Is It Cheaper to Build or Buy a House?

man with hammer working on new house roof frame
  • 10,000
  • Advanced
  • 50,000-500,000

Congratulations, you’re looking at becoming a homeowner. You’ve saved up some money, kept an eye on the housing market, and were pre-approved for a home loan. Now the only question is, “Is it cheaper to build or buy a house?”

The answer is simple--it can be, but it’s probably not. The reality is, it’s not a black-and-white answer. There are countless considerations to weigh when deciding if building or buying is right for you. Let’s look at a few.

Size of the House

The size of your ideal home is a major factor in your cost analysis. In most areas of the country, the housing market is still hot. That means a bigger investment in homes of all sizes.

However, a larger home doesn’t always mean a larger price tag when buying a home that’s already on the market.

Take, for example, a comparison between a 1,600-square-foot ranch home and a 2,800-square-foot two-level home. If the smaller home is brand new, it can easily cost more than the larger version.

Similarly, if the larger home features a pool and other amenities, it will understandably cost more.

When it comes to building a home, however, there’s a fairly direct link between the size of the home and the cost of the project.

Since a built home will be new, the only variables are material and labor costs. The cost of the build is typically estimated via square footage. Therefore, you can expect a 1,500-square-foot home to cost less than a 3,000-square-foot home in nearly every case.

Having made that point, there are systems that will cost the same, regardless of the size of the home, so costs aren’t exclusively tied to size. For example, putting in a driveway, running electrical to a rural property, or installing a septic system are all going to cost roughly the same regardless of the size of the house.

Location

In the real estate world, the saying is that the best home is based on location, location, location. This is true on several different levels.

First, there’s the location compared to other states. Costs for real estate vary wildly across the country. Buying a home in Tennessee will typically be substantially less expensive than acquiring real estate in California or New York.

Next, there’s the type of location in regard to views, privacy, and conveniences. Even within a single state, real estate prices will see a large variation between coveted downtown city lots compared to deeply rural areas. Coastlines, mountain views, and accessibility of public transportation are other factors.

Finally, there’s the matter of how the location affects access to resources. When it comes to off-grid housing, location can play a big part in cost. If you plan to stay off-grid, this can be a great way to save on real estate costs.

However, if you plan to get connected, the cost of extending electrical, gas, and other utilities can add up quickly, so the more remote the location, the more expensive it will be.

contractor with woman in house under construction

Hire a Contractor or DIY?

Your own skill set and plan for constructing the home can double costs or cut them in half. That’s because hiring a building crew will cost a bundle compared to building a home yourself.

Of course, it’s certainly not a skill set everyone has, so it’s understandable if hiring a contractor is a line item on your home-building budget.

When comparing the costs of buying an existing home to building a home, this is obviously going to drive up the cost of a build over a buy. We’ll discuss some other pros and cons in a bit, but for now, it’s important to evaluate where you land on the contractor or DIY spectrum.

If you have the skills and materials to build your own home, you’ll certainly come out with a lower cost than purchasing a home.

However, if you’ll be hiring out, it’s very easy to spend more on a build than when buying an existing home.

Land

When scouring the real estate ads, you’ll notice the size of the lot a home sits on. If you’re looking for land, it might even be a priority. The price on home listings includes all the structures as well as the land.

It’s a different scenario when purchasing land you intend to build on. You’ll need to have a fairly good idea of how much it will cost to build the house you have in mind. That will allow you to calculate the price of the land you can afford.

Let’s say you find a property you love, and it’s in your price range at $200,000. However, once you pick a contractor and a floorplan for your home, get an estimate for running utilities, and price out some of your materials, you could easily be looking at a $600,000 house.

If that’s practical for you, great. Just know what you’re getting into. If you can’t afford the build, you may not want to invest in the land.

Compare that same $600,000 estimate with houses and properties on the market. This is the true measure of whether it’s cheaper to build or buy a house.

If you can find a home that suits your needs on the perfect piece of property for less than your estimated build cost, evaluate other factors to see if that’s a better move.

Apartment/Condo Living

There are many different aspects of real estate. There are commercial and residential properties. There is also bare land and all types of single-family housing.

For many people, though, investing in an apartment, condo, duplex, or multi-plex might be a great solution. When it comes to considering costs, it’s almost always less expensive to buy an existing unit than to build one.

Depending on the area where you live, urban areas will often have individual units for sale. That’s going to cost significantly less than building a similar multi-unit structure or a large single-family home.

With that in mind, remember you can also earn rental income from renting out the other side of a duplex or other units in the building. So, consider whether a larger investment for the entire building makes sense for you.

