Imagine walking through the door of a brand-new home and everything is just as you envisioned, built exactly to your plans. Sounds good, right?
Building a new house can be a great way to ensure you get your dream home, which can make it an attractive option. But you may be wondering what the total costs might be, and whether there are ways to save on home construction.
The highlights:
- The home you want, the location, and your timeline may all be important factors in home construction.
- There are different ways you may be able to finance building your dream home.
- Consider including upgrades that may increase your home’s retail value.
The average cost to build a 2,647-square-foot single-family home in 2024 was $428,215, according to the National Association of Home Builders (NAHB) annual survey encompassing 4,000 home builders.Disclosure 1 That price—$162 per square foot—is the highest in the survey’s history, resulting from a shortage of construction labor and overall building material prices. However, home construction and sale prices vary depending on location and your specific home size and features, and construction costs are only part of the big picture.
The building process: Getting started
Step 1: Find your land
Before construction begins, you’ll need to find an appropriate piece of land. Besides the land price, consider cost factors such as location, zoning requirements and land preparation such as clearing, excavation, or utility installation.
Step 2: Consider home type and timeline
Next, you’ll need to think about what kind of home you want, including the home size and floor plan. And consider your timeline: new home construction generally takes about a year, with some variation—and delays are common.
Step 3: Assemble your team
You may then want to research and hire your building team, starting with a general contractor or custom home builder. This person will provide you with estimates, hire subcontractors, and manage the construction timeline, among other things. A custom homebuilder specializes in custom-built homes and may draw up blueprints and home plans, while a general contractor may not.
Step 4: Get construction estimates
Your homebuilder or contractor will provide you with estimates for building materials (lumber, concrete, roofing, windows, and finishes) and labor costs (contractor fees, plumbing costs, electrical costs, HVAC costs), as well as project management costs. Again, these costs will vary depending on a number of factors—building a custom home on a large lot may cost more than buying a home in a new subdivision, for instance. Additional costs may include permits, inspections and other regulatory fees, as well as landscaping and interior finishes.
Getting more than one estimate can help you get a realistic idea of your total cost and ensure competitive pricing. It can also be important to evaluate your options. Choosing standard building materials instead of custom options can help save on costs, for instance, and you might use energy-efficient materials to reduce costs in the long term. If you have the time, you could consider building in phases rather than all at once, which can help spread the costs over time.
Dollars and cents of home construction
The total cost of home construction—and the process itself—may seem daunting, but there are a number of ways you can finance building a home. These include:
Standalone construction loan
A standalone construction loan is a short-term loan (generally a year) which only finances the building phase, including land purchases, contractor labor, building materials, and permits. Because this loan’s timeline is shorter and depends on the building progress, you or your contractor must provide the lender with detailed plans, a timeline, and a budget. Unlike a mortgage, a lender will release funds in stages as work on your home progresses. Typically, you’ll only be expected to make interest paymentsDisclosure 2 during construction—and only on the actual funds drawn to date—until the home is finished. An appraiser or inspector will check progress during construction.
Construction-to-permanent loan
A construction-to-permanent loan converts to a mortgage once the home is completed. You can usually choose a loan term and a fixed or adjustable rate.Disclosure 3 With a fixed-rate mortgage, your payment will stay the same over the life of the loan, while an adjustable rate may be an option for people expecting to move before the introductory period ends (when the interest rate may change).
With a construction-to-permanent loan, after construction is finished, you’ll start making payments that cover both the principal and interest, just like a traditional mortgage. These loans may be privately originated or financed, but there are government versions as well. With a construction-to-permanent loan, you have only a single set of closing costs to pay, which can help reduce overall expenses.
Separate mortgage
It’s possible to take out a standalone construction loan and get a separate mortgage to pay it off when the construction loan comes due. Construction loans usually don’t include design costs, such as an architect or interior designer.
Home equity
If you have equity in your current home, you may be able to borrow against it to pay for home construction.
Future considerations
While building your home, think about construction options and cost-effective upgrades that may increase its resale value. According to Bankrate,Disclosure 4 the top eight home upgrades that boost resale value in 2024 included:
- Garage doors
- Entry doors
- Exterior stone veneer
- Kitchen upgrades including energy-efficient appliances, cabinet facings, and countertops
- Siding
- Deck features
- Bathroom upgrades
- An electric heat pump
Others on the list include hardwood flooring, roof upgrades, and windows.
Depending on your particular circumstances, building a home can be a great investment and may be a better value compared to buying a pre-existing home, although the timeline may be longer, you may face labor shortages and supply chain issues, and additional costs may pop up. Those costs may seem overwhelming, but there are ways to ensure you construct the home of your dreams within your budget.
