Is It Cheaper To Build or Buy A House?: The Pros, Cons And Prices You Need To Know

The home build prices listed in this article are based on the most recent information from HomeAdvisor, as of September 16, 2022. The median home sale price is based on the Census Bureau’s most recent Monthly Residential Sales Report, published August 23, 2022, for July 2022.

 House hunting can be an exciting experience, but it’s hard to find a home with everything you want and need, from location to staying within your budget to having all the unique features and finishes on your wish list. You may be tempted to just start from scratch and build your own home. Building a home from the ground up is rewarding, but is it as easy or cost-effective as you might hope?

Let’s look at the pros and cons of building a house versus buying a house. We’ll review the cost of each option to help you decide which is best for you and your budget.

Is It Cheaper To Buy Or Build A House?

According to the U.S. Census Bureau, the median home sales price in August 2023 was about $430,300. On the flip side, the average cost to build a new home is about $298,868, typically ranging from $113,399 – $485,755.

As you consider your options, remember that these are averages. How much it will cost to build your home will depend on several factors, including the build you choose, the land, the home’s size and location and the level of customization.

Costs To Consider When Building A Home

There are three main types of home builds you can choose from. Each has a different impact on how much it costs to build a house:

• Manufactured homes: A manufactured home is built in a facility and transported to the home’s location in one piece.
• Modular homes: A modular home is also built in a facility. The home’s individual parts are built and then transported to the home’s building site, where they are assembled and placed on a permanent foundation.
• Site-built homes: Also called a stick-built house, a site-built house is built from scratch on its permanent location. Site-built homes are usually the most expensive type of homes to build.

But no matter what type of house you build, you need to buy the land to build the home on and pay to prepare the land for construction, which may include clearing trees, connecting to water and sewer systems or building a foundation.

You’ll also pay for interior and exterior finishes once the home is built. And keep in mind that the more customizing you do in the home, the more expensive building a home gets.

Supply chain issues may lead to ballooning construction costs and unforeseen price increases. Stay in constant communication with your builder and prepare to discuss any changes in cost as they come up.

Additional costs to consider when building a home include:

• Installing a driveway
• Building a garage
• Creating outdoor decks or walkways
• Purchasing appliances
• Hooking up utilities, like water and electricity
• Handling waste removal

When you build a home from the ground up, moving in can take considerably longer than it would if you bought an already-built, move-in ready home. The U.S. Census Bureau estimates it usually takes around 7 months to build a home from start to finish.

Depending on your living situation, you may need to arrange temporary housing while your house is being built. And it can get expensive, especially if you’re forced to wait because of unexpected delays.

Costs To Consider When Buying A Home

There are more upfront and recurring costs when you buy a house. How much money you need to buy a house will depend on your situation. Typical home buying costs include:

• Down payment
• Closing costs
• Home inspection
• Appraisal
• Title fees
• Credit report fees
• Real estate agent commission

Of course, you’ll need to budget for the big-ticket recurring fees, including your monthly mortgage payment, mortgage insurance (if any), homeowners association fees (if any) homeowners insurance and property taxes, to name a few.

Save time and save yourself from future heartache. Before you start your house hunt, figure out how much you can realistically afford in a house.

Pros And Cons Of Building A House

New construction homes can be an adventure. And like any adventure, you’ll experience your fair share of ups and downs.

Here are a few pros and cons to building a home:

Pros Of Building A House

Building a custom home offers many different benefits right from the start. Here are a few of the top advantages of building your dream home:

• You’ll get the features you want. The biggest advantage of building a home is that you can get exactly what you want as long as it fits in your price range. Since you’re building from the ground up, you can customize the home by creating the layout, choosing the flooring, picking the colors and customizing features to meet your needs.
• Construction methods have improved. Newer homes are built to meet current building codes, are more energy-efficient and have updated features.
• You can pick your builder. When you’re building a custom home, you’ll be able to hire home builders that you can trust to bring your vision to life.
• You’ll be the only owner. You’re the first owner of your home and have a hand in creating it. You’ll never have to worry about any maintenance previous owners may have overlooked.
• There’ll be less maintenance. You shouldn’t have to worry about repairs and replacements any time soon because everything is new. Even better, many of your appliances will still be covered by the manufacturer’s warranty, saving you money if things do break unexpectedly.
• You won’t deal with bidding wars. There’s no competition with other home buyers. This means you won’t have to spend time negotiating with sellers or bidding against other interested buyers.
• It’ll have better building materials. New homes won’t be built using toxic materials like asbestos or lead paint. You and your family will be able to reduce your exposure to potentially hazardous substances.

