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Is it cheaper to build or buy a house?

A housing development under construction
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Building a home rather than buying one allows you to customize it to your needs, among other advantages. However, construction timelines have lengthened due to material and labor shortages, and this trend is being reflected in rising sale prices. The average price of a new-construction home in January 2022 was $496,900, up from a pre-pandemic $402,300 in January 2020, according to the U.S. Census Bureau.

Key new-construction home statistics

  • Average price of new construction home pre-pandemic (January 2020): $402,300 (U.S. Census Bureau)
  • Average price of new construction home now (January 2022): $496,900 (U.S. Census Bureau)
  • Labor costs: 30%-60% of project (HomeAdvisor)
  • Materials cost: 30%-50% of project (HomeAdvisor)
  • Building permit cost: $1,200-$2,000 (HomeAdvisor)
  • Construction loan down payment: 3.5%-20% or more

Costs of building a home

The costs of building a home include labor, supplies, permits, architectural drawings and inspections. You can cut down on expenses if you do a lot of the work yourself and select cheaper materials. Overall, the cost of building a home is largely contingent on how much you choose to spend on each component of the project.

Source: HomeAdvisor
Construction cost Price range
Buying land $3,000-$150,000
Clearing land $1,500-$5,000
Framing $20,000-$50,000
Plumbing installation $7,000-$15,000
Electrical wiring $20,000-$30,000
HVAC $1,500-$13,000
Foundation $4,000-$25,000
Roofing $5,600-$11,500
Windows $3,000-$9,300
Exterior painting $1,800-$4,400
Interior finishing $50,000-$175,000

Costs of buying a home

The costs of buying a home include:

One of the most significant upfront costs of buying a home is the down payment, the portion of the home’s purchase price that you pay upfront. In addition, when you apply for your mortgage, you’ll need to pay for a number of services, ranging from appraisal fees to attorney’s fees. These closing costs add up to 2 percent to 5 percent of the amount that you’re borrowing. Once you’re a homeowner, you’ll also be responsible for taxes and insurance, and you’ll need to be prepared for occasional repairs and upgrades.

A chart illustration of home prices
Austin Courrege/Bankrate

Pros and cons to building a home

Pros of building a house

  • Get exactly what you want – Building means customizing. Instead of wishing your home had a certain kind of flooring, a sunroom or some other special amenity, you’ll be able to tailor the property to your exact needs. You also won’t be limited to a specific location or neighborhood.
  • Avoid the hassle of competing offers – When you build a home, you take the back-and-forth with other buyers out of the equation. You also won’t have to worry about overpaying because the price isn’t being bid up by numerous offers.
  • Move-in ready – When everything in your home is new, you shouldn’t have to worry about any major repairs (at least at the outset).
  • Wider market appeal – Your home is ultimately an asset, and when it comes time to sell, a newer structure could give you a competitive advantage.

Cons of building a house

  • More time – While you’ll save time on attending open houses and scouring online listings, you’ll have to wait to move into your brand-new home. It takes just short of seven months from start to completion to build a single-family home, according to 2020 data from the U.S. Census Bureau. If you’re paying rent during that time, that’s an extra cost to consider, too.
  • More decisions – A blank canvas means you can customize your home, but it also means you’ll have a lot of decisions to make. If you’re busy with work and family, it can be challenging to focus on every piece of the construction process.
  • Contractor challenges – Delays, miscommunication and issues with subcontractors — there are plenty of hiccups that can happen while building a home. Be sure to vet a few different builders to understand their work approach and timeline, and be prepared for speed bumps. Include time of essence, continuous manning and right to remove clauses in your contracts with the pros you hire — these can help protect you in the event of delays or non-performance.
  • Cost overruns – While you’ll have a budget in mind at the beginning of the project, there will almost always be expenses you didn’t anticipate, or materials you end up spending more for, that can add up to well above what you first set out to pay. Be aware of change orders, which could be a sign of an unscrupulous contractor. Make sure you understand the builder’s plans, finishes and specifications before signing an agreement.

Pros and cons to buying a home

Pros of buying a house

  • Faster move-in time – Buying an existing home means you can put a move-in date on the calendar much earlier compared to constructing one from scratch.
  • Potential bargaining power – With existing real estate, you might be able to leverage data to get a better price. For example, if a home you like has been on the market for more than 30 days, the seller could be willing to come down on price, or if a similar property in the area is priced lower, you can use that to justify a lower offer.
  • More options – If you’re set on living in a specific area, it might be easier to buy a home there than to try to find a lot to build on.
  • Ability to budget for renovations over time – You can make upgrades to an existing home as your budget and time allows, rather than having to focus all of your resources on a major, months-long project.

Cons of buying a house

  • Potential market competition – That bargaining power mentioned in the pros? It might be zero, depending on where you’re looking. According to a recent Confidence Index from the National Association of Realtors, sellers received an average of about four offers. In a hot seller’s market, buying can feel like being at an auction as others drive up the price.
  • Older appliances and internal systems – While it’s a new house for you, it’s technically been used. Depending on the age of the property, you might need to pay for repairs sooner than you expect. Your insurance rates will likely be higher than what you would pay to protect a new home, too.
  • Compromises – The odds of finding your dream home in reality are low, so you’ll have to be willing to compromise, such as having one fewer bedroom, when you find a home in your price range.
  • No builder warranty – New-construction homes typically come with a builder’s warranty that offers some protection from major problems. With an existing home, especially an older home, you likely won’t know who completed the job and won’t receive any guarantees for parts, labor or workmanship.

Should you build or buy a house?

As you consider whether building or buying a home is right for you, it’s important to recognize that both processes include plenty of costs and potential stressors. The end result, though, should feel well worth it. Think about the existing properties you’ve toured, your timeline for moving in and your expectations for this new home. If building is your route, enjoy watching that dream home come to life. If buying seems like the better move, follow this guide on how to get the best mortgage rate.

With additional reporting by David McMillin

Written by
Ruben Caginalp
Associate writer
Ruben Çağınalp is an associate writer for Bankrate, focusing on mortgage topics.
Edited by
Mortgage editor
Reviewed by
President, Real Estate Solutions