Is It Better to Build or Buy a House?

Dale Lavine January 5, 2023 | 6 min read
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The median sale price of a home in the United States has steadily risen over the past year. According to numbers from the Department of Housing and Urban Development, the average “sold” price topped $450,000. And while housing inventory has more than doubled since this time two years ago, interest rates for 30-year mortgages are currently hovering around 7%. 

Buying a house is an exciting thing, but it’s not surprising that many potential buyers might be considering alternative options. One question coming up quite a bit? “In this market, is it better to build or buy a house?”

Things to consider

Before you decide if it’s better to build or buy a house, think about the following three things:

BudgetInventoryLocation
How much money do you have saved for a down payment? For closing costs? For furnishings? What can you reasonably afford? What’s your “no-go” number? Are there a lot of houses for sale near you? How many have your desired amenities? How many check all your boxes? Are you not finding anything you’re really loving?Are schools important to you? Do you need to be within walking distance of your favorite restaurant? What will your commute look like? How close or far will you be from your family?

Regardless of your path forward, these three factors will play a vital role in your decision. Why? Because building a house is generally more expensive than buying an existing one. Because you may not need to build a house if an existing one checks your boxes. Because building one may require you moving well out of town. 

Trying to figure out if you should build or buy is like a “choose your own adventure” game. You may feel confident in one answer, but it may lead you down a road you weren’t expecting.

Buying your home

Unless you’ve got a giant bag of cash, your purchase will involve a detailed process. We’ve covered the process before in other blogs, but here’s a quick refresher: pre-qualifcation, pre-approval, making an offer, going through underwriting, closing. There are sub-steps built into each of those steps, but that’s the gist. 

Because it’s so well-documented and regulated, if you prepare accordingly, it’s a relatively pain-free process…especially when you work with Cardinal Financial. Hey, have you gotten your free rate quote yet?

It might be better because…

Buying is more common than building because, let’s be honest, there are so many homes already built. Building may come with the ability to pick and choose every little detail, but many buyers don’t have the time or money for the process of building. And, beyond that, buying an existing home comes with its own set of pros:

  • In many cases, these homes are move-in ready. That’s good for people on a tight schedule.
  • Because it’s the standard, there are more loans available for buying existing homes.
  • Thanks to those loans and other factors, it’s often generally cheaper to buy.

One con to consider? Depending on the market, you may face stiff competition from other prospective buyers.

Building your home

Just like buying isn’t as simple as throwing down a bag of cash, building isn’t as simple as buying a truckload of 2x4s and pouring some concrete. Unless you’re paying all cash for the construction, you’re going to need a loan—not just for the construction and the labor, but for the land itself.

One-time close loans are a convenient option that allow you to pay for the land and labor with one package. Otherwise, you’ll be looking at two separate mortgages for the land and the construction itself. That means two applications, two underwriting processes, and two closings. Never mind the two payments part of it. 

The process of building a home is also a lot more involved than simply buying one. Here’s a quick look at it:

  1. Buying the lot
  2. Get the plans
  3. Hire a team
  4. Obtain permits
  5. Start construction
  6. Continue construction
  7. Inspections, inspections, inspections
  8. Closing
It might be better because…

While building a house might be a little (or a lot) more complicated than buying a house, it comes with its own set of benefits. For starters, what’s not to love about whole-home customization? We’re talking location, layout, lighting, flooring, fixture finishes, equipment…everything. With that customization, you get access to new options for energy efficiency, meaning your new construction home can help you save on bills while saving a little bit of the environment. And, because you’re building from the ground up, you face little to no competition. 

Downside? The COVID-19 pandemic continues to have lasting impacts on the industry, meaning lead times are longer and materials are more expensive. Now, speaking of expenses…

The cost of building

Details vary, but Architectural Digest reports that building a house can cost anywhere from $500 to $1,000 per square foot depending on location. Meanwhile, American Home Shield’s 2022 American Home Size Index shows that the average size of a house in the United States is roughly 2,500 square feet. 

Crunching the numbers shows us that building a house that size can cost anywhere from $1.2 to $2.5 million—averaging out to $1.875 million. 

If that number caused your jaw to drop, take this bit of solace: Other resources pin the average cost of a custom, similarly sized home at roughly $500,000—just a little north of the average “sold” price of a home in 2022. 

What’s it all come down to? When building a house, your location, equipment, and finishing touches will push your costs up or down. The safe bet is to budget for more than you initially expected, or were quoted for.

Oh, and don’t forget the taxes

Regardless of whether you choose to build a house or buy one, please remember one thing: Property taxes. You’re going to pay them either way, but property taxes on new construction and custom homes are often higher than those for existing homes—even remodeled ones. Again, it’ll come down to your budget, and your budget should include estimates for property taxes. 

And hey, if you choose to borrow from Cardinal Financial, we’ll help you prepare those estimates either way.

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