Cons Of Building A House

Though building a home is a great option, it’s not without its challenges. Here are some of the downsides of building versus buying a house:

• It can take longer. Because you’re building a home from the ground up, it can take much longer to move in than if you were to buy an existing home. The U.S. Census Bureau found it typically takes about 7 months to build a home from start to finish.
• You’ll have to find a place to stay. Since you can’t move into the home until it’s finished, you’ll have to find somewhere to stay until construction wraps up. That can add a significant expense to your budget.
• Unexpected costs may pop up. Supply chain issues may lead to unexpected costs and price increases if you aren’t careful. You’ll need to stay in communication with your builder and be prepared to discuss any changes in cost as they occur.
• It’s a hands-on process. You’ll have a lot of decisions to make from plotting out the land, creating a floor plan and choosing building materials, finishes and colors. This means you’ll have to be involved from day one and can’t rely on the home builders to take care of everything for you.
• Landscaping will be brand new. You’ll have to create a new landscape which can be extra work or expensive if you don’t have a green thumb.
• The prices are hard to negotiate. While you don’t have to deal with a seller, you may not have the opportunity to negotiate a lower price. Remember, the builder has to pay for materials, labor and other incidental costs for the project. That means they’ll have less wiggle room on their prices.

If you decide to build, find a professional home builder you can trust. Don't hesitate to shop around to find someone who can affordably execute your vision.

Pros And Cons Of Buying A House

When you weigh the pros and cons of buying a home, it often boils down to whether you’re willing to compromise on your dream home and how affordable homeownership will be.

Here are a few things to consider:

Pros Of Buying A House

As exciting as it may be, building a home can also be a taxing and stressful experience. Buying an existing home offers several advantages over building one from the ground up. Here are a few benefits you need to be aware of:

• Buying can be less stressful. When you buy a home, you won’t have to deal with the stress of purchasing land, working with a builder, making all of the design decisions and doing everything while staying within your budget.
• You’ll have a faster move-in time. You may be able to move in sooner since it takes less time to purchase and close on a home than to build one.
• The home comes with established landscaping. You won’t need to grow a lawn or wait for trees to mature since your home will most likely already have landscaping.
• There may be more flexibility on price. You may be able to negotiate a lower sale price with the seller since you’re not having to pay for labor or for the building materials themselves.
• You can upgrade slowly. You can make upgrades while you live in the home when you have time and money to make them. This allows you to prioritize certain upgrades and makes it easier to identify which parts of the home you want to change.

Cons Of Buying A House

Though buying a house can be cheaper and easier than building a new home, it’s not a perfect option for everyone. Here are a few of the downsides of buying a house rather than building one:

• You’ll have to compromise. When you buy a home, you most likely won’t get everything on your wish list and you may have to compromise on a few things if you want to proceed with the purchase.
• Everything might be older. Buying a home means you may end up with older appliances, pipes and electrical systems that may require more maintenance, repairs and replacements sooner.
• You may have to compete for the home. If you’re looking in a sought-after neighborhood or are buying a home in a seller’s market, you’ll have to compete against other buyers for the property. This can drive prices up and make it harder for you to get into the home of your dreams.
• You may have higher utility bills. Since your heating and cooling system is likely older, it may be less efficient. This may result in higher energy costs throughout the year.

Is It Better To Build Or Buy A House?

Whether you buy or build a new home, you should be in the best financial position to take advantage of either option. Start by looking at your finances. Then, whether you build or buy, use our home affordability calculator to estimate monthly expenses by location.

At a minimum, homeownership will require at least a steady job and enough money saved to cover upfront and recurring costs. You’ll also need an emergency fund to cover unexpected expenses.

If you’re confident your finances are in good shape, start thinking about which option is right for your goals and budget.

