Should I Buy or Build a House?

Depending on the condition of the housing market, you may wonder, Should I buy or build a house? There’s no correct answer when it comes to this question. As you might expect, both options have their own benefits and challenges. Which one you choose depends on what’s right for your needs.

Should I build a house?

Instead of hunting for your dream home, why not build it yourself? Building a house from the ground up lets you customize it to your exact specifications and requirements. However, it’s a much more complicated process than buying an existing house.

Will my home be covered by home insurance while it’s under construction?

Generally, lenders will require you to carry some kind of insurance during the construction of your home. This will most likely be in the form of builder’s risk insurance, which is also known as construction coverage or dwelling under construction coverage.

In general, builder’s risk insurance covers the property and construction materials from damage, theft or destruction during a construction project. Even if you’re not borrowing money for construction, it’s a good idea to carry builder’s risk insurance.

Of course, you’ll need to transition to a standard homeowners insurance policy when your home is complete.

Pros of building a house

There are lots of advantages to building your house over buying an existing one.

Ability to customize

When you build a new house, you get to design the space to your exact needs and tastes. You can choose things like the room layout, molding, cabinets, flooring, countertops and any other feature of your home.

More energy efficient

Building lets you fill your new house with modern, energy-efficient appliances. Your cooling and heating systems will be brand new, as well as your water boiler. These new appliances often come with manufacturer’s warranties, giving you added piece of mind for your first years of ownership.

Less maintenance and repairs

Let’s face it, wear and tear shouldn’t be a problem with a newly built home. As a result, there are less upfront maintenance requirements compared to an existing home. There should also be fewer major repairs needed, at least for the first few years.

Cons of building a house

Building a house is a much more complicated process than buying an existing home. There are lots of hidden costs and details to pay attention to.

More expensive

Building a new house is more expensive than buying an existing one. Not only do you need to buy the materials for the house itself, but you also need to buy the land and pay for construction. Other expenses like utility connections and permits also add up.

Landscaping requirements

Before you can build your new home, you’ll first need to prepare the land by removing much of the existing landscape. After the home is built, you’ll need to re-landscape your property, as well.

Longer wait time

It can take several months to build a new house from the ground up. While your house is under construction, you’ll still have to pay to live somewhere until the build is complete.

Non-negotiable prices

If you’re paying to build a new house, you won’t have much room to negotiate on the price. You’re unlikely to get a deal on construction contracts or land permits. Even financing a new house can be more expensive than financing an existing one.

More stressful

There’s a lot that goes into new construction. You’ll likely have your hands full working with real estate agents and builders, securing loans, acquiring permits, etc. Once the building begins, you’ll also need to pick out elements like flooring, cabinets or exterior trim. The expenses—and stress—can add up quickly.

Limited location options

Most new construction homes are built farther away from downtown districts, as most of the land around them has already been developed. This means you may need to drive farther to work or to get groceries.

Should I buy an existing house?

It may not make sense to build a new home, depending on your personal finances, as well as the local real estate market. If this is the case, you’ll be looking at a home that’s already built. Generally speaking, buying an existing house is cheaper than building one from the ground up. However, it may come with some maintenance and repair costs.

Do I need home insurance in order to buy a home?

Most mortgage lenders will require you to carry homeowners insurance with their specific insurance requirements. Homeowners insurance can provide coverage for your home and other structures, your personal possessions, your liability for injuries to others, and other expenses. Even if you don’t have a mortgage, homeowners insurance is a good idea. Generally speaking, your homeowners insurance coverage begins when you close on the house.

Pros of buying an existing house

Here are just a few of the advantages of buying an existing house.

Ability to negotiate

It’s almost always going to be cheaper to buy an existing house than it is to build a new one. Depending on the market and the condition of the house, you may even have room to negotiate when it comes to buying an existing home.

Move-in ready

An existing house is ready to move in when you close. All the essential appliances and systems that you need, like refrigerators, stoves, baths and HVAC, should already be up and running when you move in.

More location options

Existing homes tend to be closer to downtown districts and city centers. This could mean a quicker commute to work, shopping plazas and entertainment areas.

Cons of buying an existing house

Purchasing an existing home can be filled with compromises. While you may be able to save some money upfront, an existing home will likely require more maintenance and repairs in the long run.

More repairs and renovations

When you’re buying an existing house, you may have to account for repairs or renovations. Depending on the age and condition, anything from appliances to flooring to windows may need repairs or replacements. A home inspection, which is required when buying an existing home, can help identify things you need to address.

Less efficient appliances

An existing home will typically come with appliances. These could be older items that are less efficient to operate, or ones that are worn out. When comparing houses, consider the cost to replace or repair appliances in your budget.

Competition with other buyers

Buying a house in the open market often means you’ll be competing with other buyers. As a result, you may find a house that checks off most of your boxes but lose it to another bidder.

Compromise on features

It’s unlikely you’ll find a home with every feature you desire. While repainting a wall is a relatively simple change, changing other features like cabinets, floors or exterior trim can be expensive and time-consuming. Consequently, you’ll probably have to compromise on certain features.

Hazardous materials

Older homes, especially those built before 1980, may have been built with asbestos insulation or have appliances made with asbestos. Lead, another highly toxic material, was used in paint until it was outlawed in the United States in 1978. Some very old homes may also have lead water pipes. Make sure the home is free of hazardous materials before buying.

Hidden damage

One of the biggest unforeseen expenses when it comes to buying an existing home is hidden damage. While sellers are typically required to disclose damage, they can’t disclose damage they’re not aware of. Even an inspector may miss certain damage. For example, it’s possible that water damage, frame rot and plumbing issues may not be discovered until later.  

Impact on homeowners insurance: Building vs buying

Whether you build or buy a home, you’ll want homeowners insurance to protect your investment.  

Cost comparisons

There are many factors that go into pricing an insurance policy. Generally speaking, a homeowners insurance policy for a newly constructed home will be cheaper than one for an existing home.

Coverage differences

The key difference in coverage comes into play during a new home’s construction. You’ll need builder’s risk insurance to protect your home while it’s under construction. If the house is already built, you won’t need to worry about getting builder’s risk insurance unless you’re looking to make additions.

Risk assessment

Older homes can represent a higher risk for the insurer, due to wear and tear over time. Of course, the actual cost will vary depending on many other factors.