Obtaining a house is not an easy task by any means. Not only do you have to worry about financing, but you must also decide whether you’d buy an existing home or build a new one.
Of course, each option has its respective advantages, but that in itself makes things a bit more perplexing. Moreover, the suitable choice would largely depend on your situation. For one, the costs associated with each option differ from one another, so you have to consider your budget. Your idea of an ideal home would also affect this decision as you decide whether a generic house would be good enough or if you want to customize the house to your liking.
In that regard, this article will go over several things you need to know to help you decide which of the two options is more suitable in your scenario, starting with each option’s costs.
Costs Associated With Building A House
If you look closely at surveys from different organizations, you’ll find the average cost of building a house is lower than the median home sales price. For example, in a survey by a home realtor, they found that the average cost of building a house from scratch is around USD$280,000. On the other hand, the median home sales price at that time was around USD$400,000.
However, this is just the average. Unlike buying a house, the total costs may vary substantially according to your choices, even if the quality of the house is roughly the same.
Moreover, the costs may vary depending on the labor and building materials in your country and region. If you want to reduce the expenses, you can always look for cheap and reliable service providers, and an excellent example of such agencies is JAB Construction and other companies. Although USD$280,000 is the average, it may go as low as USD$100,00 or as high as USD$500,000, and these all depends on the following steps:
- Buying a lot or land: Before the actual construction of the house, you must first find and buy land or a lot to build it on. This makes up the majority of your expense, and the price may vary according to the size. The average size of 22,000 square feet costs around USD$90,000.
- Hiring professionals: Next, you need to hire contractors and subcontractors to draw up floor plans for your home. These professionals will also get you the necessary permits for the construction. This typically costs about USD$18,000, although it may vary according to the complexity of your floor plans since it may require additional permits.
- Building the foundations: Once the floor plans are taken care of, you’ll need to hire the people that’ll be digging out a space on the land for the foundation. This typically costs around USD$35,000.
- Structuring the frame: This is the skeleton of a house and is usually the next step once the foundations are built and ready. This will cost you about USD$50,000 on average.
- Adding the external elements: External elements like the roof and sidings are then added to the framing. This step may cost around USD$40,000 depending on the materials you want to use for framing.
- Install the plumbing and electrical system: Of course, you shouldn’t forget about the electrical and plumbing system of the house. It may involve hiring an electrician and paying for the necessary equipment and materials. All in all, you may end up paying up to USD$40,000 for this particular step.
- Attaching interior elements: Interior elements such as drywall, doors, insulation, and flooring are also necessary components to your house. This step may cost around USD$75,000 on average.
Take note that the costs associated with each step, or building a house in general, is only an estimate. You may end up paying less or more, depending on your plans for the construction.
Nevertheless, you most likely would still enjoy the corresponding benefits of constructing a house from scratch.
Building A House From Scratch: Advantages
Looking at the previous section, you’ll find that there are several steps involved in building a house from scratch, which may give the impression that it’s a stressful ordeal. While this may be true, there’s a reason why many people still prefer such an option. Here’s a closer look at the advantages of building a house from scratch:
- You generally have more control over the design: The main advantage of building a house from scratch is that you have more control over your home’s design. This drives people to choose this option over buying an existing real estate property. Plus, with the prevalence of smart technology and energy-efficient homes, people have more reason to build a new home rather than buy a house, which is typically too old to have such technologies or features.
- The competition isn’t so tight: Recently, the real estate industry has become the busiest it has been for a long time. As a result, the average price of existing homes has become higher. But since the costs of building a house largely depend on the material and labor cost, they weren’t affected by the sudden boom of the real estate industry. This might be the main reason why median home sales prices are now higher than the costs of building a house.
- Maintenance costs would be pretty low: As stated earlier, you’ll have more control over the design of the house, meaning you can ensure the home meets the latest building codes and makes use of modern technology.
Both of these contribute to a generally lower maintenance cost, so you won’t have to worry about spending thousands on repairs or maintenance issues now and then.
- There’s a feeling of satisfaction: If the advantages above are still not enough to entice you, it may help to know that building a house generally provides the feeling of satisfaction once you complete the project. It may not be a practical advantage since it’s primarily emotional or sentimental, but it’s still another reason to choose building over buying your first home.
With this, you should be able to understand why some people prefer building a house from scratch, albeit requiring more effort and time. But remember, this option also has disadvantages.
Building A House From Scratch: Disadvantages
As always, you also have to consider the disadvantages that come with building a house from scratch; only then can you confidently say that you’ve weighed your options properly.
In that regard, below are the several disadvantages that come with building a house:
- You need to worry about permits: The earlier section stated that you’d need to pay contractors to prepare the necessary permits. Think of it as paying for a license to start a construction project in your area. You can either pay someone to do it for you or do it yourself, which costs either time or money.
- Construction will most likely take a while: As you may already know, construction takes some time. It may take from six to nine months to erect your house. This alone can discourage people from building a house from scratch. It may be the main reason why people prefer buying overbuilding.
