Buying vs building a house: Which is the wiser choice?

One of the first choices that prospective homeowners must make is whether to search for a pre-existing home or construct a new one. Both options have their own advantages and disadvantages, and it’s essential to thoroughly assess all the factors to make the most prudent choice. After all, purchasing a home entails a substantial financial and emotional investment. So, we will guide you through the nuances of building vs buying a home to help make the decision easier for you.

 

Building vs Buying a home: Cost

Cost is one of the most important factors to consider when deciding between buying and building a house. There is no straight answer to the question which one of these options is cheaper. The actual expenses can vary significantly, depending on your geographical location and the specific type of construction project you intend to invest in. If you’re in the market to acquire a property, you’ll encounter certain homeownership expenses that warrant closer examination. Let’s delve into the financial aspects associated with both possibilities.

 

Costs of buying a house

If you are considering purchasing a pre-existing home, you should take into account the following expenses:

• Upkeep of older components: Older elements in your home, such as the gutters, roof, or other structural features, may require more frequent maintenance and repairs. Building materials tend to deteriorate with the passage of time.
• Less energy-efficiency: Older appliances typically consume more energy and are less energy-efficient than their modern counterparts. Moreover, you may not have the benefit of a home warranty that covers these older appliances.
• Homeowners Association (HOA) fees: An existing home may be subject to a homeowners association (HOA), which entails additional fees and responsibilities.

Costs of building a house

If you’re thinking about the construction of a new home, you might be wondering whether building a house is more cost-effective than buying one. The answer to this question hinges on factors that are specific to your particular home project. The majority of expenses associated with building a home are likely linked to the following:

• Building materials and construction costs: When constructing a new home, the costs of essential building materials can accumulate swiftly.
• Multiple loans: Financing the construction of your new home may require taking out two separate loans – one for construction and another for the land.
• New major appliances: Unlike pre-existing homes, new construction necessitates the purchase of brand-new appliances.
• Permits and utilities: Adding connections for essential utilities can be costly, and the permitting process for new builds can also come with significant expenses.
• Excavation: The land you purchase may present issues such as drainage problems and foundation challenges, which can be costly to address before beginning construction.
• Preparing the landscape: Although you may have acquired an ideal site for your dream home, preparing the land for construction can be an expensive endeavour. Unforeseen issues beneath the ground may only become apparent once your contractor begins excavation. Additionally, you’ll need to establish utility hook-ups or consider on-site alternatives, like a septic system, in lieu of connecting to a sewer system. Construction will also necessitate the removal of much of the existing landscape.

 

Buying vs building a house: Which is cheaper?

With all the above-mentioned costs in mind, it still might not be clear which will be cheaper. So, here’s the summary. Purchasing land and constructing a house is often more costly than buying a pre-built home. Building a home entails various expenses, including the cost per square foot for construction, additional costs related to design, obtaining permits and more. These costs can vary significantly, depending on the land prices in your chosen location, as well as the materials and labour used for construction.

However, the cost of the property doesn’t fluctuate significantly, as flats are typically bought in areas with high land prices, while plots are commonly found in the peripheral areas of a city, where the cost doesn’t include a pre-built structure. Ultimately, the total cost will primarily hinge on the location where you intend to purchase a house.

It’s worth noting that there appear to be more financing options available for flats compared to plotted developments, as the risks and responsibilities are shared among multiple flat owners in the case of the former. For flats, banks typically offer loans covering up to 80% of the loan-to-value (LTV), while for plots, only 60% financing is allowed. In the case of flats, monthly loan repayments can lead to tax savings, whereas for plots, tax deductions on interest are typically allowed once construction is complete.

 

What does buying a house involve?

If you’ve never bought a home before, it’s essential to understand that the process is more complicated than simply discovering your dream property and securing a loan. There are several steps to consider:

• Obtain pre-approval for a loan: To gauge the amount a lender is willing to lend you, you’ll need to provide comprehensive financial information.
• Begin house hunting: Armed with a pre-approval letter, you’ll have a good idea of the amount you can borrow with a manageable monthly mortgage payment. Now, the search for suitable properties within your budget starts. This stage can be enjoyable, but it may also be frustrating if your budget limits you to smaller spaces or older homes.
• Make an offer: When making an offer, keep in mind that the seller doesn’t automatically accept it. In today’s market, you might even find yourself in competition with other buyers.
• Sign a purchase agreement: Once the seller accepts your offer, you’ll proceed to a formal contract. It’s advisable to have legal representation at this point to include contingencies that allow you to withdraw from the deal if necessary.
• Arrange a home inspection: While not mandatory, home inspections are a wise choice. You’ll hire a professional to meticulously assess the property for potential issues. If any are discovered, you’ll negotiate with the seller for possible concessions.
• Await formal approval: The mortgage underwriting process involves a significant amount of time. Your lender’s loan officers will verify your information, review the results of a property appraisal and make the final decision on whether to approve your loan.
• Closing: The final step in the process is the closing day, where you’ll sign all the necessary documents and cover additional closing costs.,, including registration and stamp duty charges.

