How To Decide Between Building vs. Buying a Home

When you are ready to own a home, it can be tough to decide between purchasing an existing home and building a new home. There are many factors to consider as you go through evaluating building vs. buying a house. 

If you want to move as quickly as possible, buying an existing home may help you reach your goals. However, housing shortages can make finding a house that meets your needs challenging, and many Connecticut residents choose to take the time to build a new home to get a perfect fit for their families. 

Pros of Buying a Home

• Faster move-in date: Buying a turnkey home can allow you to move in much faster than you would be able to if you build a home. Even if the construction project goes as planned, building a home could take months. Supply and worker shortages make building a home a time-consuming process. 
• Less expensive: You may be able to get a larger home in a better location for less money if you buy an existing home than you could if you decided to purchase land and build. 
• Landscaping: If having mature trees near your home is important to you, buying an existing home means you can choose a home with trees in the yard. When you build a home, the demands of construction make it difficult to build a house close to trees that are decades old. 

Cons of Buying a Home

• Time and effort: Finding an existing home that meets your needs can take a great deal of effort, especially in a seller’s market. You may not have the luxury of taking a week to think about whether a specific home is the right one — many homes sell within hours of appearing on the MLS. 
• Bidding wars: The influx of people moving to Connecticut from large cities is great news for the state, but it can be difficult to compete with cash buyers ready to snap up property (1). Bidding wars can be stressful and discouraging when you are ready to move, but can’t get your offer accepted. 
• Potential compromises: You may have your heart set on a three-bedroom house with at least two bathrooms, but if there isn’t one available in your price range that’s located in the area where you want to live, you may be forced to compromise. 
• Maintenance problems: The existing home you purchase may have all of the features you want, but with older electrical and plumbing systems, you could face high repair bills. 
• Efficiency problems: Older homes may lack adequate insulation, be less energy efficient, and cost more to heat during frigid New England winters.  

Building a New Home: Pros and Cons

Building a home comes with a lot of advantages over buying an existing home, but there are some real disadvantages that are worth considering as well. 

Pros of Building a Home

• Control over your floor plan: Whether you want three bedrooms and one and a half baths in a house with no stairs, or a four-story home with a bedroom and bathroom on each level, the floorplan of your house is up to you. 
• Custom details: You can customize every detail of your home, right down to the number and location of electrical outlets. 
• No competition from buyers: After you purchase your land, you can proceed with building a home without having to compete — which means no bidding wars. 
• Fewer maintenance and efficiency problems: You can design your new home to be as energy efficient as you please. With all new appliances and systems, maintenance should be minimal during the first years that you live in your home. Some contractors even offer home warranties on new construction homes. 

Cons of Building a Home

• Loan problems: It can be more difficult to get approved for a land loan and construction loan because lenders may consider these loans riskier than a mortgage for an existing house. You may pay higher interest rates and be required to put more money down to get financing to build a home. 
• Unexpected costs: Even though your general contractor will work with you to stay within your budget, there are many unknowns when you break ground on a home. Unexpected costs could cause you to have to reprioritize the features you want in your new home. 
• More involvement and effort: Even with a competent and conscientious general contractor, you’ll be more involved in the process of building your home than you would be if you purchased an existing house. You’ll have to make what seems like thousands of decisions – some of which may seem trivial, and others that are crucial to your future happiness in your home. 
• Longer timeframe: Building a home takes time. Your actual move-in date may be further into the future than you prefer. 
• No landscaping: Landscaping costs add up quickly. Since it’s one of the last things you pay for with your new home, your plans for a tree-lined driveway or a lush front yard and garden may not work out. 

Cost of Building a House Vs. Buying

The value of a typical home in Connecticut is $326,124. Home values rose 20.1% between August 2020 and August 2021 (2). In the northeastern region of the United States, an average-sized newly constructed home with 2,322 square feet of living space is $361,488. (3)

Building a house comes with some non-negotiable costs, such as land and site work, foundation and framing, and major systems. 

Here’s a breakdown of the costs associated with building a home according to HomeAdvisor (HA) and the National Association of Home Builders (NAHB). These prices are national averages, so your costs to build a home in Connecticut could differ from these numbers. 

