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The housing market is costly, regardless of whether you buy an existing home or build your own. Ultimately, the decision between the two comes down to how much money and time you have.
Building a house has its perks because everything will be new, and you can customize it to your liking. But building a house will likely cost more than buying an existing home. And it might take more time to move in while you wait for construction to finish.
Learn more: Is it a good time to buy a house?
How much does it cost to build a house?
The cost of building a new house depends on many factors, including where you purchase the land, the size of the house, the required building permits, and current labor and material costs.
You should also calculate how much financing you’ll need because it might require two loans: a construction loan to fund building the home and a traditional mortgage after construction is complete.
According to HomeAdvisor, building a new home can cost between $120,873 and $502,325. That cost will largely depend on the location and size of the home. The bigger the house, the more expensive it will be. Likewise, land with an oceanfront view, for example, will have a higher price tag than undeveloped land in a rural area.
The median cost of buying a new construction home was $400,500 in February 2024, according to the National Association of Home Builders (NAHB). But that does not include the purchase of land, materials, and labor costs, which can easily cost well over $100,000.
At the same time, when the housing market has limited inventory and existing home prices are skyrocketing, it might be worth it to pay more to build a home that’s exactly what you need and want.
Dig deeper: 12 types of houses to buy or rent
How much does it cost to buy an existing home?
In contrast, the median sales price for an existing home was $384,500 in February 2024, according to the Federal Reserve Bank of St. Louis and the National Association of Realtors. That’s only $16,000 less than the median sales price of a new home.
Now, you still need to factor in land purchase, materials, and labor costs to build a home from scratch. And it will take longer to move into a new home than an existing one that’s ready for the buyer.
However, an existing home could have outdated appliances, electrical or plumbing issues, or cosmetic problems that might cost you significantly more to fix than the listed sales price suggests. Newly built homes tend to need fewer repairs and maintenance costs.
Be sure to factor in the age of each appliance, the structure, and the surrounding land of an existing home when viewing it.
Dig deeper: How do land loans work?
Building a new house: What are the pros and cons?
There are many factors to weigh when considering building a new home rather than purchasing an existing house. For example, you can get new appliances and customize the layout, but you might have to wait longer for your dream home to be built.
Is it better to buy an existing home?
It might be cheaper to buy a house than to build a new one in terms of sales price, but there are other costly factors to consider:
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Age of the appliances. Think about how soon you might have to replace things like the dishwasher, stove, or fridge. Depending on the appliance, it could last between a few years and 20 years. Check the age of these devices before committing to a home.
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Cosmetics and structure of the home. You will likely walk through this during the home inspection, but keep in mind whether the home needs a new paint job, roof, or plumbing or electrical repairs.
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Any homeowners’ association requirements. There will be additional costs if the house is part of an homeowners’ association (HOA), like monthly or quarterly dues. The HOA also might place restrictions on how you maintain your property that could come at additional cost to you.
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Homeowners insurance. Insurance companies scrutinize the age of a home because older houses require more repairs, which means you might have to pay a higher premium.
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Bidding wars. You are more likely to face competition in the existing housing market because supply is so limited. Entering a bidding war could drive up the price.
Read more: How to make an offer on a house
A compromise: Buying a newly built home
There is another type of new-construction home that still allows you to get a new home without having to go through the building process: a production home.
With a production home, a builder has new homes in a community or multi-story building that are finished or under construction and have never been previously occupied. In this case, you don’t have to hire a builder, obtain permits, or wait for construction as you would with a custom-built home.
In housing markets that are tight with limited inventory, as is the case now, builders might be more willing to offer incentives to prospective buyers. Incentives might include paying for some of your closing costs or buying down the interest rate on your mortgage.
Read more: 5 strategies to get the lowest mortgage rates in 2024
About 60% of builders surveyed in March 2024 said they were offering some form of incentive to buyers, according to the NAHB. Even if the listing price seems too high for the new home, it’s worth asking your real estate agent if the builder will negotiate. This is especially true if the units are complete and have remained unoccupied for some time because the builder will be more incentivized to sell.