Everyone loves to receive something new, especially when it's custom made. The problem is that custom builds tend to cost more and take longer, especially when it comes to houses.
This is something to consider when deciding whether to buy or build a home. To help you make the best decision, we break down the costs, plus the pros and cons of building a home.
let's see them!
Is it cheaper to buy or build a house?
2019 on averageCost of building a houseit was over $485,000.1Meanwhile, the median cost of buying an existing single-family home was just over $310,000.2So if you decided to buy an existing home instead of building a new one, you would have saved about $177,000!
Now,prices have gone upfor both existing houses and new construction as of 2019. But building a house is still more expensive than buying a house.
Existing home prices are 15% higher in 2022 than last year.3But the cost of building materials has increased by 19%.4And thanks to inflation, builders are also paying more for other things they need to build homes, like labor, fuel, and marketing. All that to say, building a house isnocheaper than buying!
Building a house instead of buying a house
Now you're probably wonderingIs it better to build or buy a house? Maybe worth the price. . . And you may be right! Or building a house might be a terrible idea for you. Whether building or buying a home is best for you really depends on your situation.Find knowledgeable agents to help you buy your home.
Of course, it helps to weigh the pros and cons of building a home so you can decide whether to go through all the effort or buy an existing home.
Advantages of building a house
First, let's see why building a house can be beneficial:
- personalization- When you build a house from scratch, you can customize it to suit your lifestyle and taste, from the layout, cabinets, and floor to the sinks, lighting, and door handles! Even homes built within subdivisions allow for some customization of color options, flooring, and certain finishes.
- Little or no competition-ThatReal estate market 2022It is hot. Existing properties were only on the market for 17 days in March!5With homes selling so fast, you really have to compete to find the best home at the lowest price. But if you own land to build your house on, you obviously have no competition!
- little maintenance–Because new homes must comply with current building codes and have the latest technology, you probably won't have to worry about major repairs or maintenance issues for the first few years – no leaking roofs or HVAC system failures! Also, you don't have to worry about finding the bad repairs done by the last owner himself, since there was no one before you.
- Low energy costs–New homes often feature the latest energy efficient systems and materials, which usually translates to lower energy bills—woo-hoo!
- novelty– You can start fresh as the first homeowner and enjoy a new homeat. This is the dream baby!
Disadvantages of building a house
Well, we already know that one disadvantage of building a house is that it costs more than buying an existing house. That's not too bad if you can budget for it, but it can be a real hit with some people. Let's also consider the other disadvantages of building a house:
- long wait– It takes an average of seven months tobuild a new house—excluding the planning and approval phase.6However, completing an existing home only takes 48 days.7And remember that you have to pay to live anywhere until your new home is ready; So if you're building, you could be forced to pay your current rent or mortgage plus the cost of construction for several months.
- Difficult price to negotiate– Most buyers buy a home hoping to lower the price. While that's very common in the resale market, there's not much wiggle room in generalclosing costsor the purchase price of a new home, unless your real estate agent is creative at the negotiating table. Even so, you're probably getting more bang for your buck with an existing home.
- noise and debris- If you build a house where other new houses are being built, you may have to deal with construction noise, traffic and mud drips throughout your journey. Worse, you could end up with a roofing nail or tire bolt. Sure, things will eventually settle down as other homes are completed, but it's something to think about if your tolerance for noise and clutter is low.
- Emphasize– When you build a house you have to buy land, decide the house layout and choose floors, furnishings, cabinets, countertops, interior trim, exterior trim, etc. You must do all of this and stay within your budget. Managing all the details that go into building a home takes time and effort. Don't underestimate the persistence it takes to make sure everything is done right.
- hidden costs- Those dollar signs you see on things like countertops, faucets, and appliances are just the tip of the iceberg. Upgrades and unforeseen issues can quickly add to the price of your new home, and these costs may or may not be included in the price of your contract. Be safe by budgeting to pay for those unexpected expenses in cash. And don't forget that there are also post-move costs like landscaping and blinds to consider.
Hopefully you now have a better idea of whether to buy or build a home. Next, let's talk about how you can pay for it, whichever way you choose!
Tips on paying for a new home or an existing home
Whether you are building or buying, make sure you keep a home that you can actually afford. That means getting a house with a monthly payment that doesn't exceed 25% of your take-home salary; otherwise I wouldn't have a house!
This 25% limit includes principal, interest, property taxes, homeowners insurance, and if your down payment is less than 20%, personal mortgage insurance (PMI). And don't forget to factor in HOA fees if your new home is in an HOA.
Want to see what house prices fit your budget? Try our free onemortgage calculator. And for a mortgage you can pay off quickly, speak to our friends at RamseyTrusted atHipoteca Churchillhow to get a classic loan with a 15-year term. (Usonly I recommend these loans because any other type of mortgage drowns you in interest and fees and keeps you in debt for decades.)
Should I buy or build a house?
Maybe you are still undecided whether you should buy or build a house. We understand it's a big decision and you want to make it right!
if you are a...First time home buyers, it is generally better to take the cheaper route and buy an existing home. You'll save money and gain experience as a homeowner before taking on the challenge of building a new home. It also gives you time to build up equity (the value of your home minus the debt). When you sell your first home, you can use that equity to finance the construction of your next home.
If you are an experienced home buyer, building a house could be a fun adventure for you! That is, as long as you stay within that 25% limit and still be able to pay all other home ownership costs such as maintenance and utilities.
Whether you're buying or building, owning a home that you can afford is an incredible way to build wealth.
Buy or build with confidence
The best way to decide whether to buy or build a home is to speak with an experienced real estate agent. They know where to find the best deals in old neighborhoods or up-and-coming communities. And they will help you decide whether building a home or buying an existing home is best for you.
If you're looking for an agent who will do whatever it takes to help you find the perfect home or lot to build on, try our Supported Local Vendors (ELP) program. These RamseyTrusted agents are top performers and share our mission to help you achieve your financial goals.
Find the best real estate agents in your area!
About the author
Since 1992, Ramsey Solutions has been committed to helping people regain control of their money, build wealth, improve their leadership skills and improve their lives through personal development. Millions of people have sought our financial advice in 22 years ), published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts that have more than 17 million listeners weekly.Learn more.