Is it Cheaper to Build a House or Buy One?

Building a home can be a positive experience as well as a smart financial decision.

Building a home can be a positive experience as well as a smart financial decision.

The difference in cost between buying an existing home and building a new one can vary depending on the location and particulars of the deal. Other considerations, such as how much money you might have to spend upgrading an existing home, can also influence your decision.

Starting from Scratch

Newly constructed homes require land. Land can be expensive and it often comes without the utility connections and permissions necessary to build. If sewer lines, electricity, gas and water are required, the wait for city permits and the cost of link-ups can be significant. When you build your own home, you must also look at the cost of equipping it with appliances, HVAC systems and other high-ticket items. When you buy an existing home, these items are usually included in the price. Each item you have to buy increases the cost of a new home and highlights the savings of buying an existing place.

Cost vs. Time

Most new homes are built to the latest specs and environmental codes -- at least the ones that are done right. They are outfitted with new materials, a new roof, new plumbing and new electrical wiring. Once it is completed, a new home will likely cost less to operate once you're all moved in because you are less likely to need repairs and upgrades. The biggest expense comes before you move in. New home construction takes time, and time can amount to a big expense for many buyers. You might have to find a temporary place to stay while your new home is being constructed, and any delays in the process can add to your difficulty and expense.

Making the Purchase

When you buy an existing home with the help of a realtor, there is a fee involved. The average fee is around 3 percent of the price of the home. Although it is typically paid by the seller alone, it likely will influence the final sale price. For example, say the seller wants $300,000 for her home but has to pay a 3 percent fee. She may end up asking $310,000 to cover the extra expense. When buying direct from a builder, you avoid the realtor fee. You might also be able to secure a better loan rate or other incentives through the builder's banking connections. A few percentage points off your mortgage can add up to big money.

Customization

Odds are when you purchase and move into an existing home, there will be some things that you are not 100 percent happy with. Whether it's the wood tone of the kitchen cabinets or the location of a doorway, you will need to invest more money to customize the place and get it just the way you want it. In a newly constructed home, the builder will typically be able to offer changes in plan or materials to suit your needs at minimal, if any, additional cost. The money you save on basic customization on a new home vs. the cost of alterations to an existing home should be considered in your final decision.

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