Is it Cheaper to Build Your Own Home or Buy One? Complete Guide

Building vs Buying a Home

Buying your first home is a life experience that every American deserves to experience. Most new homeowners decide on buying existing construction from a previous owner, or they may consider taking a mortgage on a new apartment that’s selling off-plan.

Very few new home buyers decide to build their home from the ground up. For those that do choose to take this route, they have the benefit of customizing their home to the specifications they desire. However, what does it cost to build your home versus buying existing construction?

If you’re planning on buying a fixer-upper, would it be cheaper to build your home instead of spending all that money on remodeling fees?

In this article, we’ll look at the advantages and disadvantages of buying or building your home. Hopefully, by the time you finish this brief guide, you’ll have a clear understanding of which strategy offers a better deal for your new home.

The Advantages and Disadvantages of Building or Buying a Home

Buying your first home may seem like a daunting paperwork process, but if you have a competent attorney and a qualified real estate agent, then you should experience a clean deal. Most new homeowners visit their lender of choice for a pre-approved home loan, usually their bank, a few months before going house hunting.

This strategy allows you to calculate your budget for your new home, including the closing costs and other fees involved with buying the property. Once you settle on a house and make your offer, you could be taking residence in your new home as quickly as two months after signing the agreements.

This level of convenience makes buying a home the ideal choice for anyone that relocating to a new state or country and wants to move their family into a house fast.

The biggest drawback about buying a home is the fact that you can’t customize any of the rooms or fixtures – unless you want to spend thousands of dollars on a remodeling job.

Building your home is a far more exciting experience. You get to sit down with the architect and design the home of your dreams. However, this strategy takes a lot longer than buying existing construction, and you may encounter pitfalls with contractors and council members along the way.

What to Look for When Buying a House

Read: What to Look for When Buying a House

Why Size Matters

According to research, building your home is almost 30-percent cheaper per square foot, when we compare it to buying existing construction. Historical home price data shows that houses built in the 60s have an average floor size of 1,500 square feet, costing around $150 per square foot to purchase.

In contrast, building your home may cost only $100 per square foot, depending on which state and neighborhood you intend to develop. While this may look like building your home is the far cheaper option in theory, in practice – this is not the case.

Most new homes average 2,500 square feet, meaning that they have lower building costs, but the price of the house will be higher than existing construction due to the increased floor space.

You may think that the additional floor space makes up for the increase in costs. There’s nothing wrong with adopting that strategy, as long as you can afford the house. However, if you are on a budget, you can use this knowledge to your advantage and get an architect to design you a small 1.500-square foot home for 30-percent less than existing construction.

The Costs Associated with Building Your Home

Buying an existing home, and fixing it up to meet your needs is an excellent idea that many new homeowners choose to capitalize on when purchasing their first home. Fixing up a home adds to its value, leaving you with more equity in the asset.

You have the option to stay in residence or flip it for a profit. Many young couples fix and flip existing homes to make money, living in the house while they make the alterations. However, you’ll be pressed to find a home for under $150,000 that does not require some serious remodeling. If you are the type of person that has no interest in fixer-uppers, and you want to move into your perfect home, ready for use from day one, then a fixer-upper is not for you.

Building a home is a far more extensive preparation process. It’s not as simple as picking a location and pointing to a picture in a magazine. We decided to give you everything you need to know about building a home. Review the list and see if you have what it takes to develop your residence instead of buying existing construction.

Buying Land

Building your home requires you to buy some land. This situation presents a double-edged sword, depending on the circumstances. If you’re trying to develop in California, then you are going to have a hard time finding open lots in areas like San Francisco. Even if you do manage to find a large plot, you can bet your bottom dollar that it will cost a small fortune.

If you’re looking to build a home in these densely populated areas, then you may as well throw your dreams in the dustbin and start searching for existing construction to buy. However, moving to states like Maine make it affordable to purchase land and build your home. Some plots in Maine go for as little as $20,000 for a few acres.

Rural areas will always be cheaper than plots in the suburbs of busy towns – making the right purchase decision is all about filling your needs. Therefore, if you’re working in the tech sector in Silicon Valley, it’s probably a better idea to buy rather than build your home.

However, if you’re out in the country, or you live in a less densely populated part of the country, building your home could offer better value for your money.

Building Loans

If you’re planning on buying existing construction, then purchasing your house is as easy as applying for a pre-approved loan at the bank, and then going house-hunting for something in your price range. However, lenders do not issue mortgages on plots of open land.

As a result, you’ll need to apply for a building loan for a financial institution or lender. These facilities have more in common with a credit line than a mortgage. Banks issue you the loan, and you draw down on it based on your current building expenses, leaving the rest in the account.

