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The housing market is costly, regardless of whether you buy an existing home or build your own. Ultimately, the decision between the two comes down to how much money and time you have.
Building a house has its perks because everything will be new, and you can customize it to your liking. However, building a house may cost more than buying an existing home. It all depends on geography, size, and market conditions.
Learn more: Is it a good time to buy a house?
In this article:
Is it cheaper to buy or build a house?
We aren’t fans of the “it depends” type answers, but in this case, the answer really depends on three main factors: a home’s location, size, and market conditions.
Regarding location, a one-bedroom apartment in Manhattan will likely cost you more than a modest three-bedroom home in rural Kansas. As for size, the bigger the home, the bigger the price tag. But no matter where you’re looking to buy, market conditions rule the day.
When building a home, your end costs are a combination of the land, materials, building labor, and mortgage rates. When buying a new or existing home, your cost will depend on how competitive your local market is, potential seller concessions — or incentives the seller offers to entice you to buy their home — and mortgage rates.
For a quick comparison, here are the costs to buy and build a home with data available as of March 2025:
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Buying a new home: $414,500 (median as of March 2025 via the St. Louis Federal Reserve)
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Buying an existing home: $398,400 (median as of March 2025 via the St. Louis Federal Reserve)
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Building a new home: $323,026 (this is the average, but it can range from $138,937 to $531,294, according to HomeAdvisor)
Now that you know the basics, let’s get into the nitty-gritty cost details of building or buying a home.
How much does it cost to build a house?
Quick look: As of March 2025, data from HomeAdvisor shows that the average cost to build a home in the U.S. is $323,026. However, the typical cost of building a new house is between $138,937 and $531,294.
As we touched on above, the cost of building a new home depends on many factors, including where you purchase the land, the house size, building permits, and current labor and material costs.
Land costs
Location plays a decent role in the cost of building a home — from the state down to the lot level. For instance, according to LandSearch, the average price per acre for residential land in Hawaii rings in at $162,936, while Florida’s average is $131,841 per acre. In New Mexico, the average is $4,313 per acre.
Once you get down to the local level, you’ll find that beachfront property likely costs more than a suburban lot, and certain neighborhoods in town will send land prices up and down based on desirability.
Read more: How to build a rural home with a USDA construction loan
Square footage
Your future home’s square footage plays a role in building cost in two ways: total square footage and the cost of finishes.
In general, larger homes cost more to build because (wait for it) there’s more to build. This means more materials and labor to make your house happen. So, will a modest 1,200-square-foot home generally cost less than a 3,000-square-foot pad with a guest casita? You betcha. But that’s not always the case.
The cost of the finishes you choose for your custom build plays a significant role in your final home cost. Everything is a line item with dollar cost attached, from the cabinets and bathroom fixtures to the lighting, flooring, and trim (think baseboards and crown molding). So, a larger starter home with basic finishes could cost less to build than a smaller home decked out with every bell and whistle in the book.
Building permits
Building a home requires multiple permits from the city. According to 2024 data from Homeguide, building permits can range from $1,000 to $3,000. Additional permits like electrical, plumbing, and demolition (if you’re taking down an existing home to build your new one) can range from under $100 to $600. Your general contractor or home builder can give you a complete rundown on what to expect for permit costs in your area.
Material costs
The price of everything dictates the price of one thing: your home. Lumber, concrete, steel, copper wiring, and even fencing material like corrugated steel and masonry block — prices on all these materials fluctuate based on things like tariffs (which increase the cost to consumers), supply and demand, and the overall quantity and quality of materials.
Labor costs
Building a home isn’t a task for the casual do-it-yourselfer. It’s a multi-staged task requiring several teams of specialty tradespeople. While you might have a single general contractor, they’ll outsource key parts of your build to specialty trade teams. You’ll have a company that builds your roof, another doing the framing, and electricians, plumbers, and drywall teams coming in to make even more magic happen.
Dig deeper: How to use an FHA construction loan to build your dream house
How much does it cost to buy an existing home?
Quick look: As of March 2025, the average cost to buy an existing home in the U.S. is $398,400, according to the St. Louis Federal Reserve.
Depending on where you live, it could cost less to buy an existing home than build one. Existing homes have all of the building costs baked into the price — from the cost of the land to every custom finish inside and the appliances. Even with those costs rolled into the price, you’ll need to keep an eye out for other costs of ownership that can crop up after you sign on the dotted line.
Appliances
Think about how soon you might have to replace things like kitchen appliances and other major mechanical items like water heaters, furnaces, and air conditioners. A great price today could turn into less of bargain if costly items need repair or replacing soon after purchase.
Major repairs
You will likely walk through these items during the inspection, but upgrades and repairs to roofing, plumbing, and stucco or brickwork could add to your costs. Even a fresh coat of interior or exterior paint can run into the thousands.
Homeowners' associations
If your home is part of an HOA, it’s important to consider monthly or quarterly dues as part of your ownership costs. The HOA also might restrict how you maintain or improve your property, which could affect costs.
Homeowners insurance
Homeowners insurance companies scrutinize the age of a home because older houses require more repairs, which means you might have to pay a higher premium.
Bidding wars
In competitive markets, you may face price competition with other buyers, which could increase your purchase price. If the purchase price escalates above the appraised value, you’ll likely need to up your down payment to stay within your lender’s loan-to-value ratio.
Read more: How much house can I afford? Use our free calculator.
Building a new house: What are the pros and cons?
There are many factors to weigh when considering building a new home rather than purchasing an existing house. For example, you can get new appliances and customize the layout, but you may have to deal with getting a construction loan along with a regular mortgage loan.
A compromise: Buying a newly built home
There is another type of new-construction home that still allows you to get a new home without having to go through the building process: a production home.
With a production home, a builder has new homes in a community or multi-story building that are finished or under construction and have never been previously occupied. In this case, you don’t have to hire a builder, obtain permits, or wait for construction as you would with a custom-built home.
In housing markets that are tight with limited inventory, as is the case now, builders might be more willing to offer incentives to prospective buyers. Incentives might include paying for some of your closing costs or buying down the interest rate on your mortgage.
About 59% of builders surveyed in March 2025 said they were offering some form of incentive to buyers, according to the National Association of Home Builders. Even if the listing price seems too high for the new home, it’s worth asking your real estate agent if the builder will negotiate. This is especially true if the units are complete and have remained unoccupied for some time because the builder will be more incentivized to sell.
Buying vs. building a home: FAQs
Is it cheaper to build a home or buy an existing one?
Whether it’s cheaper to build a home or buy an existing one comes down to several factors. When building a new home, you’ll need to factor in things like location, material, and labor costs, plus the overall quantity and quality of materials used to make your dream home a reality. A general contractor can help you build a rough budget and cost per square foot for your envisioned home. From there, you can compare that cost per square foot to existing houses in your market and decide whether building or buying is the least expensive option.
Is $500,000 enough to build a house?
Yes, $500,000 could be enough to build a house. According to HomeAdvisor, the average cost to build a house ranges from $138,937 to $531,294 as of March 2025. Your final costs will depend on factors like location, home size, and material and labor costs.
What is the most expensive part of building a house?
Framing is widely considered the most expensive part of building a home. Since this process form the interior “skeleton” of your home and creates its structural integrity, costs are high due to the labor and precision required.
This article was edited by Laura Grace Tarpley.
