425.
Home inspection
If you opt for a home inspection, which involves a professional inspecting your home for potential issues, you’ll need to cover the cost. Home inspection fees vary depending on factors like the size of the property and its location.
Property taxes
Property taxes are ongoing expenses for homeowners, but you should plan on paying them as soon as you take ownership of the home since they are usually included in your monthly mortgage payments.
Homeowners insurance
Homeowners insurance protects your home against damages and losses, with a wide range of policy premiums based on your home’s value, its location and the type of coverage you have. Homeowners insurance is typically required by lenders so you’ll need to show proof of coverage at or before closing.
Private mortgage insurance (PMI)
PMI protects your lender in case you default on your home loan. Not everyone is required to pay PMI, but if your down payment is less than 20%, your mortgage lender might require it.
Homeowners association (HOA) dues
If you purchase a home that is covered by an HOA, you’ll need to budget for membership dues. These fees vary depending on your home’s location and the amenities the HOA provides.
Pros and cons of building a house
While building a home can be an expensive process, it gives you the chance to customize your home the way you want. Here are some benefits and drawbacks of building a house:
Pros
- More customization: You can choose every detail of your home, from the type of foundation it will have to the color of the grout on your kitchen backsplash.
- You can choose the land: Since you’ll need to buy the land your home will be built on, you can choose exactly where you want to live and what features the property has.
- Won’t need to be updated: By building a new home, you can avoid having to make home improvements when you move in.
Cons
- Higher upfront costs: Building a new home comes with higher upfront costs like clearing a land and hiring an architect. It can be a hefty amount to pay upfront if you plan to pay cash and avoid construction loans.
- Delays are common: During the construction of your home, you’ll need to account for delays. These can happen for many reasons, including labor shortages and building materials being back-ordered.
Pros and cons of buying a house
If you’re looking for a home that you can move into right away, buying a house might be more appealing. Here are some pros and cons to consider
Pros
- Quicker than building: Buying a home is often a quicker process than building a home, getting you in your new house sooner.
- Lower upfront costs: Compared to building, buying a house typically comes with lower upfront costs, making it a more accessible path to homeownership for most people.
- Easier process: In most cases, the homebuying process is easier to navigate. This is especially true if you work with a loan officer and a real estate agent who specializes in your local real estate market.
Cons
- Might need to be updated: Depending on your preferences and the condition of the home you buy, you might need to make aesthetic or structural improvements to a purchased home.
- Little to no customization: Since the home will already be built, you’ll usually have to wait until after the sale to make customizations.
How to decide if building or buying is right for you
Building vs. buying a house is a difficult decision, with many factors to consider. To decide which is the right one for you, ask yourself the following questions:
- How quickly do I want to live in the home? Buying a home usually comes with a much shorter timeline than building a home. If you want to move into your new home quickly, buying might be a better option.
- Am I willing to make home improvements to a home I buy? If you buy a home, especially with a smaller budget, you might need to spend time fixing it up to make it fit your needs.
- Can I afford to build a home? If you can’t afford the cost of building a home, your best path to homeownership might be buying a home.
- If I can’t afford to build out of pocket, can I qualify for a construction loan? Qualifying for a construction loan requires you to meet stricter eligibility requirements than other home loans. You’ll typically need a credit score of 680 or higher, a debt-to-income ratio (DTI) of no more than 45% and a down payment of at least 20%.
Is it cheaper to build or buy a house FAQ
What factors influence the cost of building a house?
The cost of building a home varies and depends on factors like the price of labor, the type of material being used, and how difficult the design is to build. Generally, the higher the quality of the materials and the labor installing it, the more you can expect to pay.
How long does it take to build a house compared to buying one?
Building a home can take anywhere from a couple of months to a year or more, depending on your builder’s schedule, how long it takes to source building materials, and the permitting process. Buying a home can be done much quicker, with many homebuyers going to the closing table in a month or two, as long as there aren’t any delays.
Can you get a mortgage for building a house?
Yes, you can get a mortgage for building a home, often called a construction loan. Construction loans usually start as short-term loans, which are disbursed in stages as your home’s construction progresses. They are converted into a mortgage after the home is finished.
What are the hidden costs of buying a house?
Buying a house comes with many costs, and it’s easy to be surprised by a price you didn’t know you’d need to pay. Often, hidden costs of buying a home include agent commission fees if the seller doesn’t agree to pay them, appraisal fees, home inspection costs and earnest money.