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Which is Cheaper Building a House or Buying

That depends on a few different factors. First, have you considered whether buying or building a home is right for you? Because building a house from the ground up involves a lot more logistics than purchasing a home that's move-in ready, there can be confusion on pricing and everything that's involved in the home buying and building process.

New house construction framing

Is it Cheaper to Build a House

This is a tricky question to answer, but in general, no, it's actually cheaper to buy a house than to purchase land and build one from scratch. That being said, it will vary greatly depending on a variety of factors, including your flexibility about things like location, renovations on a pre-built house, and how long you plan on staying in either home. When it comes to choosing a plot of land to build on, there are more than a few aspects to consider—learn more about that in our article on what to look for when shopping for a lot. Costs drop significantly when you already have a finished plot of land (connected to water, sewer, and electricity). If unfinished, it's still less, but you'll have to pay to have to your future home connected to utilities.

When you buy a home that's move-in ready, there aren't many additional costs to consider other than updates or perhaps some fixes in the future, like a new roof. When building a home, a few costs you'll want to think about include:
Site costs, which are things like building permits, water and sewage inspections, and architectural and engineering plans, among many others.

How Much Does it Cost to Build a Home

There are a few different categories to finding out exact costs for building a home, since these will vary by time of year, availability of labor and materials, and of course location. For various reasons, there can be shortages of certain materials, or costs can fluctuate quickly and end up costing you much more than you budgeted for. You'll have to consider these cost areas:

  • Building a foundation, with costs like excavation, concrete, and retaining walls.
  • Framing and exterior finishes—don't forget to factor in the price for labor costs, not just square footage in materials.
  • Major home systems such as HVAC, plumbing, and electrical.
  • Interior finishes like drywall, flooring, countertops, appliances, and much more.
  • Getting your plot of land ready. Think landscaping, outdoor structures, decks, driveways, and more, as well as clean-up costs.

You will also want to plan for overruns. It's common for things to come up in the construction process, so you'll want to include a cushion in your budget as a contingency plan to absorb any unexpected costs, somewhere between 5-10% of your overall budget. It's also typical for lenders to request a contingency fund of at least a certain amount for situations like fluctuations in material cost.

Other things you'll want to think about are the availability of workers and contractors (is there a shortage? How soon can you be fit into their schedule?) and current material costs. For various reasons, there can be shortages of certain materials, or costs can fluctuate quickly and end up costing you much more than you budgeted for.

Construction costPrice range
Buying land$3,000-$150,000
Clearing land$1,500-$5,000
Plumbing installation$7,000-$15,000
Electrical wiring$20,000-$30,000
Exterior painting$1,800-$4,400
Interior finishing$50,000-$175,000

Source: HomeAdvisor

Will My House be Worth More if I Build It

Not always the case! This also varies depending on a multitude of factors, so it's difficult to do a true apples-to-apples comparison. There are lots of aspects to consider, but mainly, how “standard” are the features and layout of the home you're thinking about building?

If you're planning on building a home on acreage and including a more obscure structure, like a standalone garage with RV parking, built-in fish tanks, or a large office space or swimming pool, then odds are that you may not recoup your investment depending on where you live. In general, any expensive feature or additional structures that makes your home and property more “niche” can limit the number of prospective buyers when it comes time to sell, which may result in you needing to lower your future asking price.

Can You Save Money Building a House Yourself

Not necessarily. This line of thinking can be dangerous to your body, mind, AND wallet. If you have time that you can devote to different aspects of building a home, and you're familiar with the type of work, then by all means pick up those power tools. But remember time is money, and unfortunately the more a job costs a professional to do, the more of your time it's likely to take. Before you start tackling any aspects of building a home, put in some research. It also can be worth it in many cases to have a professional do the work instead, sometimes to avoid a DIY look and other times for safety reasons or to avoid costly repairs down the road (think electrical or plumbing). WaFd Bank's requirement is that you must have both a background and experience in construction, otherwise you'll have to leave it to the professionals.

When it comes to building and remodeling, if you're unsure as to whether you can tackle a project, opt for the professional route. In general, you'll spend more money hiring someone to fix any damage done by DIY-ing than you would have spent if you had paid someone from the start. HomeAdvisor's True Cost Guide is a great resource that can help you quickly get a general idea as to how much a professional would charge for a job in your zip code. For example, how much would installing new countertops cost in your neighborhood?

A good professional will also come with an understanding of building codes and requirements, knowledge that most amateur home builders would need to put in research hours to obtain. Another bonus of hiring someone is that a general contractor will often provide warranties on the products and work they complete, either personally or through subcontractors. For example, if a toilet that a contractor installed starts to leak or doesn't work correctly, most contractors would cover the cost for the repairs or reinstallation. Always check with that your contractor is licensed, bonded, and insured so you know you're covered if something goes wrong.

Other Details to Think About

As you review your options and come to the right decision for you, take a look at the pros and cons to both building and buying:

  1. Building pros
    • Get exactly what you want when you build
    • You won't have to deal with competing offers
  2. Buying pros
    • You can move into your home much faster
    • Ability to bargain
    • More options
    • Budget for renovations over time, or utilize a remodel home loan. This home loan will be based on the value of your home after renovations are completed, giving you enough to buy the home and update it.
  3. Building cons
    • It will take at least 6 or 7 months before you can move into your home, sometimes much longer
    • You'll have lots of decisions to make, so if you're busy or short on time this could be a real headache
    • Contractor challenges
    • Cost overruns
  4. Buying cons
    • Buyer and market competition
    • Older appliances and major systems, which could mean repairs in the near future
    • Compromise—you might not find exactly what you want in the area you want to move to
    • Because you likely won't know who has done work or repairs, you won't know where to go and therefore cant receive any guarantees for workmanship

WaFd Bank is Here to Help

WaFd Bank has been one of the Northwest's custom home financing leaders for many years. As a portfolio lender, which means we don't sell your home loan, we're able to make our lending decisions based on common sense principles, not just guidelines. Whether you're planning on building or buying (or are still undecided), we'd love to talk to you about how we can help. Contact your neighborhood loan officer to go over different scenarios to help you decide what's best for you!

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All loans subject to credit approval and loan program requirements.