 

Buying a house: Pros and cons

When thinking about moving into a new home, many individuals first consider the option of purchasing an existing property. Naturally, there are both benefits and drawbacks associated with buying a pre-existing house.

Advantages of buying a house

Here are the advantages you should consider when buying an existing home:

• Move-in ready: If you’re looking to relocate swiftly, buying an existing home is probably your best choice. Construction projects, whether for a new build or a fixer-upper, typically require time to complete.
• Cost-effective: Generally, you’re likely to find that purchasing an existing home is more cost-effective overall, although this can also depend on the current market conditions. Home loans are typically less risky than land loans and often come with lower down payments and better interest rates.
• Renovation opportunities: Opting for an existing home doesn’t mean you’re stuck with its current features. You have the flexibility to make improvements to the property when time and funds permit, customising your home to better suit your needs.
• Established landscaping: An existing home is likely to come with established landscaping, sparing you the expense of creating it from scratch.

 

Disadvantages of buying a house

Naturally, there are also drawbacks to buying a home. Consider the following:

• House-hunting stress: The quest for the perfect home can be time-consuming and anxiety-inducing. Depending on the timing of your purchase, the real estate market may heavily favour sellers, leading to multiple competitive offers above the asking price within days of listing. In such scenarios, buyers may encounter elevated prices, bidding wars and the frustration of having their offers rejected. It’s important to note that buying an existing home is not necessarily an easier process than building one. If you opt for buying, partnering with a skilled real estate agent can simplify and expedite the process.
• Compromises on home style: Discovering a home that aligns with your taste and preferences can be challenging, particularly when there’s a limited inventory of homes available for sale relative to the high demand. You may find that only a few options are on the market, and they may not fully match your desires.
• Potential maintenance issues: Older homes with ageing appliances, plumbing and electrical systems may necessitate major maintenance sooner rather than later. One potential solution is to consider a home warranty, which provides clarity on the budget for home repairs and offers a reliable contact for addressing any issues.
• Lower energy efficiency: Older homes are more likely to be less energy-efficient, leading to higher energy costs. Achieving the same level of energy efficiency as a new, sustainable home may be challenging, but you can take various steps to reduce the carbon footprint of your older home.
• Possible hazardous materials: Older homes may conceal health hazards from past years that the previous owner might be unaware of. Homes constructed before the 1970s, for example, could contain lead paint, which is especially concerning if you have children. This is a significant consideration when purchasing an existing home.

 

What does building a house involve?

While purchasing a house typically takes about two months from submitting an offer to closing (this duration can vary based on your lender), building a home is a significantly more time-consuming process. Custom homes, where you have substantial input into the design, often require over a year to complete. So, if you’re aiming for a fully custom home, be prepared for a lengthy journey. Here’s an overview of what to anticipate:

• Secure financing: Obtaining a loan for constructing a home differs from securing one for an existing property. You may need a type of loan that covers land purchase and construction expenses, transitioning into a traditional mortgage, usually with a 15- or 30-year term, once the home is built.
• Find the building site: You’ll need to locate either an empty plot of land or a lot with an existing structure to be demolished. If demolition is necessary, be aware that costs will increase. The expense of tearing down, with additional expenses for demolishing structures like garages, decks or swimming pools, can take the over expenses even higher.
• Determine home specifications: When starting with an empty lot, you have a blank canvas, necessitating numerous decisions about the type of home that will suit your current and future needs. Consider accessibility if you intend to stay in the house through retirement.
• Consult with contractors: After collaborating with a designer, it’s time to identify a contractor who can bring your plans to life. Your real estate agent may offer recommendations.
• Obtain required permits: While an experienced contractor often handles this aspect, it’s wise to double-check that you receive the necessary approvals from your city’s permit office. The permitting process can be complex and time-consuming, and failure to secure the right permits may result in substantial fines from the city.
• Begin construction: Building a home, from laying the foundation to installing the roof, involves a considerable amount of time and a workforce. Depending on the type of home, you’ll need to make several decisions throughout the process, including selecting appliances, cabinets and more.
• Inspect the home: Despite being a brand-new construction, it’s essential to have a home inspector verify that the work complies with building codes and is safe for occupancy.
• Closing: If you’ve borrowed funds, the final step in building a house mirrors that of buying a house- a closing, involving the signing of various documents outlining your loan repayment obligations.

