Is it cheaper to buy or build a modern house? Interesting question. It’s one of the most challenging decisions for home buyers. Building a modern house from the ground up is exciting.
You can pick your floor plan, fixtures, features, and furniture to fit in with your lifestyle and needs. But is it cheaper to build a modern house or buy one? A close examination of the cost can help you decide what the best option is to choose. MODLUST is here to help answer the question.
Pros and Cons of Building a Modern House
The first thing to consider is, “What is the cost of building a modern house?” According to the NAHB (National Association of Home Builders) 2020 study, you can expect to pay for a single-family home is $296,652.
While HomeAdvisor estimated $311,455 and the U.S. Census Bureau’s 2019 data states $281,700. However, these figures do not tell you much and depend on other factors. It helps if you took the:
- The location can range between $163,333 to $483,868, which is a large gap.
- The costs per square foot also vary from $100 to $200 per sq ft. and best to check the region.
- Then you need to consider the house itself, from the exterior work, foundation, central systems to framing that can come to $150,0000
- Exterior and Interior finishes $120,000
Lastly, you may wonder if it’s cheaper to buy land and build a house? These figures are another thing to consider not included in the big total. When you look at the NAHB stats for 2020, the average cost is about $90,000 for a plot of 22,000 square feet.
As you can see, there are many building stages of a house. You need to find the time to look for an architect and builder.
Advantages of Building a Modern House
When it comes to building a modern house vs. buying, there are some pros related to it:
You Can Choose Your Home’s Design
With modern homes, you can customize them according to your lifestyle and needs. You can have your current house plans drawn by an architect with open floor plans and larger rooms.
These factors are way better than buying a home with small rooms. You get open kitchens with much light and a kitchen island for added prep space. In the master bedroom, you can have a walk-in closet, while the kitchen provides you with a separate pantry.
From the exterior to the interior, you get control over your design and have the power to control your budget.
Make The Home Energy Efficient
With a modern style home, your electricity bill can be less as you will fill it up with energy-efficient appliances, lighting, windows, smart thermostats, and other technological upgrades.
Receive a Tax Break
Like many other people, you do not want to pay taxes, and the best way to do this is to receive a tax deduction. For this reason, it helps to invest in building a house to save on:
- Property Tax
- Mortgage Interest
- Operating Expenses
When buying a home and calculating these costs, you save loads of money to give you the tax break you need in the long term. You can even make capital gains when you decide to sell your modern home.
Property Value Rarely Depreciates
You can notice this, primarily through the pandemic. Even during the lockdown, the economic recession could not cause a downfall in the housing market. According to the National Association of Realtors, existing-home sales hit a new all-time high, which means that people are still selling and buying homes.
Mortgage Rates Are Low
While property values are still going up, your mortgage rates are low since the beginning of 2020. According to Freddie Mac, the FRM rates dropped by a percentage point to 2.59% (15-year FRM) and 3.13% for (30-year FRM.) For this reason, you can get a mortgage loan at cheaper rates.
Save Money on Rent or Make Money Renting
If you are renting a modern home, you spend thousands every month to pay for it. On average, you can pay for an apartment up to $2000. Then you have added expenses from insurance, application fees, pet deposits to security deposits.
With your own home, you save on these monthly costs. Alternatively, you can always rent out a home part to receive added payments a month with a modern-built house. On the other hand, you can rent out a part of the house to tourists.
Disadvantages of Building a Modern House
One of the cons to building a modern home is the higher costs you pay, but there are other factors as well:
It Takes Times
You will need to be patient, as building a home takes much time, especially if you have a demanding job and are busy. The majority of people prefer to buy a modern house instead of a building for this reason.
You Need to Invest much Money
Building a modern house does not come cheap and depends on the type of property you plan to build on. You may have saved money but can end up applying for an added bank loan to build your dream house.
You Need Skilled Workers
To build a modern home, you need to find help from current style plans, architecture, and building, all adding to significant expenses.
Pros and Cons of Buying A Modern House
Everyone dreams of owning their own home. But is it better to buy a modern house vs building which is better? Most countries, even the U.S, are expected to bounce back in 2021. Many experts forecast that house prices are rising. House buyers are offered a low interest rate making it an excellent time for buying a house in 2021.
Yet, with the timing, you still need to consider the home type you want to build. You can consider investing in a pre-owned residence or choose to live in a new construction modern home. However, you may find that buying a new construction house can outweigh living in a pre-owned one when it comes to benefits.
