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Home Buying

Should I Buy or Build a House? The Pros and Cons

Who doesn’t love getting something brand-new—especially if it’s custom-made just for you? The problem is, custom-made things tend to come with higher price tags and longer delivery times—which are important factors in deciding whether you should buy or build a house.

A house is way too big of a financial responsibility to make a wrong choice here. To help you land the best decision for you and your budget, we broke down the pros and cons of building a house.

Let’s check them out!

Is It Cheaper to Buy or Build a House?

In 2020, the average cost to build a house was over $485,000.1 Meanwhile, the average cost to buy an existing single-family home was nearly $309,000.2 That means choosing to buy a pre-existing house instead of building a new one could save you $177,000!

And if you took the middle road and bought a new, semi-custom tract house, it’ll still cost you about $50,000 more than a previously owned home.3

Pros of Building a House

Okay, now that we covered pricing, let’s look at the specific benefits of building a house:

  • Customization. If you build a house from the ground up, you’ll get to personalize the details to suit your lifestyle and tastes—from the layout, cabinets and flooring to the sinks, lighting, paint colors and doorknobs! Even tract homes built within subdivisions allow for some customization in color choices, flooring options and certain finishes.
  • Low to no competition. It might come as a shocker given the state of the world over the last year, but the 2021 real estate market is hot. In February 2021, existing homes were on the market for an average of 20 days!4 With homes flying off the market so quickly, competition to find the best existing home at the lowest price can be tough. But if you already own the land you want to build your home on, you obviously have zero competition!
  • Lower maintenance. Since new homes are built to meet current building codes and have up-to-date technology, you probably won’t have to worry about big repairs or heavy maintenance issues for the first few years—meaning no leaky roofs or failing HVAC systems! Plus, many homebuilders offer a limited warranty if something should break.
  • Lower energy costs. New homes often feature the latest energy-efficient systems and materials, which usually leads to lower energy bills—woo-hoo!
  • Newness. You get to start fresh as the first owner of your home and enjoy brand-spanking-new systems, finishes and fixtures.

Cons of Building a House

Okay, we already know one disadvantage of building a house is that it’s more expensive—which isn’t so bad if you’re able to budget for it. But now let’s consider all the other cons of building a house just to cover our bases:

  • Longer wait time. It takes an average of seven months to construct a new house—not counting the planning and approval stages.5 This means you’ll likely have a gap in living arrangements between the time you sell your old place and build your new one. So you’ll need to be prepared to cover the cost of renting until you can move into your newly built house.

  • Harder to negotiate price. Most buyers go into a home purchase hoping to lower the price. While that’s super common in the resale market, new homes are a little different. Usually there isn’t a lot of leeway on closing costs or purchase price with a builder—unless your real estate agent brings a creative mind to the negotiation table. Still, you’d probably get more bang for your buck with an existing home.

  • Noise and mud. If you build a house where other new homes are being built, you might have to deal with construction noise, traffic and glops of mud along your commute. Sure, things will eventually calm down as other homes get completed, but it’s something to think about if your tolerance for noise level and messiness is on the low end.  

  • Stress. When you build a house, you’ll have to purchase land, decide on a home design, pick out flooring, fixtures, cabinets, countertops, interior trim, exterior trim, and on and on it goes. You’ll have to do all of this and stay within your budget. Managing all the details that go along with building a home takes time and effort. Don’t underestimate the depth of stamina you’ll need to make sure it’s all done the right way.

  • Hidden costs. Those dollar signs you see on the sticker—for things like countertops, fixtures and appliances—are just the tip of the price-berg. Upgrades can quickly drive up the price of your new home and may or may not be rolled into your contract price. Play it safe by budgeting for only those you can cover with cash. And don’t forget about post-move costs like landscaping and blinds—they’ll sneak up on you too.

Tips on Paying for a New Home Build or Existing Home

Whether you build or buy, make sure you stick to a house you can actually afford. Never get a house with a monthly payment that’s more than 25% of your take-home pay—otherwise, you’d be house poor! 

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That 25% limit includes principal, interest, property taxes, homeowner’s insurance and, if your down payment is lower than 20%, private mortgage insurance (PMI). Plus, don’t forget to consider homeowner’s association (HOA) fees when preparing your budget—in case your new home is part of an HOA.

Use our mortgage calculator to enter your down payment amount and try out different home prices within your budget. If you want a mortgage you can pay off fast, talk to Churchill Mortgage about getting a 15-year fixed-rate conventional loan. Any other type of mortgage will drown you in interest and fees and keep you in debt for decades.

If you’re a first-time home buyer, it’s probably better to go the cheaper route and buy an existing house to get in some homeownership reps and build equity (your home’s value minus how much you owe on it) before you take on the challenge of building a new house.

But if you’re confident you can build a house while staying within that 25% limit and still handle all the other homeownership costs like maintenance and utilities, then building a house could be a fun adventure for you.

Whether you buy or build, owning a house you can afford is an incredible way to build wealth!

Buy or Build With Confidence by Working With an Agent

The best way to choose whether you should buy or build a house is to talk it over with an experienced real estate agent. Your agent will know where to find the best deals in long-standing neighborhoods or in up-and-coming communities. And they’ll help you decide if building a house or buying an existing home will suit your needs best.

If you want an agent who will do whatever it takes to help you find the perfect home or plot of land to build on, try our Endorsed Local Providers (ELP) program. We only recommend top agents who share our mission to serve you in crushing your financial goals.

Find the best real estate agents near you!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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