- Land loans might be harder to obtain: Getting a loan for buying a lot or land is typically harder than getting a traditional mortgage. It requires a higher credit score, and a down payment is often necessary. The interest rates are generally higher if you do manage to get a land loan. Hence, building a house can be particularly difficult unless you have the funds to complete the project.
- It can be more stressful: Just looking at all the steps in the earlier section is stressful enough as it is. If you’re not the type to handle stress very well, the pressure of building a house may get to you.
- Negotiations are typically harder: Homebuyers can very easily ask for a lower price during negotiations. Although, that’s not the case if you’re negotiating the terms with subcontractors and contractors. Their costs are typically set in stone, meaning you either have to accept their proposal or look for others.
Now that you know the pros and cons of building a house from scratch, you should be able to decide whether it’s for you or not. But of course, you should also consider your other option.
Costs Associated With Buying A Home
Similar to building a house from scratch, there are several steps to buying an existing home, and each step may require you to spend a certain amount of money. These steps include the following:
- Down payment: When you buy a house in installments, you may be required to provide a down payment upfront. The down payment may vary, but it’s typically around 10% to 15% of the total cost, so if you buy a house worth USD$300,000, for example, you may have to pay USD$30,000 upfront and get a mortgage for the remaining USD$270,000.
- Closing costs: On top of the down payment, the lender may also require you to pay the fees associated with the mortgage, also known as the closing costs. This may range from 2% to 5% of the mortgage. So, in the previous example, you may have to pay up to 5% of USD$270,000, which is USD$13,500. Closing costs often include the credit check fee, title insurance, transfer tax, application fee, and many other fees about the mortgage.
- Property taxes: As you may already know, you’ll have to pay taxes for the property you own. Usually, the property taxes are included in your monthly payments for the mortgage. The tax rate will vary according to your region and is typically a percentage of your assets.
- Insurance: Unlike taxes, homeowners’ insurance isn’t required by law, but some mortgage lenders may require you to get it in any form. This would also add to your expenses and may cost around USD$1,500 a year. Since you have complete control over which you choose from several options, it’s advisable to lower your expenses by choosing the cheapest.
- Homeowners Association (HOA) fees: If the house you’re buying is managed by the Homeowners Association, you may have to pay an HOA fee. The amount you have to pay may vary greatly.
- Home maintenance and repairs: Lastly, when you buy an existing house, there’s a good chance it’ll need regular maintenance and repairs, especially if it’s a relatively old house. These may include calling for services like roof replacement, home renovation, pest control, and more.
Unlike building a house, the costs associated with buying one varies according to your assets and the home value. Hence, the costs can pile up fairly quickly. According to surveys, the median home price as of March 2021 is approximately USD$320,000, which is relatively higher than the cost of building a house, at least for now. However, the cost isn’t exactly the main point of buying a home. Instead, it’s the convenience and many other advantages.
Buying Your First Home: Advantages
Being cheaper isn’t necessarily the first thought that comes to mind when people talk about buying a house. They’re more concerned about its other advantages, which includes the following:
- You can move in more quickly: Moving into an existing property typically takes around six to eight weeks as soon as you pick out a house and make the offer. Of course, this would still depend on whether the process runs smoothly, but that’s very easily done if you have a real estate agent.
- It’s easier to relocate to a specific area: When you search for land or lot, you’ll find that most of them have already been turned into homes, especially in places next to the town or city. Therefore, it can be challenging to build a house in the area you want to live in. For that reason, buying an existing home will make it easier for you to relocate to a place of your choosing.
- The home is most likely already furnished: If you choose to buy an existing home, chances are it already has matured landscaping. This means the trees have already grown, shrubs are healthy, and the like. This will eliminate a portion of your expenses and could ease up your stress.
Buying Your First Home: Disadvantages
Even with the aforementioned advantages in the previous section, you have to remember that buying an existing home also has its respective disadvantages, such as:
- You may not get exactly what you want: The main disadvantage of buying a home is that you have little to no control over what you can get. This means you may not get the house of your dreams. You may get close to it, but you’re not likely to find a house that fits your preferences to the smallest details. Moreover, some homes have no room for improvement, so you may end up settling for a bland design.
- An older home may contain safety hazards: If you happen to buy a relatively old home, you may come across substances scattered all over the place. This may include asbestos, mold, or lead paint, which can be a safety hazard.
- Older homes typically aren’t energy-efficient: Older homes may also have no energy-efficient utilities whatsoever, which means your energy costs would be off the charts unless you do a renovation.
- It may result in a bidding war: While it may not be as stressful as building a house, you may get involved in a bidding war against investors when buying a promising property. This, too, can be stressful, and unless you were to give up on that property, you might end up paying for much more than you thought due to the competition.
Should You Buy Or Build?
While you may have gotten a lot of information from this article, there’s no telling whether buying or building is the better option. After all, each option has its respective advantages and disadvantages that may either entice or discourage you. At the end of the day, the decision will largely depend on your situation, and only you know what your situation is at the moment. Regardless, it should be easier to come up with a much more educated decision with the help of this guide.