Costs of Building or Buying a New Home
It’s not just how the costs look on paper; your financial needs and goals will also inform your real estate decision-making.
Build or Buy?
The National Association of Home Builders notes that in 2022, the average construction cost of a typical single-family home in 2022 was $392,241. Some sources (including data from Zillow) report the average home sale price in the U.S. in 2022 was $348,079.
On paper, building a new home looks more expensive. But what do you get for that extra money?
You get to select floor plans, decide on the quality of the materials used to build the home, and you’ll get to choose whether to install energy-saving features like solar energy components and Energy Star-rated appliances.
You have more say over the final configuration and design of the house than you would if you purchased an existing construction home. For some borrowers, those choices are worth the expense. But for others, paying less out of pocket is equally important.
Choices that Make Building or Buying More Expensive
And by “expensive,” we don’t just mean up-front costs. Your total expenses over the lifetime of the mortgage may vary depending on whether or not you choose a longer loan term and/or to purchase interest rate reduction “discount points” to lower your interest rate at the start of the loan.
If your goal is to save money over the entire loan term, you’ll want to think about discount points and a shorter loan term with either a construction loan or an existing construction real estate purchase.
If you want to save more upfront, you may consider buying an existing home instead of building one. Why?
Because if you use an FHA mortgage to buy an existing property, you can apply for a local down payment assistance program if there’s one offered in your local area to cut your up-front costs.
One-Time Close Construction Loans offered under the VA and FHA Single Family Home Loan programs typically don’t allow down payment assistance. For some borrowers, this can make a big difference, and it’s important to decide early whether down payment help is a priority for you or not.
Your home loan will generally be more expensive if you finance things you could otherwise pay for in case, like the FHA Up Front Mortgage Insurance Premium. It will also cost more if you choose to use add-ons to the loans like an FHA Energy Efficient Mortgage package which provides extra loan funds for energy-saving upgrades to the home.
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