Building a house vs. buying: which is best for you?

Here’s how to weigh the pros and cons of building vs. buying.

Key takeaways:

  • The decision of whether to build or buy your next house is a complicated one and depends on many factors. Each option has pros and cons.
  • The relative costs of building vs. buying depend on where you live and what you want.
  • Building a new house can be more complicated, but there are a few things you can do to make the process go more smoothly.


It’s the American dream, and one of the biggest investments many of us will ever make. Regardless of whether you want a starter house to raise a family or a forever home where you can retire, you have a lot of decisions to make when deciding whether to buy an existing house or build a new one.


Is it better to build or buy?

This question depends on a lot of things, including your budget, your timeline, your goals, and what you want in a house. But market conditions where you live may limit your options. Some cities are facing limited inventory, creating competitive market conditions for existing home sales. At the same time, builders are facing higher material costs and labor shortages, both of which challenge the market for new home construction. While things may settle down over time, both scenarios call for clear decision-making right now.

Before you move ahead, do some research, and weigh the pros and cons of each.


Buying an existing house

If ‘quick and easy’ is important to you, it may work best for you to buy an existing house. And certainly, if you know this is a stepping stone home—one you’ll likely sell within a few years—buying an existing house makes even more sense. Once you're pre-approved for your mortgage with a lender like Global Credit Union Home Loans, you’ll know exactly how much you can spend. Choose a qualified real estate agent—a buyer’s agent will work best if you’re not also selling an existing property—then begin shopping. Once you’ve found the house you want to buy, work with your agent to submit a competitive offer, hire a professional home inspection, and then coordinate with your lender to close on the sale.


Pros Cons
Quicker to move in. Unless you decide to remodel, you can just unpack and get on with life. You won’t get everything on your wish list of features and will have to live with the compromise.
Usually comes with existing landscaping, which means all you need to do is mow the lawn. You may need to do some deep cleaning, painting, and carpet or flooring replacement before you can move in.
Fewer steps and generally less stressful than building a new house. The home may require remodeling to make it work for your family.
Mortgage loans typically have lower interest rates than a new construction loan, and there’s just one loan instead of multiple transactions. Existing homes usually have older plumbing, HVAC, and appliances, which means you could soon be spending money to either repair or replace them. And if the existing units were installed at about the same time (because the home was new construction or went through an extensive remodel), you could find that they all start to fail at about the same time.


Building a new house

If you’ve searched and just haven’t found 'the' house that meets your needs, it may be time to build.

Building a house is more complicated than buying an existing home. It starts with the land, which must be cleared and readied for construction. Depending on location, you may need to arrange for access (roads and driveways) as well as utilities, including water, sewer or septic, power, and internet. Unless you choose a design-build arrangement, where the contractor provides the architectural design as well as construction, you must hire an architect and sometimes an engineer before you can get an accurate construction estimate.

The permitting process can be complicated, and once construction begins, the project will require periodic inspections to make sure everything is ‘up to code.’ Along the way, you must make important decisions—everything from paint and tile colors to flooring choices. It can be stressful and time-consuming, and the process often takes longer than expected, so plan for delays.


Pros Cons
While almost everyone must make tough decisions to balance budget with their wish list, building typically brings you closer to your ultimate dream home. Process is more time consuming. Average time from start to completion for a contractor-built home in 2021 was about nine months, while average time to close on a loan for an existing home was closer to two months.1
No risk of renovations that may uncover surprising, expensive repairs down the road. You may need to apply for multiple loans: one to buy the land and one to fund construction. Both will likely have different terms and interest rates. Once construction is complete, people often refinance to a single mortgage loan.
Lower energy costs since new homes are typically better insulated, and lower maintenance costs. And if you do have a problem, many builders provide a limited warranty that covers early repairs. Uncertainties with costs and availability of building supplies. Your builder may add an escalation clause to your contract to cover rising costs and delays due to material shortages.
New construction comes with new appliances, which reduces expensive repairs and replacement for the first few years. Building increases the amount of time you’re double paying (i.e., spending money on two mortgages or paying for both rent as well as a land and construction loan).


Is it cheaper to build or buy a house?

This depends on who and when you ask and where you live. Historically, it was cheaper to buy versus build. But with changes in interest rates, hot housing markets, and building materials and labor shortages, this may or may not be the case where you live.

According to Realtor.com2, the median U.S. home price in June 2022 was $447,000; this compared with a median cost of construction ranging from $296,652 to $332,524. Plus, this construction number doesn’t include the cost of land. But both are national averages and can vary widely based on your location, time of year, and other factors.


Cost of building a house vs. buying

While everyone has things they want in their dream home, cost should always be a key consideration.

There are several expenses associated with new construction that you typically won’t find when you buy an existing home:

  • Architectural design (and possibly engineering)
  • Cost of surveying and buying the land, including clearing and grading as well as roads and driveways; cost of demolishing an existing structure on the property adds to the expense
  • Building permits and inspections; these can be extra tricky if you’re building on a shoreline or near wetlands
  • Foundation work, which increases in price if you want a basement or have complicated soil conditions
  • Cost of bringing utilities, such as septic, water, and electrical service to the building site, as well as plumbing, electrical, ductwork, and HVAC services within the home itself
  • Framing, insulation, new windows and doors, etc.
  • Interior and exterior finishes (stonework, roofing, siding, exterior decks, paint, lighting, moldings, cabinets, flooring, stairways, appliances, and more)
  • Landscaping, driveways and walkways, railings, garage doors, pools, fencing, etc.

Costs for each will depend on numerous factors, including location and square footage as well as the quality of the finishes. In 2022, the national average cost of new home construction3 was $150/square foot. That number was higher in some Western states, at more than $200/square foot in Alaska and California. However, your costs could jump to $500/square foot and more for a custom home in a competitive urban market.


Tips for building a new home on budget and on schedule

You could write a book on just this topic, but here are some of the easiest things you can do:

  • Spend time learning about the home construction process. Your builder will thank you.
  • Develop a wish list using photos to help both your designer and your builder understand your expectations. Then, be open to suggestions they make to reduce costs.
  • Once you get your design, make sure you’re completely happy with every detail. Costs of even little things like moving a light switch can add up and delay a project.
  • Set a firm budget and sign a contract with all parties, making sure it includes a detailed schedule.
  • A good contractor will keep you posted with budget updates. Pay attention to these and ask questions to make sure you understand every line item. Take the time to track actual against budget so you always know where you stand.
  • Establish and follow rules to document change orders, even when things get busy.
  • Make decisions quickly and adhere to the allowances (line-item budgets) your builder gives you when choosing things like appliances, flooring, tile, and lighting.
  • Consider delaying work on things like landscaping or decks if needed to stay on budget.

Building or buying? Let us help.

In most cases, it’s cheaper, faster, and easier to buy an existing house, but you rarely get everything you want. If you own land and have a reliable builder, you may find that you can build a new house for about the same price as buying, and you’ll get that much closer to the home of your dreams. Regardless of whether you decide to buy or build, let Global Credit Union Home Loans help.

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