• Land and site: including possible government “impact” fees for developing the site, engineering, architectural services, inspections and building permits
  • HA: $5,000-$38,000 (3-8% of total costs)
  • NAHB: $18,300 (6% of total costs)
• Foundation: including pouring concrete, backfill, retaining walls and excavation
  • HA: $16,600-$72,000 (10-15%)
  • NAHB: $34,900 (12%)
• Framing: including roof frame, trusses, framing of the main structure and sheathing
  • HA: $16,600-$95,000 (10-20%)
  • NAHB: $51,500 (17.5%)
• Major systems: including electrical, plumbing and heating, ventilation, and air conditioning (HVAC)
  • HA: $17,000-$72,000 (10-15%)
  • NAHB: $43,700 (15%)

Loan Cost Difference Between Buying and Building a Home

The loans you need to buy a home differ from the financing required to build a home. Buying a home typically requires a single mortgage. You may be required to make a small down payment. If you qualify for a first-time home buyer grant in Connecticut, you may not have to come up with additional funds to cover the down payment.  

The Connecticut Housing Finance Authority (CHFA) offers home purchase assistance up to $20,000 to qualifying borrowers. This money can be used to cover the down payment on an existing home and pay for closing costs on the mortgage. (4) Charter Oak is a CHFA-approved lender. Our loan officers can help you get pre-approved for a mortgage. 

Getting assistance with building a new home may be more challenging than if you decide to buy an existing home. Some residents of Connecticut may qualify for assistance with building a new home.  The Habitat for Humanity housing assistance project is administered at the local level, with varying qualifications depending on where you live. With Habitat for Humanity, homeowners must qualify with their income and also be willing to contribute “sweat equity.” Homes are built by volunteers. (5)

Risks of Building a Home vs. Buying a Home

There are risks of buying and building a home. Choosing between the two is a matter of figuring out which risks may apply to your situation. 

It may cost about the same amount of money to buy or build a house in Connecticut, but getting a loan to build a home could be more expensive. You’ll have to come up with a potentially larger down payment, and you won’t be able to take advantage of first-time homebuyer grants and programs. 

If you decide to build a home, you run the risk of experiencing significant delays to your move-in date due to unforeseen circumstances like the all-to-common worker and supply shortages happening throughout the construction industry. However, if you decide to buy a house, it could take a while to find the right home, and you may face a bidding war or lose out to a cash buyer. 

Borrowers who need assistance with a down payment and who would like to take advantage of some of the grants and programs available for first-time homebuyers in Connecticut may find that purchasing a home offers more benefits. 

Tips for First Time Buyers

First-time homebuyers in CT may be able to take advantage of several grants and programs to help you qualify for a loan. If you haven’t owned a home in at least three years or if you’ve never had a mortgage loan, you are a first-time home buyer in Connecticut. 

You may also be able to get first-time homebuyer status if you want to buy an existing home in a Federally Targeted Area of Connecticut, and you don’t have a mortgage when the loan closes. (6)

When you are deciding whether to buy or build a house, there are a lot of moving parts. While Charter Oak Federal Credit Union does not offer construction loans for building a home, our  mortgage professionals can provide assistance and information about the wide variety of mortgage products and services we do offer for purchasing your new home.

(1) Susan Haigh, 2021, Fleeing New Yorkers Squeeze Surrounding Housing Markets, Accessed October 8, 2021, [NBCConnecticut.com] (2) Zillow, Connecticut Home Values, Accessed October 8, 2021, [Zillow.com] (3) This Old House, Cost to Build a House in 2021, Accessed October 8, 2021, [Thisoldhouse.com] (4) CHFA.org, 2021, Downpayment Assistance Program (DAP) Loan, Accessed October 8, 2021, [CHFA.org] (5) Habitat.org, 2021, How to Qualify for a Habitat Home, Accessed October 8, 2021, [Habitat.org] (6) CHFA.org, 2021, CHFA First-time Homebuyer Guide, Accessed October 8, 2021, [CHFA.org]