Questions To Ask Yourself

Everyone’s situation is different. Some hopeful homeowners may benefit more from buying a house than building one. To decide whether you’re the building or the buying type, you must ask yourself some key questions:

• How long can I wait to move in?
• Am I a decisive decision-maker? Will I enjoy choosing the layout and all the home’s features and finishes, or will the responsibility stress me out?
• Do I want everything in my home to be brand new?
• Do I want everything on my wish list, or is there room to compromise?
• Can I maintain new landscaping and wait for the grass and trees to grow?
• Do I have enough money to pay for home repairs or replacements if I purchase an older home?
• Does it bother me that the home has a previous owner?
• How much home can I afford?
• After calculating the total cost of building a custom home, will it be cheaper to build a home or buy a home within my budget?

Once you’ve answered these questions, you’ll have more insight to help you decide whether buying or building a home is the right choice for your needs and homeownership goals.

How To Pay For Your New Home

Some of you will buy a move-in ready home. Some of you will build a home from scratch. But all of you will need to decide how to pay for your choice. Knowing what you can afford and creating a budget is one thing; financing your journey to homeownership is another. The type of financing you choose will depend on whether you decide to buy or build your home.

Financing An Existing Home

When you buy an existing home, you have two main choices: Pay with cash or finance the purchase with a mortgage, which is money you borrow from a bank or lending institution to purchase a home.

When you take out a mortgage, your lender pays for the home upfront after you make an initial down payment. In exchange, you pay back the money with interest in regular, monthly installments over an agreed length of time.

Mortgage qualifications vary by loan type. However, there are some basic requirements you’ll need to satisfy for any mortgage.

First, you’ll likely make a down payment. Depending on the loan, you may need to make a down payment that’s at least 3% – 3.5% of the home’s purchase price.

Second, you’ll typically need to meet a lender’s qualifying debt-to-income ratio (DTI) and minimum credit score requirements. A lender will also require you to verify that your source(s) of income is steady.

Financing A New Build

A new build must be financed through a construction loan because you can’t get a mortgage on a home that doesn’t exist yet.

A construction loan is a short-term loan that disburses money at different stages of the building process. A new construction loan pays for the costs associated with building a new home, including permits, contractor work, framing and foundation costs, interior finishes and other building materials.

Construction loans last about 1 year and usually have higher interest rates and different qualification requirements from standard mortgages. Your lender may ask you to supply a construction timeline, planned budget and building plans as part of the application process.

Once the home is built, you can refinance your new construction loan into a permanent mortgage. You must meet typical mortgage qualifications and any additional lender requirements to refinance.

For example, your property may need to be entirely constructed by closing, and you may need to supply a final certificate of completion and a photo of the completed property. The lender may also request an appraisal and final inspection before closing.

If you’re considering a manufactured home, you should know that some lenders don’t finance manufactured homes. Rocket Mortgage^® provides financing options for manufactured homes that meet these conditions:

Manufactured on or after June 15, 1976, and has a Department of Housing and Urban Development (HUD) tag

Attached to a permanent foundation

The title lists the home as real property attached to the land it sits on

FHA loans for manufactured homes require a foundation inspection, according to the guidelines set in the Permanent Foundations Guide for Manufactured Housing. You may be allowed to use a prior inspection to qualify for a purchase loan.

FAQs About Building Vs. Buying A House

If you’re still on the fence between buying and building a home, here are a few common questions you can ask yourself to help with the decision.

How much does it cost to build a house?

In 2022, the average cost to build a house ranges from $111,696 – $450,911. When comparing the cost of building a new home versus buying an existing home, you’ll also have to budget for land, floor plans and more.

Is building a house cheaper than buying?

If you already own prepared land, building a house can be cheaper than buying an existing home, though that can vary depending on factors like the state of your local market and the kind of house you build.

Is it cheaper to buy land and build a house than it is to buy in a new development?

It can be cheaper to buy land and build a house from the ground up, but it depends on where you’re buying land, the types of improvements that need to be made to the property, and the type of home you want to build. In some areas, it may be cheaper to buy in a new development.  

The Bottom Line

Building or buying a new home is a big undertaking for any prospective homeowner. There are many factors to consider before deciding on the path you want to take.

If you’re ready to put down roots – and money – on an existing home, the next step is to start the approval process online with Rocket Mortgage or give our Home Loan Experts a call at (833) 326-6020 to learn what you qualify for and can afford.