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How Much Does It Cost to Build a House?

laurenbrown
Lauren Brown Updated: December 25, 2023 • 7 min read
house under constuction

Key Points:

  • Understanding the costs involved allows you to budget properly, helping you achieve your homeownership goal.

  • The costs will vary depending on location, size, design, and interior finishes.

  • The average construction cost for a single-family home in 2022 was $153 per square foot.

You might already know what your dream house looks like, but do you know how much it costs to build it? As you contemplate constructing a home, you may also want to consider the financial implications. Understanding the costs involved allows you to budget properly, helping you achieve your homeownership goal.

The average construction cost for a single-family home in 2022 was $153 per square foot.

The Basics of Home Building Costs

The costs will vary depending on location, size, design, and interior finishes. Consider each aspect as you budget for your home build.

Based on information from the National Association of Home Builders, the average construction cost for a single-family home in 2022 was $153 per square foot.

This number calculates the national average. Its' location decides how much it costs to build a house, as expenses vary regionally. For example, land prices increase near urban centers or popular tourist destinations. Labor rates may also be higher in these areas due to greater demand.

Other determinants of your construction cost are the home's size and design. Larger houses require more materials and labor. This increases costs. Similarly, custom designs or luxury finishings can drive expenses higher, while simple designs offer a more budget-friendly solution to homeownership.

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Comparing Costs: Building Vs. Buying a Home

There are financial considerations when choosing between an existing home and building your dream house.

Aspect Construction of New Home Buying an Existing Home
Customization High level of customization to personal preferences Limited to an existing structure, requires renovation
Up-front Cost Higher average costs can range from $100,000 to $400,000 and above. Potentially lower, national average, around $200,000 - $300,000, varies significantly by location.
Modern Amenities Comes with modern amenities Depending on the age and condition of the home, it may require updates.
Energy Efficiency Potential for high energy efficiency Varies; older homes may be less efficient
Maintenance Costs Generally lower in the beginning It can be higher, especially if upgrades are needed
Long-term Financial Advantages Energy efficiencies can save costs over time Depends on renovations and maintenance
Occupancy Time Longer, as the home needs to be constructed Quicker, as the property is already built
Renovation Not required, built to specifications Often required to meet personal preferences
Average Costs Varies widely; national averages can range from $100/sq ft to $200/sq ft or more. National averages around $100/sq ft to $200/sq ft, highly dependent on location and property condition.

The choice between building and buying comes down to balancing immediate costs, personal preferences, and lifestyle needs. Both options have their own set of pros and cons. Regardless of your decision, be sure it aligns with your current financial situation.

The Cost of Building a House

Several factors are needed to determine how much it costs to build a home.

Land Acquisition Costs

The process of building a house begins with purchasing land. Land acquisition prices vary widely, influenced by a region's popularity and accessibility. Site preparation includes purchasing land, connecting to utilities, and obtaining necessary permits. It accounts for about 3% of the total cost.

For example, urban and coastal areas often command higher prices due to heightened demand and limited availability. In contrast, rural areas may offer more budget-worthy plots of land.

Purchasing land is a significant part of the initial investment in house construction. You can bypass this step if you own property, reducing your overall cost.

Architecture Fees

Hiring skilled architects will add to your budget, though it is a necessary expense. The complexity of your layout and the size of the house directly impact the cost. The more intricate the design, the higher you expect to pay.

Investing in a good design leads to a more efficient construction process. It can prevent delays due to design issues and modification requirements. Complications are less likely when you hire a reputable architect and design team.


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Material Costs

If you are wondering, “What is the most expensive part of building a house?” material costs are among the answer. The average material cost to build a house fluctuates based on market rates and the specifics of your choices. About 50% of your total budget will likely go towards construction materials. Lumber is one of the most expensive components, averaging between $25,000 to $65,000.

For example, you can expect your construction costs to increase by selecting high-end finishes, such as granite countertops or hardwood floors. You may also find that opting for energy-efficient materials is more expensive now, though it can offer long-term savings.

Note that the cost of materials has been particularly volatile in recent years. During the Covid-19 pandemic, for example, the price of materials soared with supply chain interruptions and heightened demand. As you budget for your dream home, remember that price swings in this category are common.

Labor Expenses

Labor costs are significant, accounting for around 40% of a home construction budget. Specific rates depend on the region, proximity to urban centers, and demand. Urban areas generally have higher labor rates.

To minimize labor expenses:

  • Consider getting multiple quotes from different contractors.
  • Schedule your build during the off-season when demand is lower.

But, be cautious of scrimping too much on labor regardless of where and when you build. Skilled workers might cost more upfront but can lead to better quality work and fewer issues over time.

Interior & Exterior Finishes

These finishes contribute to about 5% of the total cost. The options are endless and can significantly impact the overall budget. After paying for raw materials and contractor rates, additional costs may exist with interior designs in your home. Consider the purchase and installation costs of HVAC, plumbing, and electrical systems.

