How much does it cost to build a house?

This article is for educational purposes only. JPMorgan Chase Bank N.A. does not offer this type of loan. Any information described in this article may vary by lender.

It’s typically more expensive to build a house than it is to buy one. It does, however, give you the room to imagine and create the home of your dreams, down to every doorhandle and floorboard. If you choose to build a home, keep in mind that the price will depend on the location, quality and the cost of labor. According to Home Advisor, the national average cost to build a home is about $300,000, leaving the average range anywhere between $150,000 and $445,000.

Building a house vs buying

The cost of building a house vs buying will vary. For a more tailored estimate, make sure to investigate prices in your target market. For example, the price for building a home in Texas may differ greatly than building one in Montana.

Whether you're buying or building a house, you may have some idea of what you’re looking for. If you have a particular vision and the funds to do so, then building may be an option for you to explore. It’s possible to take out loans to build a home if you do not have the cash up front, but it is important to remain financially savvy so you don’t bite off more than you can chew.

On the other hand, you can’t beat the convenience and cost of buying an already built home. If you are looking to buy an already built home, this journey can be relatively quick — especially when compared to building a home. There are still numerous steps that go into buying an already built home, but once you get prequalified for your mortgage, find your home and make an offer, you have the option to move in right away depending on your agreement with the seller. This turnover is beneficial for families or individuals that need to relocate quickly, whereas building a house from scratch can take much longer.

First steps to building your home

There are many advantages to owning a brand-new house including customization options, the opportunity for energy efficiency, less repair costs and more confidence in the quality. Before you can start building your home, you’ll need to figure out how you’re financing the project and get permits to do so. The first step is figuring out what type of loan you’ll need and how to get it. Note that the loans for custom building a house may carry a higher interest rate than a conventional mortgage.

The initial steps toward getting a mortgage for a custom-built home are similar to getting a loan for an already built house:

1. Meet with a lender.
2. Determine how much you can afford.
3. Get prequalified.
4. List your needs and wants.
5. Start looking at various homes and communities.

Then, you must decide on a custom-built home or a production home. A custom home is a house designed for you by an architect of your choice. It’s built based on your personal vision rather than any prior specifications or plans already in place. A production home is oftentimes purchased from a builder who owns a plot of land and is in the process of contracting houses.

When it comes to production homes, design plans, architects and various contractors may be in place when you get started. You can then decide to purchase one of the houses they are already planning on building. You will have some say in the design and any additions you may want to make, but they will most likely be limited to the builder's various blueprints and vision for their neighborhood. Production homes are usually cheaper than a custom-built home.

Average cost to build a house

According to the National Association of Home Builders, here is a relative cost breakdown of building a house:

1. Site work: $18,323
2. Foundations: $34,850
3. Framing: $51,589
4. Exterior finishes: $41,690
5. Major systems: $43,668
6. Interior finishes: $75,259
7. Final steps: $20,116

Like we mentioned earlier, costs will vary depending on your location, architect, contractors, materials, permits, loans and more.

The pros of building your home

The main pro of building your own home is that it is completely customized. You design exactly what you want from the ground up, unless it’s a production home.

A production home may be a happy medium to consider since you’ll still have some say in the style of the home but are essentially choosing from a menu cooked up by a builder. For example, you’ll be able to decide on a floor plan, paint colors and some materials, but the selection will be limited to what’s in the builder's wheelhouse for that neighborhood or plot of land.

Whether you decide on a custom built home or a production home, another pro is what you may recoup in the future. Newer homes are at times valued higher than older homes. This is due to the aesthetics, the low repair costs and energy efficiency. Newer homes have updated cooling/heating systems and plumbing, which can carry a large price if they are old and need repairs.

The cons of building your home

• Building your own home can be harder to finance because you may need a higher credit score for construction loans.
• It takes an average of about 7.7 months to complete. This can mean over a year depending on the size of the home and any road bumps with permits or construction.
• Higher costs. Interest rates and the actual cost for custom-built loans are typically higher.
• Costs may increase as you build, but this can be alleviated by a good builder and constant communication.

Loans that may turn your dream home into a reality

A construction loan and a mortgage are some of the loans that may be required when building your own home. The construction loan is a short-term loan that is necessary for the building of the house. Once the house is built, you would apply for a mortgage on the house.

Types of construction loans:

• Construction-only loan: High risk and high interest short term loan meant to cover about a year for construction.
• Construction-to-permanent loan: High risk and high interest. Similar to the construction-only, the loan covers the construction for about a year with interest only payments but then converts into a permanent mortgage once the house is built.
• Renovation loan: Used for home renovations. Allows the homeowner to purchase and renovate their home at the same time under one monthly payment.
• Owner-builder loan: If you have the credentials to do so, this loan allows you to act as your own contractor.
• End loans: Lower interest, long term loan that helps repay construction loans upon completion of the project.

As a future homeowner, the prospect of designing your dream home can be extremely enticing and, in some cases, very doable. There’s a lot to know before deciding on an already built home, a production home or a custom-built home.