Written by

Tamatha Hazen

December 19, 2023

Edited by

Kristen Cramer

Fact-checked by

Tara Farmer

Cost of building a house vs. buying

Despite prices for both new and existing homes increasing in the last few years, it is cheaper to buy an existing house than to build a new one. The average cost to buy a home is $410,000 to $536,000, while the average cost to build a house ranges from $487,000 to $645,000.

Prices depend mainly on the home size and features, location, and the market demand in the area.

Average cost of building a house

The average cost to build a house is $487,000 to $645,000, according to the latest data from the U.S. Census Bureau and National Association of Home Builders. Prices depend on the materials, labor, and finishes.

New home construction costs $150 to $280 per square foot on average, not including the cost of your land. Custom-built homes range from $250 to $500 per square foot or more, especially in higher-end regions or for more intricate designs and finishes.

The cheapest type of house to build is a pole barn house or barndominium constructed from a prefab kit.

Pros & cons of building a new home

Customization is the biggest perk of building a new home. You get to design your dream house, choose the materials, and have a say in every aspect of the home, ensuring it meets your exact preferences and lifestyle. However, the process is lengthier and often more expensive than buying an existing home.

Cost factors for building a house

Factors that impact the cost to build a house include:

• House size & complexity: The overall home size, measured in square footage or number of stories, directly impacts material and labor requirements. Complex architectural designs with intricate details or custom features will also be more expensive.

• Foundation & site work: Sloping or uneven terrain, existing structures on the site, or the need for extensive excavation can significantly increase site prep and foundation costs.

• Material choices: The quality and type of materials used, from foundation and framing to roofing and finishes, can significantly impact the budget. Sustainable or high-end materials are more expensive than basic options. Shortages or high demand for specific materials can lead to price fluctuations and potential delays, adding to the cost.

• Labor costs: Labor rates vary based on location, experience of the workers, and the complexity of the project. Skilled labor for specialized tasks, like plumbing or electrical work, can be costly.

• Permits & inspections: Building permits and necessary inspections vary by location and project scope, adding to the overall cost.

• Market conditions: Fluctuations in the construction industry, like material or labor shortages, economic downturns, or supply chain disruptions, can impact project costs.

• Contingency planning & unexpected issues: Unforeseen problems during construction, like hidden underground utilities or structural defects, can lead to additional costs. Allocate a budget buffer of 10% to 20% to mitigate potential cost overruns.

Average cost to buy a house

The median sales price for an existing home is $410,000 to $536,000, according to current data from the National Association of Realtors, National Association of Home Builders, and the U.S. Census Bureau. Prices depend on the location, property type, and the home's size, age, and condition.

Buying an existing home typically requires a down payment of 3% to 20% of the home's sale price.

Pros & cons of buying a home

Buying a home is typically faster and more affordable than building. However, you may have to compromise on the design and layout. Older homes might need repairs or renovations and are typically not as energy efficient as new homes.

Cost factors for buying a house

Common factors that affect the cost of buying an existing house include:

• Location: Location has a huge impact when it comes to making a real estate purchase. Urban properties and sought out neighborhoods have higher prices than homes in rural or less desirable areas.

• Home age & condition: Older homes and those in poor condition often have lower purchase prices to make up for the necessary repairs and maintenance costs you will incur.

• Market demand: Prices are higher in areas with increased demand because more buyers are competing for a limited number of properties.

• Interest rates: When borrowing costs are low, more people can afford mortgages and enter the market, stimulating demand and increasing housing prices. When borrowing costs rise, fewer people can afford mortgages, leading to price drops.

• Economic fluctuations: Economic growth, job creation, and rising wages can increase people's purchasing power, leading to more qualified buyers and higher housing prices. Recessions decrease people's purchasing power, leading to fewer buyers in the market and lower prices.

• Supply of properties: When there are more properties available than buyers, sellers need to attract interest by lowering prices.

• Shifting preferences: Changes in buyer preferences, like a sudden interest in urban living or a preference for remote work, can leave certain types of properties less desirable, leading to price adjustments in those segments.

Additional costs to buy an existing home

In addition to the home's purchase price, potential buyers should be aware of other expenses when purchasing an existing home:

• Closing costs: The fees involved in settling a real estate transaction range from 2% to 5% of the sale amount. Closing costs may include appraisal fees, title insurance, record filing fees, transfer taxes, attorney fees, and more.

• Mortgage insurance: If your down payment is less than 20%, you might require mortgage insurance, which typically ranges from 0.58% to 1.86% of the initial loan amount annually.

• Homeowners insurance: The average cost of homeowners insurance is $1,400 to $1,750 per year for a coverage amount of $250,000, depending on the policy and state.

• Property taxes: Annual property taxes range from 0.3% to 2.5% of a property's assessed value, depending on the location.

• HOA fees: If the property is within a homeowners association, there may be fees of $100 to $300 per month on average.

Should you build or buy a house?

The decision to build or buy hinges on your personal preferences, financial situation, and long-term goals. Take time to evaluate what's most important to you and make a choice that aligns with your goals and finances. Keep these details in mind:

• Time: If you're in a hurry, buying an existing home is usually quicker. Building a home, especially a customized one, can take many months or even over a year.

• Customization: If having a home that meets a specific vision is crucial, then building might be the way to go. However, it requires patience and often a higher budget.

• Cost: While existing homes are sometimes more affordable up front, consider potential renovation costs. New construction may have higher initial costs but could save you repair expenses in the early years.

• Experience: For first-time homebuyers, navigating the complexities of constructing a house can be overwhelming. Purchasing an existing home can offer a gentler introduction to homeownership.

After making your decision, ask friends and family for recommendations and search HomeGuide to find the best real estate agents and home builders near you.