So what are the benefits of buying a modern house? Here we will look at the pros and cons:
Advantages of Buying a Modern House
When you invest in buying a modern home, you can reap loads of benefits:
You Get a Blank Canvas
This applies when you invest in a new modern built home. You find it decorated in a neutral color scheme to personalize as you see fit when moving in. Furthermore, current plans do not come with traditional design conventions or symmetry leaving you with loads of room to customize. The schematics are flexible, allowing for redesigns or modifications and leaves you in control with more space available. These factors work well for growing families.
The Modern Home is Aesthetically Pleasing
Buying a home with a modern design means you get functional and structural elements that are beautiful and presents you with luxury. You get a clean, sharp line that is stylish with natural stone, metal, glass, and wood, adding a touch of class.
A Modern Home Places Emphasis on Energy and Environmental Concerns
You get an eco-friendly living space made possible by utilizing natural lighting to modern designs for sustainable living. Your home comes with energy-efficient lighting, sustainable building materials, and water-saving plumbing fixtures.
Easy Maintainable Home
Depending on if you buy a newly constructed modern home, it is easier to maintain. You get the latest appliances without the need to deal with a leaking tap or toilet.
Disadvantages of Buying a Modern House
As with building a modern house, buying one also has its negatives:
Unforeseen Structural Issues Pop Up
When buying a newly built or pre-owned home, there is still the concern of subsidence cracks that could happen anytime. As houses shift naturally, a newly built home can take a while to start settling in.
You may find odd cracks that are not of concern, but if it worsens, you need to call in a chartered surveyor to see if it is of concern. You may find that contractors include clauses to change a design and best to keep an eye out for it.
Adding Value Becomes Difficult
If you do not plan to move soon, it is fine, but if you need to move, there might be little you can do to improve your home to move up on the property ladder, like adding rooms to resell your home for more money.
Adverse Effects of Property in the Neighborhood
This is another concern as homes in the neighborhood can negatively affect property values when the time comes to sell your home. Furthermore, many older homes are sold without any guarantee as well. While some defects might not be visible now and you end up spending more on repairs in the long run.
Buying or Building a Modern House: Which one is Cheaper?
Now that you have seen the pros and cons of both buying and building what is cheaper. Building a modern house is more accessible than before. You have many developers presenting you with predefined floor plans and options.
Furthermore, it’s a flexible option to make things the way you want your home to be. However, it all comes down to convenience as you need to get a reliable developer, and the price is also essential. On the other hand, it is 20% cheaper to buy than to build.
So to make it easier for you, we will look at the requirements for building a modern house compared to buying a home for the first time.
Building a Modern House Checklist
If you decide to build your modern home, you first need to plan your budget. Decide how much you can afford to spend and how much it will cost. The chance is that you may still need a mortgage and construction loan.
So first, find out how large a loan you qualify for. Furthermore, it allows you to look at the total home cost from the land, architect, contractor, construction materials, interior features to appliances.
It helps to do this time-consuming process many months before your construction begins. Some other helpful tips are that you need not use the total amount a bank approves and stay under the costs. Also, plan for cost overruns as it can cost more than planned.
Make sure to get three contractor bids by checking each one’s reference and compare materials, and make sure to get involved with the general contractor when picking these. Hers is a checklist to build a modern house to help you on your way.
#1 Choose Your Land
When buying land, look at:
- The Frontage on County Road
- Have a Land Survey Done
- Do a Title Search
- Get Title Insurance
- Check the Water Table to Install a Well
- Do a Septic System Soil Test
- View Solar Heat Options
- Can the Land be Easily Improved
- Review your Loan Documents
- Prepare the Spec Sheets
- Prepare your Materials/Labor Cost Estimates
- Time to Submit Your Loan
- Get a Septic System Permit and Building Permit
- Take Care of the Construction Loan Closing
- Make sure to get your building license
- Get Bond Compliance
- Contact Well Digger for the Water Tap and Meter
Furthermore, make sure to hire temporary services for electricity and water if you do not have a well. Lastly, prepare your pressure site plan.
#2 Pick Your House Plan
You can find many people using a stock plan online, and it can take time. First, decide your house style and check catalogs for ideas. The best option is to use a modern house architect or designer to help. Or you can choose a custom-designed plan instead explicitly made for you.
#3 Negotiate Contracts
As with a building contractor, you need to make sure the subcontractors used are also checked for:
- Make sure they are bonded and licensed
- Do they guarantee their work, and for how long
- Do they have liability insurance?
- Does the contractor has workman’s compensation insurance
- What subcontractors does the building contractor use
- Make sure to get estimates in writing
- Compare prices to decide whom you plan to use
Once deciding on a contractor, make sure to read your contract before signing. These apply to architects, home designers, and more. Furthermore, make sure the contract stipulates everything about the project, from the specs, material, and more.
These are some of the checklists you need to do, but you can find a detailed one from Southland Custom Homes here.
