Finding the perfect house to purchase is a difficult task, especially when you take into account the neighborhood, style, space, schools, and of course the cost. When trying to check off all the important boxes on your home wish list, you might not find an already-existing home, so you might consider building. Prices can vary for many reasons, but while it’s often cheaper in the short-term to buy a home, it’s usually better in the long run to build a new one.
Advantages of Building a Home
The biggest advantage to building your own home is that you can select exactly what you want. Many people believe this factor alone is worth building over buying. You also have the ability to create a more energy-efficient home that meets the current energy codes. This can ultimately save you quite a bit on your utility bills each month.
Another perk of building is that a new home might be healthier for you. Older homes can have lead paint, asbestos, or mold. Building a new home also requires fewer repairs and less maintenance, both of which save time and money. Some builders might include a home warranty, so even if something does go wrong, you might have coverage. If you opt to resell your newer home, you might attain higher profits since a newer home is more appealing to most home buyers than an older one.
Costs of Building a Home
According to the National Association of Home Builders (NAHB), the average price of construction for a single-family home in 2019 was $296,652, or $114 per square foot. The average lot size is 22,094 square feet, which is the highest number since the NAHB began calculating these numbers in 2008.
When breaking down the cost of new construction, one of the biggest differences between the price of buying a home or building one is in the land or lot. Existing home prices include the cost of the land value, but when you build a home, you must first purchase the land. This added expense goes into the final cost of your constructed home. Other factors to consider when deciding to build a home include:
- Excavation and foundation: Installing the home’s foundation involves excavating the land by clearing brush, removing trees, and grading the site for drainage. The builder also installs a concrete foundation and backfills it. The type of foundation you opt for is the largest cost variable, with the options including a basement, pier and beam, crawlspace, and slab.
- Framing: Another high cost of building a home involves framing. Building the skeleton of the home, including the roof, involves a lot of lumber. The home’s exterior wall is another expensive item since it covers the home’s perimeter. It also supports the home’s roof and prevents inclement weather from getting inside.
- Interior finishes: Depending on how luxurious you want your home’s interior, the cost for finishes can add up quickly. Factor in the cost of drywall, countertops, flooring, paint, lighting, appliances, and insulation.
- Permit fees: You might have to purchase a building permit, occupancy permit, and utility permits. Depending on your lot size and the area you’re building in, these fees could total several thousand dollars.
- Utilities: If you don’t already have access to electricity, you have to pay to have the electric company to come and connect it. The same goes for natural gas, unless you choose to install a propane tank. You also need a connection to the local sewer system and public water, unless you dig a well.
Advantages of Buying a Home
When it comes to financial risk, purchasing an existing home can be a safer option. Although the exact price of homes varies depending on where you live, buying a home is typically cheaper than building one. Another benefit is mature landscaping. The USDA Forest Service estimates that mature trees can add thousands of dollars to your home value and save up to 56% on air-conditioning costs if you have strategically placed trees.
With a pre-existing home, you also know what type of appreciation to expect. You can investigate to find the home’s previous sale prices and compare the prices of similar homes in the area to determine if the prices are rising, falling, or remaining steady. With a new home, you don’t have any comparable prices, so new construction can be more of a gamble in this regard.
Additional Expenses When Buying a Home
When you consider the costs of buying a home, you aren’t just paying the sales price. There are other fees you need to consider, some of which include:
- Closing costs: Add about 2 to 5% to your purchase price for closing costs, which include underwriting and origination fees, document preparation, appraisal fee, and title insurance.
- Homeowners association fees (HOA): Depending on where you purchase your home, you might have shared expenses with your neighbors. This money goes toward the upkeep of common areas.
- Homeowners insurance: This type of insurance protects you from unexpected events that can cause damage to your home, such as theft, vandalism, or natural disasters. Most mortgage lenders require insurance in some form, although it isn’t required by law.
- Private mortgage insurance (PMI): Unless you contribute a down payment of at least 20%, you’ll pay PMI on your mortgage until the home’s equity reaches that value. PMI is usually 0.1 to 1% of the loan.
- Property taxes: Most cities or county governments require you to pay property taxes on your home as long as you own it. Many mortgage companies include property tax with your monthly mortgage payment.
- Real estate agent commission: If you’re working with a real estate agent, you typically end up paying a commission on the home’s sale. Usually, the buyer’s and seller’s agents split a 6% commission.
Regardless of whether you buy or build a home, the costs can add up, so it’s important to be prepared financially with either option. When shopping for a new home in Northwest Indiana, reach out to Steiner Homes for help with your purchase. We sell accessibly priced lots and build homes in a variety of cities, so take a look at our subdivisions to find an area that works best for your needs.