Published
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Written by
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Edited by Galina Velgach
Written by Steven Porrello
Edited by Galina Velgach
Buying an existing home is usually cheaper than building one. According to the National Association of Realtors, the median price for a home was $366,900 at the end of 2022. Meanwhile, the price to build a home from scratch was roughly $446,000 — almost $80,000 more.
The housing market could also swing in home buyers’ favor in 2023. With higher mortgage rates cooling off demand, it’s entirely possible to snag a good deal on a home in your area, especially if you’re working with an experienced agent.
- Cheaper and faster
- Bargaining power
- More loan options
- Lower mortgage rates
Buying vs. building a house
Cost of buying a home
The median value of a single-family home in the U.S. is $327,514. On top of the purchase price, home buyers who are financing the purchase with a mortgage will also pay closing costs, roughly 2–5% of the final purchase price.
For a $366,900 home, you could pay between $7,338 and $18,345 in closing costs. The total — $385,245 — is still less than the cost of building a house.
Closing costs: What you’ll pay to buy a home in the U.S.
| Expense | Average cost | ||
|---|---|---|---|
| Down payment | Money you pay to secure the mortgage | at least 3.5% of purchase price | |
| Earnest money | Good faith deposit paid by the buyer to show sellers they’re serious | 3% of purchase price | |
| Escrow payments | Prepayments for insurance, property taxes, HOA fees, etc. | 1–2% of purchase price | |
| Transfer taxes | State and local taxes to transfer a title into a buyer’s name | Vary by state | |
Is buying a home REALLY cheaper?
Buying is generally cheaper than to building
On average, you’ll likely spend 14–20% less on an existing home than building it from scratch. If you’re on a strict budget, buying a home off the market is the right step for you.
It’s faster, too
Building a home from scratch can take a year or longer to finish. Buying a home takes half that time, usually 5 to 6 months.
You could bargain with the help of a good agent
An experienced real estate agent will assess your local market, leverage property data, and do whatever they can to lower the asking price.
You’ll have more (and better) loan options
Because mortgage lenders hate risk, they’re more willing to finance the purchase of an existing home than one that needs to be built. Buyers have more options for mortgages — and they typically get lower rates, too.
But is buying really better? Drawbacks to buying a home
- There could be competition. If you’re buying in a sellers market, you can get caught up in bidding wars, overpriced homes, and a limited list of options.
- Older homes may need repairs. Good inspectors can help you predict what might need to be repaired in the near future, but they might not catch everything.
- You won’t get exactly what you want. When you buy a home, however, you’ll likely have to compromise on certain features for the sake of its location.
Cost of building a home
The national average to build a home is $282,299, though you could pay as much as $461,730 or as little as $113,634 depending on your area. For most areas, an estimate of $446,000 takes into account the growing prices of building materials, the cost of labor, and the cost of land.
» READ: How Much Does it Cost to Build a House in 2023?
Is it better to build a home than buy one?
- No competition or bidding wars. You won’t have to worry about the home’s price being bid up by short supply and multiple buyers.
- You might sell for more than it cost you. Brand-new homes typically have higher value than older ones. Your newly built house, then, could give you a leg-up on competition when it comes time to sell.
- You’ll likely need less maintenance in the short term — assuming you use quality materials and contractors. Even if you do encounter issues, home and appliance warranties can reduce repairs costs significantly.
- You’re in control. Every feature, appliance, and amenity is handpicked and can be tailored to your liking. Building a home means spending more on the things that you really want — such as a larger kitchen — and less on conventional features that aren’t important to you.
» CAUTION: 31 Reasons People Regret Their New Construction Homes
But is building a home cheaper?
Not usually, unless you’re in a tight housing market. If your only alternatives are overpriced and aging, but you’re not in a hurry, then a new construction might be the right choice for you.
It’s hard to estimate costs
Surprise expenses, building hiccups, and higher-than-expected prices for materials can easily derail your budget. Not even the most scrupulous contractor can predict prices for raw materials — such as lumber, stone, and concrete — which will fluctuate throughout the course of your project.
Too much customization could lead to overspending
While customizing your home means building exactly what you want, it could also mean spending more than you would’ve liked.
SIMPLIFY WITH A TRACT HOME
Also called “built for sale homes,” tract homes are typically the cheapest options for construction and take an average of 5.9 months to build. They usually come in 2–3 different floor plans, and you can choose a few custom details (e.g., interior paint, surfaces, landscaping) but nothing comprehensive.
Securing financing is more difficult
If you can’t pay out-of-pocket for your home’s construction, you’ll likely need to get a construction loan. These loans are short-term (most last for one year), have variable interest rates, and require a ton of up-front paperwork.
You’ll also have to prove to your lender that your project is viable, low-risk, and worth their investment. It’s not impossible to secure financing, but it’s far more difficult than conventional mortgages.
Building a home takes time
It takes on average 12.1 months to build a home by yourself, versus 6.5 months if done by a company. Depending on supply constraints, it could take even longer than it.
» READ: How Long Does it Take to Build a House from Start to Finish?
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