Breakdown of Cost of Building a Modern House
As seen, there are different steps when it comes to building a modern home. Here is a breakdown of the National Association of Home Builders survey from 2019:
- Buying land can cost $90K as you need to decide on a lot and have it cleared and leveled. However, empty lot prices vary from size to location.
- The drawing up of plans and getting your permits costs up to $18K.
- The prep work and building of the home foundation can come to $35K, with concrete the cheapest. Here it depends on the type of foundation you choose from concrete, crawl space, or basement.
- The home framing can cost up to $51K.
- Next is installing the external elements that can cost on average $41K.
- Then you have the electric and plumbing coming to $43K.
- Adding your interior finish can cost $75K.
- Finalizing costs can come to $20K including a deck, patio, landscaping, driveway, and more.
Lastly, your overall cost could become affected by other factors depending on real estate trends, material availability, and labor in the area. As you can see, prices vary according to different aspects.
Buying a Modern House Checklist
As with building a modern home, you can find a buying house checklist here.
#1 Get Your Financial Checkup
You will most probably need a mortgage to buy your home. So you need to find someone willing to loan you money. For a median home, you can expect to pay up to $300,000 or more.
So before you start house hunting, make sure to check your credit reports and scores. As a new home buyer, your credit score needs to be at least 620 to get a conventional loan and for an FHA loan 580. But what about buying a house with bad credit?
The fact is you will find it difficult if you have a 480 credit score when it comes to mortgage loans, as the minimum score is 500.
#2 Time to Set Your Budget
When investing in modern homes, you can look at around $400K, but it does not help if you can only afford one of $150K. So be realistic about it and set a budget that you can afford. Here is a helpful way to set a budget for buying a new home.
#3 Talk to a Mortgage Lender
Now that you know your budget, stop at a mortgage lender to get a pre-approval done. This determines what type of loan you qualify for. Ask them about:
- Possible terms
- Interest rates
- Your requirements for credit scores
A pre-approval guarantees your loan and shows you are financially qualified to receive one. The approval will include the max amount you can lend to spend on your new home.
#4 Find a Real Estate Agent or Realtor You Can Trust
Do your research online or go to open houses. But having an experienced person helps, especially if you are a first-time homebuyer. They provide valuable information on how the market is doing and can provide you with comparable prices. Speak to different agents from trusted online sources, friends, or family.
#5 Time to Shop for Your Dream Home
Now the house hunting starts, and with the help of your realtor, they will help you through the whole process. Then once you have found what you are looking for, gather all your documentation to submit to the financial provider you received your pre-approval loan from. You will need:
- At least two years of your tax returns
- All your payslips with other documentation of your income for the last two months.
- Bank statement, brokerage/investment account statements for two years.
- The proof of the funds for the down payment and closing
- A letter of recommendation from a previous landlord if you rented.
- Your ID
#6 If Necessary Get a Lawyer
This does not apply to all real estate transactions and optional. If not required, put in an offer and start negotiating. If you have arranged for pre-approval, it signals your lender that you are ready to do business and expect to go back and forth multiple times before getting final approval. Once approved, call your home insurance company or get one for coverage.
#7 Get the Home Inspection and Appraisal Done
Always have the house inspected before signing a contract. This indicates there are no hidden problems with the structure that can pop up later. These include electrical, pest, to structure inspections.
#8 Closing the Deal
Now that everything is done, from your loan, finding a home, finalizing the deal, make sure to do a certified check that your down payment with closing costs is made and everything else is in place. The closing process needs to be done in person, while some states allow it to occur online. Completing these things, you can welcome yourself to your new modern home.
Breakdown of Cost Buying a Modern House
When the time comes to buy a modern house, the first thing to consider is the house price. Since January 2020, prices for median sales were %306K, which is an increase of 67%, according to Redfin data.
However, the number varies from the district. So you can expect to pay in Los Angeles $635K and $203K in Chicago. Here is a breakdown of the costs you can expect to pay and vary depending on where you buy. We will use a house price of $250K.
- Down payment % wise can be between $7.5K to $50K.
- Closing Cost 2%-5% $5,000 to $12,500
- Reserves in the bank for making payments for two months $2,218
- Recurring costs for mortgage payments, property taxes, insurance, HOA fees, utilities, and home maintenance
These are some of the costs to keep in mind when you buy a home.
Should You Buy or Build a Modern Home?
Making this decision all comes down to your lifestyle and needs. If you decide to buy a home, it helps to have an experienced real estate agent assist you along your way. If you choose to build using a general contractor, always check the references before making a decision. Here you can find everything from modern architects, modern designers, real estate agents to a list of homes available on the market.