Cost of Building a House vs. Buying
There are a number of reasons buyers might be torn between an existing house and the prospect of building their own home. An existing house is a known quantity that's usually ready for habitation within 30 to 60 days. Building your own home lets you control every element of its form and function. Because there are advantages to both kinds of houses, the issue for many potential home owners boils down to price. Does this Spark an idea?
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The Facts
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Though Americans typically purchase homes rather than build them, building is becoming increasingly common. The National Association of Reators estimates that 1.7 million homes were built in 2005, compared with the 6.2 million existing homes that were sold that year.
The median price for an existing home in 2005 was $219,000, while the median cost of building a home the same year was $240,900. However, many factors can come into play when considering the total cost of building versus buying.
Considerations
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Financing is often simpler when you buy an existing home because it requires a single loan. In contrast, a buyer who's building his own home usually must take out a construction loan, which must be converted to a mortgage when the house construction is complete. If construction lags, loan payments can add up.
People don't always consider time a factor in cost, but it can create a lot of expenses. If you have to wait six months to a year for your home to be built, you'll probably have to pay for other living accommodations during that time. On the other hand, you usually can move in to an existing home within a month of your closing date.
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Misconceptions
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People frequently believe that it's easy to save money by building a house and negotiating with a builder to lower costs, but, according to the National Association of Realtors, there's more room to negotiate costs with the owner of an existing home.
Expensive locations, such as waterfront property or upscale neighborhoods, might seem much more affordable if you purchase a lot and build a small home, but keep in mind that some areas require an approval process for building plans. A small home might not be so affordable when you factor in neighborhood requirements.
Benefits
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Building a home can be a good option for consumers who want to customize their home with such things as energy-efficient systems or environmentally friendly aspects. Installing energy-efficient systems might cost more during the building process, but they can significantly lower monthly costs.
However, if you have a very specific budget in mind, purchasing an existing home might be a good option. The price of a house doesn't change once the owner accepts your offer, so you don't have to worry about unexpected costs.
Warning
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It's a good idea to meet with a loan representative to talk about your budget before you begin looking at houses or meeting with builders so you know how much house you can afford. Whether you're building or buying, it's often a good idea to stay below the maximum limit of your budget to preserve your financial health.
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