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It can be hard to find a house that has everything you want and need, especially in a tight market. You may be considering building a house instead. But can you afford it?
The cost to build a house depends on a variety of factors, including the size of the home, where it’s built and whether you're building a house from scratch or buying in a planned development.
Finding out how much it typically costs to build a house can help you decide if it’s the right move for you.
Cost to build a house
When deciding whether to build a home, you need to figure out how much you can afford with your budget. Looking at the most recently available data from national sources can give you an idea of how much you might pay. For example:
The median price of contracts to build new single-family homes is $281,700, according to 2019 Census Bureau data. Contract price doesn't include the cost of land, landscaping or design changes that may occur after the initial deal is made.
The National Association of Home Builders and HomeAdvisor report their data differently from the Census Bureau.
The NAHB's 2019 construction cost survey looks at the various components that go into the price of a new home, based on responses from 49 builders. The NAHB found that, on average, construction accounts for over 61% of the $485,128 price of a typical single-family home, or $296,652.
At the time of this writing, HomeAdvisor reports the average cost to build a house is $302,194, according to project costs reported by more than 500 members. However, the home services company says the price can range between $157,779 and $477,594.
It’s generally more expensive to build a home than it is to buy an existing one. The factors that have the biggest impact on the price of building a house are the cost of labor, location and level of luxury in your home.
Hiring professionals to construct your home may account for the largest share of total construction costs, about 30% to 60%, according to HomeAdvisor.
The cost of labor varies across the country and will depend on the size and complexity of your design. You may be charged by the job, by the hour or by the square foot. Some of the professionals you may need to hire include:
Architect or structural engineer.
Location of your home
The price of building a house varies depending on the cost of living, materials and labor where you want to live. The average contract price per square foot for a new single-family home is $126.15, according to the Census Bureau. Here’s how that breaks down by region:
West: $158.73 per sq. ft.
Northeast: $155.68 per sq. ft.
Midwest: $129.01 per sq. ft.
South: $110.19 per sq. ft.
Level of luxury
The size and layout of the house, as well as the type of products and finishes you use, will affect the price you pay to build a house.
New construction gives you the ability to customize the home from top to bottom, but upgrades can be expensive. Interior finishes, which include flooring, drywall and cabinet installation, can account for more than 25% of construction costs, according to the NAHB.
Ways to finance your new home
Buying a new home from a builder means contracting with it to construct a home on a parcel of land in a planned development. If you need to get a mortgage, it may be available directly from the builder, and the process may be very similar to financing an existing home.
On the other hand, building a house from scratch means buying land, hiring an architect to design the house and then a builder to construct the home. If you can’t pay cash for the land and design of the house, you’ll need a construction loan.
Construction loan financing
Construction loans are short-term loans that finance the building of a home. There are three different types of construction loans:
A construction-to-permanent loan pays for the construction of your home. After the home is built, it converts to a permanent mortgage.
A construction-only loan covers just the cost of construction. It has to be paid off entirely when the building is complete, usually by a traditional mortgage.
A renovation construction loan covers the cost of major renovations to a home. Once the building is complete, the cost of the renovations is wrapped into the mortgage.
It can be more challenging to get approved for a construction loan compared with a typical purchase mortgage. Lenders view them as riskier because you can’t use the home as collateral, as it hasn’t been built yet.
» MORE: How to get a construction loan