The decision to build or buy a home depends on many factors, including cost, availability of building materials, and personal preference. Because the cost is lower, many people choose to remodel an existing home rather than build a new one from the ground up.
However, remodels are limited in how much of your home they can change. And although remodeling is cheaper, many homeowners still need a loan to cover construction costs.
Read on to learn whether building new construction or remodeling an existing home is the best decision for you.
Pros and Cons of New Construction
One of the best things about new construction is just that: it’s new. No one will have lived in your house before you do, and you’ll know exactly what materials were used to build and finish it. Every detail, from the flooring to the ceiling heights, can be exactly what you envision.
You can also design a new home to be highly energy-efficient, which reduces your energy bills and makes for a healthier environment. Many modern construction materials are eco-friendly and better for human health than their older counterparts.
It takes about seven months on average to build a new house after the ground is broken. This timeframe will depend on the size of your home, the availability of materials, and many other factors. Over the last few years, supply chain shortages have led to longer construction times.
To protect yourself from spiraling costs, choose a lump-sum contract with your contractor rather than a cost-plus contract. A lump-sum contract fixes your cost of building and protects you from spending more than you initially agreed on.
How Much Does New Construction Cost?
However, the greatest con for new construction is the high cost. On average, building a new home from the ground up costs American homeowners $300,000 for labor and materials. If you included the price of land to build on, the cost would be even higher.
The $300,000 average includes pre-construction costs like house plans, permit fees, and any necessary demolition. It also covers the cost of exterior construction, like building a foundation, and the price of interior systems and finishes.
On average, new construction costs about $150 per square foot, although the price can vary depending on your location, labor costs, and the materials you choose to build and finish your home with. In 2021, the cheapest state to build in was South Dakota, and the most expensive was Alaska.
Financing Options for New Construction
Because building a new home is so costly, very few homeowners can afford to finance the construction with their own savings. There are several financing options available for people who want to build their own homes.
Because your house hasn’t been built yet, you can’t use it as collateral for a loan. Instead, many people take out construction loans. These loans are much shorter than traditional mortgages, usually lasting for only one to two years. Most require an initial payment of 20% of the total loan.
Construction loans also have higher interest rates than mortgages since there’s no collateral in place to protect the bank. You repay a construction loan after all the work on your house is done.
If you need a mortgage to pay for property costs like land, you can choose a construction-to-permanent loan. After your house is built, you can roll the loan over from a construction loan to a mortgage so you don’t have to apply for a loan twice.
Pros and Cons of Remodeling an Existing Home
When you remodel an existing home, you make major structural changes, such as adding an addition or removing interior walls. Renovating your home, on the other hand, refers to smaller changes like replacing finishes and updating interior structures.
Remodeling a home can take weeks to several months, depending on the project you’ve chosen. For example, renovating your kitchen could take around three months, while refinishing hardwood floors might only take two weeks. Tearing down walls and making structural changes will take longer than small cosmetic fixes.
One of the downsides of remodeling is that you might not get exactly what you want, even when making major changes to the existing structure. For instance, you can’t change the location of your home with a remodel. If the house is older, you may also be exposed to toxic construction materials.
A huge pro of remodeling and renovating is that you can update an existing home for less than it costs to build a completely new home. However, remodels are usually only cheaper than new construction if you already own the home.
How Much Does Remodeling Cost?
Home remodels in America cost between $19,800 and $73,200 on average. Some areas of the home, including the kitchen and bathrooms, cost much more to remodel than other areas. Total costs depend on how many square feet you’re planning to remodel and what materials you choose.
Costs are also affected by supply availability and labor costs, which can vary by location. In general, more invasive remodel projects that include gutting an area before refinishing it will be more expensive. Sometimes gutting reveals internal problems that can unexpectedly drive up the total price of your remodel.
Renovations usually run at $15 to $60 per square foot, although costs will be much higher for some parts of the house than others. You can remodel your whole home for less than $15,000 if you’re careful or get a high-end home remodel for as much as $200,000.
Financing Options for Remodeling
Although remodeling your home costs less than new construction, most people can’t afford to pay for it out of pocket. There are several loans available for homeowners who want to remodel an existing structure.
FHA 203k home improvement loans combine remodeling costs with a mortgage so new homeowners only have one loan to think about. Although these loans are very specific, they have low interest rates and may be a good option for you.
Cash-out refinancing is similar in that it combines repair costs with your mortgage. A third type of loan, known as a home equity line of credit, can also give you ready money borrowed against the worth of your home. However, all three of these loans carry a high risk since you can lose your home if you’re unable to pay the bank back.
Personal loans, on the other hand, are based on your financial track record. If you have a good credit score and minimal debt, this kind of loan may be right for you. Although personal loans are low-risk, they do have higher interest rates.
Home Sweet Home
Although many people dream of having their own home, financing that dream can be challenging. Whether you choose to build a new home or remodel an existing one, there are options available to help make your dream home a reality.
Use this guide to decide which kind of home is best for you. By counting the cost before you become a homeowner, you can reduce stress and ensure your home shelters your family for years to come.