Although home ownership is an exciting prospect it also comes with some significant decisions.

A common question is whether buying or building a home is more affordable. Each path has its advantages and disadvantages. The cost of each option can vary depending on where you live, what kind of home you build and how much you pay.

Let’s look closer at the pros and cons of building versus buying a home. We will also discuss costs and other factors to help you make the best decision for your situation.

  1. Is it more affordable to build or buy a house?

  2. How do you finance your home construction

  3. Financing options to buy a house

  4. The pros and cons of purchasing a home

  5. The pros and cons of building your home

1. Is it more expensive to build or buy a house?

Although it is more expensive to buy a home than to build one, there are many factors that can affect the cost.

According to U.S. Census Bureau and U.S. Department of Housing and Urban Development data, the national median home sales price was $442,100 as of December 2022. (The average sale price was $528,000.

However, the cost of building a house is not always affordable. According to Home Advisor, the average national cost for 2022 will be $284,764, The company notes that the average range is between $110,765 and $495,152.

But, it is important to consider where you live. The average cost to build a house in New York was $600,000. This compares with $214,040 for Iowa.

2. How to finance your home construction

There are many types of construction loans that you might want to consider if you’re looking to build your home.

Remember that construction loans often have higher interest rates than mortgage loans. Instead of receiving a large lump sum, it is more common to receive smaller amounts as your home builds.

These are just a few examples of popular types that might work in your case.

  • Construction-to-permanent loan — This type of construction loan automatically converts to a traditional mortgage once the building of the home is complete, which saves you a step of having to apply to convert the loan.
  • Construction-only loans —If you are unable to repay the loan on time, you will need to request a mortgage loan to convert the loan to construction-only. This will result in closing on another loan and often paying additional closing fees.
  • Cash-out refinance or HELOC — If you own a house and have enough equity, you might be interested in a cash-out refinance or home equity line of credit (HELOC).

3. There are many financing options available for purchasing a home.

There are many mortgage loans available if you’re looking for a loan to purchase an existing house. These are just a few of the possible types of mortgages you might be eligible for.

  • Conventional loans —People who have a steady income and good credit score can often be approved for a conventional loan from either a bank or private lender. Conventional loans are not part of any government programs.
  • FHA loans —FHA loan are provided by private lenders, but they are guaranteed by the Federal Housing Administration. This makes it easier for those with lower credit scores to get approved. FHA loans can be more difficult to qualify for, but they also require mortgage insurance which can increase borrowing costs.
  • VA loans —VA loan are guaranteed by the U.S. Department of Veterans Affairs. This makes it easier to get a loan if you’re a veteran or service member. Lenders may still require applicants to meet certain credit requirements.
  • USDA loans — Anyone looking to purchase a home in rural areas should consider applying for USDA loans. These loans are guaranteed by the U.S. Department of Agriculture. These loans can work in a variety of ways. The federal government either backs the private loan or the government directly issues the loan. To be eligible for a USDA loan, you must live in an area with fewer than 35,000 inhabitants.
  • Jumbo loans —Jumbo loans can be issued by private lenders. They are loans for large amounts exceeding Fannie Mae or Freddie Mac conforming loan limits.

It is important to remember that you can shop around to compare different mortgage loans. Be sure to compare the interest rate and other fees associated with homebuying.

4. The pros and cons of purchasing a home

Let’s look at some of the benefits and drawbacks that come with purchasing a home.

The pros and cons of purchasing

  • A faster timeline It’s usually easier and quicker to sell an existing house than to build one from scratch.
  • Existing landscaping — While mature trees, lush lawns, and blooming plants might be included with an existing house, landscaping will likely need to be done from scratch when you build.
  • An existing community —Building your home may also require you to build a community. Homes that are already part of a neighborhood might be easier to connect to.

The Cons of Buying

  • Less customization — You can choose to renovate, but you will have to be careful as modifications to an existing house are not always possible (not to mention the cost).
  • Needs more maintenance — Older homes can be subject to wear and tear. You may have to pay higher maintenance costs.
  • Bidding Wars — When you make an offer for a home, it is not always clear what other buyers are offering. This can lead to a costly bidding war that could cost you your dream home.

5. Building a home: The pros and cons

Let’s now see how building a home stacks.

The pros and cons of building

  • Your dream home — You can build your home according to your needs.
  • More space — You can choose the size and design of your home as well as whether it is spacious enough to accommodate you and your family.
  • Energy efficient and eco-friendly — You can build your home from the ground up and add energy-saving and environmentally-friendly features like solar panels or high-quality windows to help the environment.

Cons for building

  • You will need permits Getting the right permits can increase costs and take time.
  • More expensive to finance — Construction loans have higher interest rates that mortgage loans.
  • A stressful process — Building a home from scratch can be a difficult task. Even with contractor help, it can be very stressful.

Next: Should I build or buy?

These questions can help you decide if you should buy or build your next home.

  • How much do you have to spend?
  • If you are planning to build, can you get a loan for construction?
  • How long do you plan to move?
  • Are there any “must-haves” or dealbreakers that you need to have in your new home?