Permits and Inspections

This is just a small line item on the budget sheet for the costs of building a house, but it’s important to remember you will be facing several thousands of dollars for permits and inspections if you build a home. This is compared to several hundred for a basic home inspection when buying a home.

You might also need to hire consultants, architects, engineers, surveyors, and other professionals. These are all costs that add up.

Material Selections

Buying an intact home means it comes with everything already in place. Until you reach the point where you are ready to make upgrades or renovations, the cost is easy to see upfront.

When building a home, you’ll be making cost decisions at every turn, and your original estimate can skyrocket with little upgrades here and there.

If stainless steel appliances, double garage doors, granite countertops, and a walk-in shower are non-negotiable, factor in the costs of these materials above and beyond the base rate for the house plan you choose.

To bring this concept into focus, if you look at two houses, one that’s been updated and one that hasn’t, you’ll see the cost difference up front.

If you buy a home and plan to do updates, include those costs in your budget. If you’re building a home, make sure the bid is based on the actual materials you plan to install rather than on a best-case scenario.

Energy-Saving Upgrades

While we’re on the topic of upgrades, there are few things to consider in regards to the budget. Some people place a priority on replacing shag carpet or rebuilding a rotting deck. Others might feel it’s vital to ditch the retro light fixtures or reign in the wild landscaping.

Any and all of these plans should be factored into your budget. There’s another upgrade that may also be on your radar, and that’s resource-conserving options. These can range from Energy-Star appliances to solar panels, water harvest systems, or even a higher R-value on your insulation.

If you plan to make these upgrades, it’ll cost you upfront, but you can expect to recoup that money over the life of the home.

Appliances

Like every other material in the home, when choosing appliances, recognize they can quickly bust a budget. If you need a six-burner stove, go for it, but if you’re more of a soup-from-a-can kind of cook, it probably won’t be worth the additional expense.

Your kitchen appliance suite can easily vary from $5,000 to $20,000, so if you’re looking at ways to make your build more affordable than purchasing a home, this is one place you can reign in that spending.

Connecting to Utilities

We touched on this topic above, but it’s worth a revisit since it can annihilate a budget. Working with your builder, list every type of utility you will need at your property.

Call providers or have your builder give you an estimate of the costs to bring gas from the main road into your home. Do the same for electricity, phone or cable wiring, and plumbing.

For homes not tapping into existing municipal resources, work out a bid for the costs associated with finding water on the property, digging a well, putting in a septic system, installing solar panels, and other systems.

Obviously when you buy a house, this isn’t a concern (unless you’re due for notable upgrades to electrical panels, plumbing pipes, or wiring).

new wood home under construction

Type of Build

In addition to the size of the home, the location, building materials, and your choices of home systems, consider the cost of your build compared to other types of builds. For example, some types of architecture cost less than others.

In general, a custom-built home is going to cost you significantly more than one from prefabricated panels or one that follows a floor plan that’s repeated throughout the neighborhood.

Pros of Buying an Existing Home

1. It’s ready to move in. You may have plans to freshen things up before you move in, but you’ll rarely have the long wait involved when building your own home.

2. It’s easier to get financing. Lenders are willing to make a loan when they can see the equity in the investment. They are less eager to make loans on bare land with only a plan for a house.

3. It’s probably less expensive to buy a home than to outlay the upfront costs of building one.

4. Buying a home is stressful, but building one is even more stressful.

5. There are a lot fewer decisions to make, and the entire process is quicker.

Pros of Building Your Own Home

1. Everything is new, and it could be many years before you need to make repairs or updates.

2. You get to plan every aspect of your home, making it uniquely yours.

3. You’ll probably save on energy costs, even if you don’t invest in major upgrades. New building materials, from windows to insulation, are simply becoming more efficient with each passing year.

Looking Long Term

With everything discussed above, it’s likely that building a home will cost you more than buying an existing one. Remember that while you may be focused on the upfront costs, it may benefit you to look at long-term expenses.

For example, sculpting the land on a new build can be very expensive compared to buying a home with well-established landscaping. Overall, your landscaping costs will be lower through buying.

The energy and water-saving aspects of a new home will take a while to pay you back, but it will happen, so factor it into the equation.

The first ten to twenty years you live in a new home will also see substantially fewer expenses in regard to repairs and updates. It may help to calculate expenses based on the life of investment rather than just upfront costs.

If you’d like more information on the topic, check out our Steps to Building a House Checklist and consider The Cheapest Houses You Can Build.