Permits

Building a house requires various permits with the specifics depending on local building regulations. You may need to get one or all of the following:

  • Building permit
  • Electrical permit
  • HVAC permit
  • Plumbing permit.

Legal Costs

While this is not always the case, you might encounter legal fees associated with land purchase or construction. Understanding local regulations and seeking expert advice can help streamline this process. Consider these costs early in your planning stage to avoid unexpected expenses.

Additional Costs

Imagine you have undergone careful planning and stuck to your budget. Then, surprise! You get hit with an extra bill. How did this happen? Unfortunately, additional expenses accompany the construction process. Often, homeowners allocate 10% to 20% of their total budget for these costs.

For example, you may find issues with ground preparations or experience weather-related delays. Last-minute changes and customization, such as special windows or unique architectural details, can also add up.

Consider adding a contingency fund to your budget, ensuring you are financially prepared. 

How Much Does It Cost to Build a House Across the US?

The average cost of building a house varies throughout the country. Regional costs differ depending on the local economy and availability of resources. The cost of living also impacts construction costs by influencing labor and material prices.

As published on HomeGuide, construction costs in the US can range from $100 to $155 per square foot. The specific region dictates where expenses will likely fall.

For example: Construction averages around $155 per square foot in the Northeast because of higher labor rates and material expenses. The Midwest and South are more economical, costing around $110 and $100 per square foot, respectively. The Western region of America falls in the middle, with an average construction cost of $131 per square foot.

How to Finance Your Home Building?

With plenty of financing options, building your dream home may be more affordable than you think.

1. Home Construction Loans

Home construction loans are specialized financial products available to those building a home. The most common types are construction-to-permanent and construction-only loans.

A construction-to-permanent loan provides funding for the construction phase, then converts to a mortgage upon completion. This option offers the convenience of a single loan application and closing process.

Construction-only loans cover the building phase but nothing more. After construction, the borrower must secure a separate mortgage to repay the construction loan. This option might be preferable for those with large cash reserves or plans to sell another property.

2. Home Equity Loans and HELOCs

Aside from traditional construction loans, there are options for those who already own property and wish to use their equity to finance construction. A home equity loan offers a lump sum with fixed interest rates. A home equity line of credit (HELOC) provides flexible access to funds up to a pre-approved limit. Typically, HELOCs have variable interest rates.

See here: Home Equity Calculator

3. Personal Loan

While the size of a personal loan is often limited, it may be a suitable option at times. Personal loans can satisfy the cost of smaller projects or home renovations. They can also supplement your existing funds to cover any gaps in financing.

Tips for Minimizing Building Costs

Now that you have estimated the construction costs, your next question may be: How do you save money on building a house? Strategic planning and budgeting are essential here.

Begin by setting a clear budget and sticking to it. You may also want to include a contingency fund to cover unforeseen expenses. As you approve each construction step, consider its impact on your finances.

A few other tips for saving on house construction include:

  1. Choosing a simple, efficient design limits planning fees while requiring fewer materials and less labor costs.
  2. Researching and comparing prices for materials to find cost-effective solutions.
  3. Purchasing materials that offer a balance between quality and affordability.
  4. Utilizing energy-efficient designs to save on utility costs over time.
  5. Hiring a reputable contractor to ensure quality craft and reduce the likelihood of costly errors.
  6. Timing your project to avoid peak construction seasons. Prices for both labor and materials tend to be higher during these times, so you may save just by building in the off-season.

While cost-cutting efforts can help save money in your pocket, others come at the cost of quality. As you make decisions regarding the cost of your dream home, consider the importance of budgeting and planning ahead. 

Conclusion

Building your ideal house is a process of decisions - each impacts the final cost. As you daydream about your future home, consider creating a realistic budget. This budget can incorporate several factors and should mirror the expenses of similar builds in your local area. Once you have a budget and plan, the next step is straightforward. Follow it! It is the key to altering your idea of a dream home into an affordable reality.

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FAQ

What is the most expensive part of building a house?

The most expensive part of building a house involves laying the foundation and constructing the framing. These two steps encompass substantial material and labor costs.

Can the cost of building a home change during the construction process?

Yes. The cost of building a house can change during construction for various reasons. For example, your expenses may change along with modifications in design, unforeseen construction challenges, fluctuating material prices, or changing labor costs.

Is it cheaper to build a house if I already own the land?

The cost to build a house if you already own the land is often less. This is because it eliminates the need to purchase a plot. Land ownership primarily reduces upfront expenses, making the building process more economical.

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laurenbrown
Written by Lauren Brown linkedin-icon

Lauren has over a decade of experience in wealth management and financial planning. She is a CFA charterholder and holds a Bachelor's degree in Finance. Lauren has worked with several asset management firms, offering wealth advisory and portfolio management services to high-net-worth clients.