 

Pros and cons of building a house

 

 

Just like purchasing a home, constructing a house has its own set of advantages and disadvantages.

Advantages of building a house

Here are the advantages of building a home:

• Complete customisation: Building a home provides you with the opportunity to have full control over the design and layout, allowing you to create a space that perfectly matches your preferences and needs.
• Reduced ongoing maintenance: Newer homes typically come with lower maintenance costs in the near future. New home construction often includes a builder’s warranty for major systems and new appliances often come with guarantees.
• Newer materials: Constructing a new home means you’ll benefit from the use of modern, safe building materials. Concerns about potentially hazardous materials, such as asbestos or lead paint, are eliminated in a brand-new home.
• Enhanced energy efficiency: Newer homes are designed with energy efficiency in mind. If you’re environmentally conscious, you can make sustainable and green architectural choices throughout the construction process to reduce your environmental impact.

Disadvantages of building a house

Here are the downsides of building a home:

• More expensive financing: Obtaining financing for building a home can be more challenging due to the absence of collateral, often resulting in a higher down payment and increased interest rates to mitigate the lender’s risk. You’ll typically require a construction loan to fund the actual building process, followed by a traditional mortgage once construction is finished, with the house serving as collateral for the loan.
• Unexpected costs and delays: Despite efforts to make building a house more cost-effective, expenses can accumulate rapidly. While you may receive an initial cost estimate, unforeseen expenses frequently arise during the project. Delays and cost overruns are common, with costs rising for various components, starting with materials like lumber. Labour shortages can also drive up wages, contributing to higher overall expenses.
• Extended build time: Constructing a home is a significantly longer process compared to purchasing an existing one and moving in. While the end result will be precisely the home you envisioned, the process can be time-consuming and potentially stressful.
• Greater involvement: Building a home necessitates a more hands-on approach. You’ll collaborate with a range of individuals to bring your dream home to life, and you’ll need to make numerous decisions along the way. Approving specifications, reviewing contracts, and managing the financial aspects of the project are all part of the process.
• Potential distance from urban areas: If your preference is to live close to the city centre, finding a suitable lot for building may be challenging. In some areas, available lots have already been developed into homes. Opting to build your own home may require residing further away from urban areas, which could be a drawback for some individuals.

 

Buying vs building a house: Which should you choose?

The decision should only be made after carefully weighing the advantages and disadvantages of both options. When buying a home, factors such as location and price play a crucial role, but buyers must also determine whether they want a new or existing home. An existing home typically offers a quicker move-in date, but buyers need to account for potential costs related to updates or renovations. On the other hand, new homes allow buyers to influence both interior and exterior designs, but often come at a higher cost and involve longer timelines. There’s no definitive right or wrong choice. The ultimate decision hinges on your personal priorities and preferences.

 

FAQs

Which is better: buying a house or building?

The decision of whether it's better to buy a house or build one depends on your specific needs and preferences. Buying an existing house typically offers a quicker move-in option and can be cost-effective, but it might limit your customization options. Building a house allows for complete customization but can be more time-consuming and expensive. Your choice should align with your priorities.

Is buying a house cheaper than building in India?

The cost of buying a house versus building one in India can vary depending on factors such as location, materials and personal preferences. Generally, buying an existing home might be more cost-effective, but the specifics can vary based on the real estate market and the region in India. It's advisable to consult with a local real estate expert to assess the current market conditions and make an informed decision.

Which is the costliest city to buy a house in India?

Mumbai is the most expensive city in India due to its expensive real estate and high cost of living.

How to choose between buying and building a home?

When making the decision, consider factors like your budget, the level of customisation you desire, your timeline and the current real estate market conditions in your preferred location. Each option has its own set of advantages and disadvantages that should align with your priorities.

What are the advantages of buying a home?

Buying an existing home offers a quicker move-in option, cost savings on initial construction, and the assurance of a well-established neighbourhood. You can also see exactly what you're getting, as the property is already built.

What are the benefits of building a home?

Building a new home provides complete customisation, the opportunity to select the latest energy-efficient materials, and the ability to tailor the house to your specific needs. It's the ideal choice for those who have a particular vision for their dream home.

Are there financing options that cater specifically to building a home?

Yes, there are loans that fund land purchase and construction, later converting into a traditional mortgage.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at Jhumur Ghosh