New Build vs. Renovation: How to Choose Your Best Fit

Cardinal Financial March 28, 2023 | 5 min read
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If the existing houses on the market aren’t sparking joy, you’ve probably reached a classic homeownership crossroads: New build vs. renovation. There are a lot of factors to consider when deciding which option is right for you. So, let’s break it down (then build it back up).

In this blog:

  • Cost comparisons
  • Timing differences
  • Labor needs
  • Customization opportunities
  • Financing options

New Build vs. Renovation: Costs

Like many big decisions in life, choosing between building a new home or renovating an existing one may come down to your budget. As you might expect, it usually costs less to renovate than build. New build costs will include the land you’re building on, plans, permits, materials, labor, and more depending on how customized you want it to be. 

Renovation costs are largely going to come from materials and labor. According to Forbes, the average cost of building a home is $150 per square foot, while the average cost of renovating is $100 per square foot. Of course, the price depends on many different elements like where your home is located, the materials you choose, and your floor plan.

Pro Tip: Whether you build or renovate, you can simplify budgeting with specialized home loans. More on that later.

New Build vs. Renovation: Timing

Building a house takes time, with just how long depending mainly on the level of customization and the area you’re building in. The average construction time for a custom home is about 9 months. Extreme weather conditions (like triple-digit summers in the south and harsh winters in the north) can also cause delays.

You know those home renovation shows where they give the space a complete makeover in one weekend? That’s not how actual renovations work. It may take months to complete what you have in mind. On the plus side, you can tackle your projects one at a time so that you don’t have to pay for everything (everywhere) all at once. This also means you’ll likely be able to live in your home while renovations are ongoing, saving you the expense of a temporary place to live until they’re complete.

New Build vs. Renovation: Labor

When it comes to new build homes, building them is actually the easy part. Labor will be one of the lower costs in your new build budget, but there are several different players involved in the process. Your experience may vary, but you can typically expect to work with:

  • An architect
  • A builder
  • Trade contractors
  • Inspectors
  • Lenders

For renovations, labor will likely be your biggest expense. Especially for more complex projects like replacing plumbing or HVAC systems, you may need to bring in specialized contractors for different stages of the job. For surface-level updates like new floors and finishes, your labor costs will be lower as the work generally requires less time and skill.

New Build vs. Renovation: Customization

The biggest perk of building a new home is being able to customize it however you like (or however your budget allows). You can make a place your own with renovations, but there’s still only so much you can change with fresh paint and new cabinets. If you’re not planning to be in your home for the long haul, though, renovations are probably a smarter investment. No need to spend more time and money on custom elements that you won’t be in the home to enjoy down the line.

New Build vs. Renovation: Financing Options

We’ve talked about the costs of building vs. renovating, but how about the ways you can actually cover those costs? There’s good news on that front: You can choose from a variety of funding options that allow you to leverage your mortgage to fund your projects.*

Product NameMinimum Credit ScoreLoan TypeMinimum Down PaymentHome Type/PurposeLoan TermRate Type
Conventional One-Time Close700Purchase or rate and term refinance3%Primary residence, second home, and investment property15 or 30 yearsFixed
FHA One-Time Close620Purchase3.5%Primary residence15 or 30 yearsFixed
USDA One-Time Close (Brokered Only)640Purchase0%Primary residence30 yearsFixed
VA One-Time Close600Purchase0%Primary residence15 or 30 yearsFixed
Product NameMinimum Credit ScoreLoan TypeMinimum Down PaymentHome Type/PurposeLoan TermRate Type
FHA 203(k) (Standard or Limited)620Purchase or rate and term refinance3.5%Primary residence15 or 30 yearsFixed
FHA 203(h) Disaster Relief550Purchase0%Primary residence15 or 30 yearsFixed

*All product guidelines are subject to change, so please consult your loan originator for qualifying details specific to your home loan criteria.

Pro Tip: To qualify for these specialized renovation loans, your projects will need to be done by professionals. If you’re more of a DIY type, a cash out refinance or HELOC (home equity line of credit) could help you leverage your equity to finance home upgrades.

So, is it better to renovate or build new?

New build vs. renovation is a decision that comes down to your unique homeownership needs. There’s no “right” answer, but these guidelines should help you find the one that best fits your goals.

It’s better to build new if:

  • You don’t plan on moving again or for awhile
  • The ability to customize is your priority
  • You already own land to build on
  • You have access to other living arrangements for the duration of construction

It’s better to renovate if:

  • You’re likely to move again in the next few years
  • Budget is your priority
  • You live in an area with limited access to labor, materials, and good building conditions
  • You need to move in as soon as possible

And remember, if it feels overwhelming or you’re not sure where to start, our team is here to help.

The decision to build new or renovate a home ultimately comes down to your budget, your location, and your move-in timeline

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