Buying vs. building a house
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Pros of buying a house
- Potential negotiating power: With existing real estate, you might be able to leverage data to get a suitable price. For instance, if your dream home has exceeded 30 days in the market, the seller could be willing to reduce the cost, or if the property in the location is priced lower, you can use that as a justification for a lower offer.
- More options: If you plan on residing in a particular area, it might be easier to get a house there than trying to find land to build on.
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Cons of buying a house
- Potential market competition: The bargaining power stated earlier might be zero, depending on where you’re looking. According to a recent Confidence Index from the National Association of REALTORS®, sellers receive an average of about four bids per property.
- Compromises: In reality, the chances of getting your dream home are minimal when buying. Even when you see a home within your price range, it may not suit your specification. So, you’ll need to be ready for compromise, like having one less bedroom.
- Older appliances and internal systems: While it’s a new home for you, technically, it has been used by someone else. Depending on the property’s age, you might need to carry out some repairs sooner than you think. In addition, your insurance rates will probably be more than what you would pay to secure a new home.
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Pros of building a house
- Get what you want exactly: Construction means modifying. So instead of desiring your dream home with some specific kind of sunroom, flooring, or some other unique features, you’ll be able to change the property design to your taste. Also, you won’t be restricted to a particular neighborhood or location.
- Broader market appeal: Ultimately, your house is an asset, and when it’s time to sell, the latest structure could give you a competitive benefit.
- Move-in ready: When everything in your home is new, you don’t have to bother about any major home maintenance<home maintenance checklist> at least at the beginning).
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Cons of buying a house
- Contractor challenges: Miscommunication, delays, and other subcontractor issues can occur while building a house. To know their work method and timeline, examine a couple of builders and be ready for speed bumps.
- More time: While you’ll save time scouring online listings and attending open houses, you’ll need to wait a little longer for your new home to be completely ready before moving in.
- More decisions: A blank canvas implies you can modify your home, but it also suggests you’ll have to make many decisions. However, focusing on every bit of the erection process can be difficult if you’re occupied with family and work.
Which is economical?
According to U.S. Census Bureau information, the average sales price of an existing home was $357,300 as of February 2022. That’s an increment of 15% since February 2021, which addresses the high demand for houses making the housing market dried up regularly.
Of course, to equally liken the price of an existing home to building your own home, you’d need to consider the cost of the renovations required to make those homes comfortable, with the higher maintenance costs of existing homes.
So, if you’d ask us, we’d say building your own house may be relatively more economical in the long run than buying an already existing one.
How much to build a house?
The costs of constructing a home may vary as it includes multiple factors, including but not limited to labor, permits, materials, architectural drawings and square footage, inspections, etc.
Generally, how much it takes to build a house mainly depends on your budget. However, according to a recent report by HomeAdvisor, the average cost to build a house can range from a least $117,050 to as high as $451,362, with the general average at $283,984. Nonetheless, you must understand that prices differ depending on where your house is located.
Construction cost breakdown
Building your own home means you get what you want precisely and the particular way you want it. For example, maybe the window size is paramount to you, or you want to locate the kitchen where it gets the morning sun.
All these unique specifications are what you tend to enjoy if you build your house rather than buying a home. However, your interior finishes and exterior finishes will have a significant influence on your budget when building your dream home.
Here is the breakdown of what you can expect to spend when building your house:
These features also have extra maintenance costs that need to be considered, so keep them in mind!
What is a construction loan?
Simply put, construction loans are short-term loans used to finance a new home’s construction. Once the construction process is done, you can obtain a home construction loan that changes to a traditional mortgage loan after the construction has been completed.
Also, you can get a construction-to-permanent loan that covers the construction costs and permanent mortgage to pay the construction loan once the project is done, this is referred to as the One-Time Close (OTC).
Nevertheless, various other loans are available when building a home, from the ground-up building to fully refashioning the whole house. So, there’s usually a loan out there suitable for you, whether you’re beginning from scratch with a land loan or the overall home construction process.
How do construction loans work?
The borrower applies for a construction loan by submitting financial plans and project timeframes. If approved, the mortgagor starts earnings concurrently with each project stage, typically just refunding interest throughout the construction process. An inspector or appraiser appraises the building during construction to approve more funds.
Once construction ends, the borrower typically modifies or refinances the construction loan into a permanent loan and starts both principal and interest payments that may include the taxes and insurance monthly.
Construction loans often have variable rates that fluctuate up and down with the key rate. As a result, construction loan rates are usually more than traditional mortgage interest rates.
Depending on the construction loan type, you might be able to change the construction loan to a traditional loan once the house is completed. This is called a Construction-to-Permanent loan or OTC (One Time Close).
What is builder’s risk insurance?
Builder’s risk insurance is a unique insurance policy that protects houses during renovation or construction. Parties listed on the policy are insured against damages or losses like lightning, storms, hail, fire, high winds, explosions, vandalism, contamination, and collision.
Builder’s risk insurance, also known as contractor’s all-risk insurance, isn’t a standard policy so the protection can vary significantly. For example, some policies will range from documents, data construction materials, and temporary structures. Also, policies can guard against injury claims from non-employees and the amount used for replacing or fixing damaged equipment.
Construction loan requirements
There are numerous things to consider when applying for construction loans, like a builder’s cooperation, securing approvals from your localities, and the building timeline with detailed blueprints and a reasonable budget.
Since construction loans carry many risks, mortgagors must meet additional conditions to qualify for this loan. These criteria are:
