Is it cheaper to build or buy a house?

Building vs. buying a home: Your guide for deciding between the two

Is it cheaper to build or buy a house? Key tips to remember:

  • Buying a used home is usually much cheaper than building a new one
  • In 2022, new homes are averaging close to half a million dollars
  • New homes shouldn’t need repairs or upgrades for years
  • Used homes may require repairs and upgrades immediately
  • Both new homes and used homes can benefit from a good home warranty

It’s no secret that the 2022 real estate market has been challenging, with prices high and first-time homebuyers often squeezed out by investors with cash. Rates are up, then down, and then up again. What’s an aspirational homeowner to do? You may be considering several options. Is it cheaper to build your own house? The short answer is “not usually, but it’s possible.” The full, nuanced answer to this question depends on the variables discussed in this post. Let’s dig into the pros and cons of building a home vs. buying one.

New-construction home statistics

In the last two years, materials have become more expensive and are not as plentiful. Add labor shortages and lengthened construction timelines, and prices are reflecting these trends. If we’re talking agreed-upon, widely reported Census Bureau stats, the average price of a newly built home jumped nearly $100,000 between 2020 and 2022. On average, the cost of building a new home went from around $400,000 to nearly $500,000. Of that total cost, expect the following:

  • Labor costs usually take up between 30% and 60%.
  • Materials can absorb between 30% and 50%.
  • Construction loan down payments will run you between 3.5% and 20% (or more).
  • Building permits are usually between $1,000 and $2,000. 

Costs of building a new home

Remember, these are average costs. Multiple variables impact the total cost per square foot. If money is tight and you’re still determined to buy, you can always lower costs in several ways. For instance, you can build a tiny home, construct yours with shipping containers, or look into other lower-priced, prefabricated homebuilding options. Meanwhile, can do some work yourself to save on materials and lessen what you spend on these estimated costs: 

  • Buying or clearing land: $10,000-$150,000
  • Interior finishing: $50,000-$175,000
  • Framing: $20,000-$50,000
  • Electrical wiring: $20,000-$30,000
  • Foundation: $5,000-$25,000
  • Plumbing installation: $8,000-$15,000
  • HVAC: $2,000-$15,000
  • Roofing: $6,000-$12,000
  • Windows: $3,000-$10,000
  • Exterior Painting: $2,000-$5,000

Home warranties for new homes

Sometimes, a new home warranty is built into the first year of a homebuying contract. Other times, it’s not. Either way, a new-construction home warranty is an essential part of your purchase or something you’ll want to add immediately. Remember, passing your inspection is not a guarantee of lasting quality, and problems can develop over time. Builders are human and make mistakes, even when they have your best interests at heart. While builders offer warranties, they won’t cover everything, particularly your home’s central systems and major appliances. Here’s more on why investing in a home protection plan is worth your while.

Pros of building a new home

If you’re making a list of all the advantages of building a new home, here’s a good start:

  • You can be picky about customization and get exactly what you prefer.
  • You can get an owner-builder loan and save a lot by hiring your contractors.
  • You’re not forced to pay for features you never would’ve chosen.
  • You won’t have to worry about overbidding or being outbid by other buyers.
  • When everything is new, you shouldn’t have to think about repairs for years.
  • You’ll have better resale value when it’s time to sell because your home is newer.
  • Your home will be more energy-efficient and therefore cost less to operate.
  • The feeling of moving into a pristine, brand-new, move-in-ready home is tough to beat

Cons of building a new home

No list of pros is complete without an accompanying list of cons. For your consideration:

  • Costs have spiked over the last two years, resulting in a much higher price tag overall.
  • Cost overages are likely and frustrating, especially as materials prices fluctuate.
  • Unexpected additional expenses can add up fast, and you’re responsible for all of them.
  • Problems with contractors are common and can bring delays and other challenges.
  • You’ll have to wait, so plan on at least six months to a year before your home is ready.
  • If you’re going with an owner-builder loan, you’ll have a lot more paperwork to deal with.
  • Expect a ton of decisions, down to every little detail, along with a lot of responsibility.
  • Landscaping, which will likely start from scratch, is also your responsibility.

Costs of buying an existing home

You could save $100,000 by purchasing an existing home instead of building. Still, you have to remember that you’re much more likely to encounter many more costs in repairs and upgrades when considering an older home. A good inspector can help you understand how extensive these costs might be. However, you’ll still be on the hook for other expenses, like the following:

  • Down payment: 3.5% to 20% or more of total purchase price
  • Closing costs: Origination fee, appraisal fee, attorney’s fee
  • Property taxes: City and county
  • HOA fees: Per neighborhood
  • Mortgage insurance: Depending on your financial situation
  • Mortgage points: Depending on your financial situation
  • Homeowners insurance: Required of every buyer 

Home warranties for existing homes

Knowing that an older home can appear to be more cost-effective in the current housing market, at least in terms of the purchase price, it makes even more sense to invest in a home warranty to make sure you have the protection you need and deserve. Are you interested in learning more about a home warranty on an older home, which can help you stay within your budget, avoid costly surprises, and achieve and sustain that peace of mind you’re after? Then you may also want to read more about who pays for the home warranty when an existing home sells.

Pros of buying an existing home

Buying an existing home has its advantages. Here’s a list of some to get you started:

  • You can time your offer to take advantage of optimal seasonal deals.
  • You can move when you want to, timing around vacations or school-year sessions.
  • You can move in much faster and avoid waiting for new-home construction.
  • You can do upgrades and repairs on your schedule and as your budget allows.
  • You have more leverage to bargain for a lower purchase price with the seller. *
  • You may benefit from unique features or furniture included with the sale.
  • You may find it much easier to find a home in your area than to find land to build on.
  • Your landscaping is much more likely to include mature trees and shrubs.

Cons of buying an existing home

Like any decision, buying an older home comes with cons, too. Here are some to consider:

  • You won’t have the protection of a new home’s builder warranty.
  • You might need repairs, renovations and upgrades right away.
  • * That buyer’s leverage you hoped to have might not exist in your target market.
  • You’ll need to compromise on your preferences to get close to finding what you’d like.
  • Your older home is likely to be considerably less efficient and more expensive to live in.
  • Your homeowners insurance is likely to be more expensive for an older home.
  • You may find yourself experiencing a few unwelcome surprises, like leaks or mold.
  • Mature landscaping can sometimes mean expensive tree-trimming services.

The bottom line

Sure, used homes are usually cheaper upfront, but costs can end up evening out, so deciding whether to build or buy a home is ultimately a personal decision. While it’s normal to feel a little nervous when making a purchase of this size, don’t decide when you’re feeling overly stressed or rushed. Your gut should tell you that this is the right move for you and your family.

The information in this article is intended to provide guidance on the proper maintenance and care of systems and appliances in the home. Not all of the topics mentioned are covered by our home warranty or maintenance plans. Please review your home warranty contract carefully to understand your coverage.

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