You only pay interest on the money you use, and the duration of the loan determines how much time you have to complete your construction. Most building loans come with a 12-month facility for drawdowns before the lender shuts down the account and starts charging you for the money used in the loan period.

Some building loan companies offer moratoriums on their loans. Using this strategy allows you to benefit from no payments to the lender during the loan term. After the period ends, you pay off the loan like you would a mortgage – with monthly payments on the outstanding debt.

You can use the funds for any building-related costs, including pouring a foundation, constructing the frame, and laying the roof. Most lenders require you to submit an invoice from a supplier or contractor before they release the funds into your bank account for use in the construction of your home.

Building loans typically cover amounts used for building on land that already has utilities and sanitation installed. However, if you want to develop on land that has no existing services, then you may need to apply for a raw land loan.

Lenders consider these deals as risky, so prepare to pay up to 50-percent of the cost of the land for your down payment. However, raw land is far cheaper than developed property, and you can probably pick it up for a more affordable price that offsets the more substantial down payment.

Getting on the Grid

Buying new or existing construction can save you time and money with managing your utilities. All you need to do is make your monthly payments, and the lights stay on in your home. However, if you’re building on raw land, then this is where the job can get expensive.

Let’s review the utilities you’ll need to install on your land for your new development.

  • Sewage – According to data from Home Advisor, the average cost for septic tank installation is between $2,738 and $8,186.
  • HVAC – If you’re living in an area of the country like Maine, then you’ll need heat for the wintertime. Installing a whole-home HVAC system can cost you anywhere between a few thousand dollars, up to $14,000 – depending on the size of your home.
  • Electrical Systems – you’ll need to hire professional electrical contractors to rig the lights and electrical outlets in your home. This task can cost a few thousand dollars – call around to different contractors to get the best price.
  • Landscaping – Many new homeowners don’t realize the cost of a yard. The chances are that you aren’t going to be happy with a pact of dirt for your garden, so hiring a landscaper is a must. The cost of plants and landscaping can become astronomical, so ensure you get competitive quotes from multiple contractors.

Living Off the Grid

With the current state of infrastructure in the United States, many new homeowners are making a move to take their home off of the grid. What does this mean? Going off the grid means that you no longer rely on local services for your utilities.

Some homeowners choose to do a partial off-grid installation, and they may decide only to install renewable solar power in their home while leaving the connection to the municipal water supply.

However, some people decide to drill wells for their water and use composting toilets for sanitation. This strategy takes them off the grid entirely.

This strategy works for both new builds and existing structures. Here’s what you need to make your home a self-sustaining environment.

  • Solar panels – This is the most significant expense related to installing renewable power in your home. Good quality solar panels can cost anywhere up to $14,000 for a whole-home installation.
  • Batteries – You’ll need a bank of 5 to 10 deep-cycle batteries with capacities of 100MAH or more. These can cost up to $200 per unit.
  • Inverter – a 5Kva inverter capable of running your home power needs will set you back anywhere between $500 to $1,000.

Hire a Contractor or Do It Yourself?

If you decide to build your home, then you need to ask yourself if you will be taking on this task yourself., or hiring a contractor to do the work for you. When it comes to fixing up and existing home, it’s possible to do things like changing the flooring, refurbish the HVAC and paint the walls yourself.

However, building a home from the ground up requires the expertise of electricians, architects, and engineers. If you don’t have all of those skills, then you’ll have to hire a professional, and top-quality contractors come with expensive hourly fees.

Wrapping Up – The Verdict

We are still on the fence as to whether or not it’s cheaper to build or buy your home. It’s a complicated answer, and the results depend on your goals and ambitions when purchasing your home.

While there are plenty of factors that go into buying or building, studies show that buying is almost always cheaper than building. Research from 2017 shows that the median home price to buy your house was $223,000, while the median cost to build was $289,415.

This figure equates to an average difference of over $66,000 for building versus buying. However, it’s also important to note that building your home means that your floor space could be 30-percent bigger for the same costs.

The choice of building or buying your home comes down to where you plan on living, and what your expectations are for your home. If you’re living in a crowded suburb, then it’s probably better to buy your house. However, if you’re planning on moving to the country, then a new build might be the best option for your new home.

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Oliver Dale is Editor-in-Chief of MoneyCheck and founder of Kooc Media Ltd, A UK-Based Online Publishing company. A Technology Entrepreneur with over 15 years of professional experience in Investing and UK Business. He built Money Check to bring the highest level of education about personal finance to the general public with clear and unbiased reporting.


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