There are several key things to consider when making a home buying decision.
There seem to be pros and cons to each side of every debate.
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If you’re not buying a new home, one of the questions is often whether you’re buying a home that an individual or group of people will move out of, or whether you want to build a home from the ground up.
Personal finance personality Dave Ramsey advises anyone contemplating this dilemma to boil down to thinking about two things: money and time.
He cites a National Association of Home Builders paper published February 1, 2023, saying the average cost to build a home in 2022 was $644,750.
It also mentions a National Association of Realtors finding that the average cost to purchase an existing home was just over $503,000.
The takeaway is that one can save themselves $141,000 by choosing to buy instead of build.
“Now, prices of both existing homes and new buildings have gone up in the past two years,” Ramsey Books. “But it usually costs more to build a house than to buy one. That makes sense, right? Buying something new (whether it’s a wallet, a car, or something else) is almost always more expensive than buying something pre-owned.”
“Think of what a pair of thrift store jeans costs versus buying new at a department store,” he added, using a simple analogy. “This is an extreme example, but still. You get an idea – buy used cheaper.”
Ramsay also addresses some frequently asked questions about building a home.
What is the most expensive part of building a house? Lots of things go into building a house. Some of the big expenses include foundation laying, framing, plumbing, and interior finishing. But your biggest expense may have nothing to do with construction – it’s the land! The average lot price is $55,000.4 But depending on the size and location of your lot, you may spend well over six figures for it.
Do I need a special type of loan to build a house? If you are borrowing money to build your home, you will need to take out what is called a construction loan. This is a short-term, high-interest loan that allows you to withdraw money for each phase of construction – site preparation, framing, finishing, etc. Once the house is completed, most homeowners convert the loan into a mortgage.
What are the hidden costs of building a home? When you are building a house, you should expect some unexpected costs. Building permits can set you back a few thousand dollars. Or your builder might hit rocks while excavating your basement — and this can add thousands of dollars in excavation costs. Raw materials also can jump in price. (Lumber prices have been especially insane in the past few years.) Whatever the case, make sure you have money in your budget for hidden and unexpected costs.
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