How does it cost to build a house

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If you’re looking for a house but haven’t found the perfect one, you might be wondering what it would take to build a brand-new home of your own. Building a house might be less expensive than you think, and there are several financing options available to help. However, construction costs have been soaring recently due to supply chain disruptions and labor shortages, so prices — and time frames — are rising.

How much does it cost to build a brand-new house?

The average cost to build a single-family, 2,600-square-foot home in 2019 was $296,652, according to a National Association of Home Builders (NAHB) survey.

According to data from HomeAdvisor, building a house in 2022 can range from as low as $117,050 to a high of $451,362, with the national average coming in at $283,984.

Prices vary widely depending on the region of the country where you’re building. And supply chain shortages have led to an increase in the cost of everything from lumber to home appliances, which will impact the overall cost of building your house.

Cost of new construction per square foot by region

Here are average construction costs around the country, according to HomeGuide. So, if you’re looking to build a 2,000-square-foot home in the South, you can expect it to run around $200,000. Note that these figures take into consideration only the cost of construction. They do not include the price of the land you’ll build on.

• Northeast: $155 per square foot
• West: $131 per square foot
• Midwest: $109 per square foot
• South: $100 per square foot

Home building costs, broken down

You’ll need to take into account a number of factors to estimate the true cost of building a new home. Here’s a breakdown of some of the costs to include in your construction budget.

Source: National Association of Home Builders

Pre-construction

You’ll need to secure the appropriate permits and pay fees to your city or municipality before the work on your home can begin. You’ll also need to hire architects and engineers to make plans for your home. These costs all vary by location, but the average total is around $18,000.

Foundation and framing

The structure of your new home is a major part of the cost and can be a huge chunk of the total construction price. Overall, you’re looking at around $87,000 for foundation and framing.

Exterior

You’ll have to complete the exterior with a roof, siding, windows and doors once the frame of your house is in place. The average cost is about $42,000.

Home systems

The infrastructure that heats your house and provides water and electricity is essential. Most homeowners spend in the neighborhood of $40,000-$45,000 to have all of these components installed.

Interior

From insulation and drywall to cabinets and flooring, finishing the interior of your home is one of the most expensive parts of the project. The nationwide average cost is $75,000, but this can go up significantly depending on your purchase decisions.

Outdoor

Most homes have a driveway and may also include a deck or patio and some form of landscaping. These features can add up quickly. Homeowners spend an average of $20,000 in this category.

Labor

Labor is one of the most important costs involved in home construction — and also one of the most difficult to measure. The final price tag will vary significantly based on each new home’s plans and the amount of work involved. HomeAdvisor says that labor often makes up about 40 percent of a home’s total construction cost.

Expect to pay for a long list of specialized experts to help complete your home project, including roofers, electricians, plumbers, flooring specialists and more. A 2020 NAHB survey found that 69 percent of homebuilders use between 11 and 30 subcontractors to build the average single-family home, with the average being about 24 different subcontractors per home.

Like many other costs associated with home building, the cost of labor increased during the pandemic thanks to greater numbers of homeowners taking on remodeling projects. “Labor costs haven’t risen as much as input costs, like construction lumber, but they are higher,” says Mischa Fisher, chief economist for Angi. “You may also face long wait times for high-quality tradespeople due to high demand.”

Land

Of course, before embarking on your new home’s construction, you will need a place for it to be located. The land costs associated with new home construction typically include the purchase price for the property and also land preparation, such as tree removal or leveling.

Like many other factors associated with the construction of a new home, the cost of land can vary significantly from place to place. According to the NAHB, the average cost of a finished lot that’s about 22,000 square feet in size is about $90,000.

Is building a home cheaper than buying?

Building a new home tends to cost more than buying a pre-owned property, but how much more depends on many factors. And the cost of many basic home building materials spiked dramatically during the pandemic. For example, according to data from home remodeling site Fixr, lumber costs increased 430 percent between 2020 and 2021, reaching a record-breaking high.

“While it depends on the location and size of the home, buying an existing home and remodeling is probably cheaper than building in many areas,” says Fisher. “In many markets, lumber still costs 200 to 400 percent more than it did at the start of the pandemic. Even in the most expensive metro areas, average existing home prices aren’t likely to have risen anywhere near that level.”

Just how much you will save by purchasing an existing home rather than building one depends on the type of property you buy and the condition it is in. “If you’re willing to live in a home that doesn’t necessarily have this year’s remodeling upgrades, there’s a lot of money to save by buying a house rather than building one,” says Thomas Jepsen, founder of Passion Plans, a website that helps consumers build their dream homes.

It’s important to think about your priorities, too, says David Logan, senior economist and director of tax and trade policy analysis at the NAHB. New homes tend to be bigger and more customized, but are also often farther from city centers and public transportation because land is cheaper and easier to acquire in exurbia.

Home building financing options

If you’ve determined that the price of construction is worth it, your next step is to explore your home building financing options. There are several options available, and many offer competitive interest rates and attractive incentives.

Home construction loan

By far the most common form of financing the cost to build a house, home construction loans are designed exactly for this purpose. There are two main types:

• Construction-to-permanent: This is a single loan that covers the cost of the land and construction, eventually functioning in the same way as a mortgage.
• Construction-only: Construction-only loans, also known as standalone construction loans, only finance the construction of your new home and require you to take out two separate loans, which can lead to higher fees and interest rates. This type might make more sense if you currently own a home and plan to sell it and use the proceeds to pay off the loan on your newly constructed home.

Personal loan

You probably won’t come close to financing the entire cost of building a house with a personal loan — the loan amount will be capped for most people at much less than the cost of a house. But you may use this method to pay for specific projects.

For example, if you’ve already secured a certain amount of financing for the construction of your home but need additional financing for landscaping, a personal loan could do the trick. Just keep an eye on your finances and make sure you’re not overcommitting.

Home equity loan

If you already own a home and want to build a new one, you may want to consider using a home equity loan on your first house to finance all or part of the second. The amount you can borrow will depend on how much equity you have in your current home. If you own it outright, you might easily be able to finance the majority of your new home.

Once construction is complete and you move into your new home, you can use the money from the sale of the first house to pay off the home equity loan.

Home equity line of credit

A home equity line of credit (HELOC) is another good option for financing the cost of building a house, provided you have a significant amount of equity. Like a home equity loan, you’ll borrow against the equity in your current house to procure financing to build a new one. The difference is that a HELOC acts more like a credit card than a lump-sum loan, and you’ll be able to borrow from the line of credit as needed up to the amount that you’re approved for.

You’ll also have more flexibility and can choose how much you actually borrow from a HELOC, and you can pay it back and borrow again as needed. This is highly advantageous when constructing a new home, since costs often fluctuate and additional unforeseen expenses can arise at any moment.

Tips to save on building a house

The best way to save on building a house is to get multiple quotes for every step of the process. Talk to several real estate agents, architects, builders and designers and ask each for a written estimate. If one quote is significantly cheaper than the rest, find out why before signing on the dotted line. You don’t necessarily want to pick the least expensive option; it could leave you with a poorly built house that requires frequent emergency repairs or costly add-ons that weren’t included in the initial quote.

You can also save money by doing some of the work yourself. For example, instead of hiring an interior designer, think about choosing the interior finishes yourself. Just be prepared for a significant time investment if you decide to take this route, as you’ll be responsible for choosing everything from flooring to paint to countertops.

Learn more:

• How much does a home addition cost?
• How to finance a tiny home
• How to pay for home improvements

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