If you’ve spent time looking for a house but haven’t found the perfect one, you might start wondering about what it would take to build your own home. Surprisingly, the cost to build a house might be lower than you think, and the financing options available make building a house easier than ever, too.
So, how much does it cost to build a house? According to the National Association of Home Builders, the average cost to build a new single-family home is $237,760. This only takes into consideration the cost of construction and doesn’t include the purchase of land, financing costs, sales or marketing.
Cost breakdown of building a home
You’ll need to take into account a number of factors to calculate the cost of building a home, from the actual construction of the home to additional non-construction expenses. Each piece of the puzzle needs to be considered to get an accurate estimate of the cost of building a house.
- Pre-construction costs: You’ll need to secure the appropriate permits and pay fees to your city or municipality before the work on your home can begin. You’ll also need to hire architects and engineers to make plans for your home. These costs all vary by location, but the average total is around $15,000.
- Foundation and framing: The structure of your new home is a major part of the cost and can add over a quarter of the total construction price. Overall, you’re looking at around $67,000 for foundation and framing.
- Exterior completion: You’ll have to complete the exterior with a roof, siding, windows, and doors once the frame of your house is in place. The average cost is about $33,000.
- Electrical, plumbing and HVAC: The infrastructure that heats your house and provides water and electricity is an essential part of your home. Most homeowners spend in the neighborhood of $33,000 to have all of these components installed.
- Interior completion: From insulation and drywall to cabinets and flooring, finishing the interior of your home is the most expensive part of the project. The nationwide average cost is $68,000 to complete work on the interior of a home, but this can go up significantly depending on your purchase decisions.
- Outdoor structures: Most homes have driveway and many also include a deck or patio and some form of landscaping. These items might seem trivial but they add up quickly. Homeowners spend an average of $17,000 in this category.
- Additional expenses: The cost to build a house doesn’t end with construction. There are a few additional significant items to factor into your budget. These include the price of the lot ($92,000 on average), financing costs ($8,000), overhead expenses ($22,000) and sales commission and marketing costs ($23,000).
How to plan building a home
Where do you start once you’ve decided to build a house? If you’ve already asked yourself “how much does it cost to build a house?” and determined that the price of construction is worth it, the next step is to explore financing options.
If you have a rough estimate of the cost to build a house, you can go to a financial institution and ask to be pre-approved for a certain amount. Once you’re approved, it’s time to start working with a real estate agent to find a lot and contact an architect and a builder to make plans. A good team of professionals will be able to work within your budget so that the cost of building a house won’t exceed what you can afford.
Tips to save on building a house
The best way to save on building a house is to get multiple quotes during every step of the process. Talk to multiple real estate agents, architects, builders and designers and ask each for a written estimate. If one quote is significantly cheaper than the rest, find out why before signing on the dotted line. You don’t want to blindly pick the least expensive option; it could leave you with a poorly built house that requires frequent emergency repairs or costly add-ons that weren’t included in the initial quote.
You can also save money by doing some of the work yourself. For example, instead of hiring an interior designer, think about choosing the interior finishes yourself. Just be prepared for a significant time investment if you decide to take this route, as you’ll be responsible for choosing everything from flooring to paint to countertops.
Home building financing options
The majority of homeowners can’t afford to pay out of pocket for the full cost of building a house. Luckily, there are home building financing options available to potential homeowners and many of those options offer competitive interest rates and attractive incentives.
You probably won’t come close to financing the entire cost of building a house with a personal loan — the loan amount will be capped for most people at much less than the cost of a house — but there’s no harm in using this method to pay for specific projects. For example, if you’ve already secured a certain amount of financing for the construction of your home but need additional financing for landscaping, a personal loan could do the trick. Just keep an eye on your finances and make sure you’re not overcommitting when it comes time to repay multiple loans.
Home equity loan
If you already own a home and want to build another one, you may want to consider using a home equity loan on your first house to finance all or part of the second. The amount you can borrow will depend on how much equity you have in your current home. If you own it outright, you might easily be able to finance the majority of your new home. Once construction is complete and you move into your new home, you can use the money from the sale of the first house to pay off the home equity loan.
Home equity line of credit
A home equity line of credit (HELOC) is another good option for financing the cost of building a house, provided you already own a home and have a significant amount of equity in it. Like a home equity loan, you’ll borrow against the equity in your current house to procure financing to build a new one. The difference is that a HELOC acts more like a credit card than a lump sum loan and you’ll be able to borrow from the line of credit as needed, up to the amount that you’re approved for. You’ll have more flexibility and can choose how much you actually borrow from a HELOC, and you can pay it back and borrow again as needed. This is highly advantageous when constructing a new home since costs often fluctuate and additional unforeseen expenses can come up at any moment.
Home construction loan
By far the most common form of financing the cost to build a house, home construction loans are designed exactly for this purpose. There are two main types: construction-to-permanent loans and stand-alone construction loans. Construction-to-permanent loans are a single loan that covers the cost of land purchase and construction, eventually functioning in the same way as a mortgage. Stand-alone construction loans only finance the construction of your new home and require you to take out two separate loans, which can lead to higher fees and interest rates. However, stand-alone loans might make more sense if you currently own a home and plan to sell it and use the proceeds to pay off the loan on your newly constructed home.