In this blog:

• Cost comparisons
• Timing differences
• Labor needs
• Customization opportunities
• Financing options

New Build vs. Renovation: Costs

Like many big decisions in life, choosing between building a new home or renovating an existing one may come down to your budget. As you might expect, it usually costs less to renovate than build. New build costs will include the land you’re building on, plans, permits, materials, labor, and more depending on how customized you want it to be. 

Renovation costs are largely going to come from materials and labor. According to Forbes, the average cost of building a home is $150 per square foot, while the average cost of renovating is $100 per square foot. Of course, the price depends on many different elements like where your home is located, the materials you choose, and your floor plan.

Pro Tip: Whether you build or renovate, you can simplify budgeting with specialized home loans. More on that later.

New Build vs. Renovation: Timing

Building a house takes time, with just how long depending mainly on the level of customization and the area you’re building in. The average construction time for a custom home is about 9 months. Extreme weather conditions (like triple-digit summers in the south and harsh winters in the north) can also cause delays.

You know those home renovation shows where they give the space a complete makeover in one weekend? That’s not how actual renovations work. It may take months to complete what you have in mind. On the plus side, you can tackle your projects one at a time so that you don’t have to pay for everything (everywhere) all at once. This also means you’ll likely be able to live in your home while renovations are ongoing, saving you the expense of a temporary place to live until they’re complete.

New Build vs. Renovation: Labor

When it comes to new build homes, building them is actually the easy part. Labor will be one of the lower costs in your new build budget, but there are several different players involved in the process. Your experience may vary, but you can typically expect to work with:

• An architect
• A builder
• Trade contractors
• Inspectors
• Lenders

For renovations, labor will likely be your biggest expense. Especially for more complex projects like replacing plumbing or HVAC systems, you may need to bring in specialized contractors for different stages of the job. For surface-level updates like new floors and finishes, your labor costs will be lower as the work generally requires less time and skill.

New Build vs. Renovation: Customization

The biggest perk of building a new home is being able to customize it however you like (or however your budget allows). You can make a place your own with renovations, but there’s still only so much you can change with fresh paint and new cabinets. If you’re not planning to be in your home for the long haul, though, renovations are probably a smarter investment. No need to spend more time and money on custom elements that you won’t be in the home to enjoy down the line.

New Build vs. Renovation: Financing Options

We’ve talked about the costs of building vs. renovating, but how about the ways you can actually cover those costs? There’s good news on that front: You can choose from a variety of funding options that allow you to leverage your mortgage to fund your projects.*

*All product guidelines are subject to change, so please consult your loan originator for qualifying details specific to your home loan criteria.

Pro Tip: To qualify for these specialized renovation loans, your projects will need to be done by professionals. If you’re more of a DIY type, a cash out refinance or HELOC (home equity line of credit) could help you leverage your equity to finance home upgrades.

So, is it better to renovate or build new?

New build vs. renovation is a decision that comes down to your unique homeownership needs. There’s no “right” answer, but these guidelines should help you find the one that best fits your goals.

It’s better to build new if:

• You don’t plan on moving again or for awhile
• The ability to customize is your priority
• You already own land to build on
• You have access to other living arrangements for the duration of construction

It’s better to renovate if:

• You’re likely to move again in the next few years
• Budget is your priority
• You live in an area with limited access to labor, materials, and good building conditions
• You need to move in as soon as possible

And remember, if it feels overwhelming or you’re not sure where to start, our team is here to help.

The decision to build new or renovate a home ultimately comes down to your budget, your location, and your move-in timeline

The post New Build vs. Renovation: How to Choose Your Best Fit appeared first on Cardinal Financial.

Getting Started

Building a home isn’t as simple (or as fast) as it appears in those home renovation shows. Teams don’t just show up with a truckload of 2x4s and some concrete. It takes time and coordination to do it right. When going custom, you typically have two “ins,” one of which is far easier than the other. 

Congratulations, whether you’re a first-time owner or someone who’s getting around to building the custom home you’ve been working for your whole life, you’re about to embark on an exciting process.

Option one? Go with a builder that already owns a plot of land and is selling empty lots for your future home. These are typically planned neighborhoods that you’ll have limited control over. You go in, pick a lot, select your finishes, and get financing. It’s straightforward and easy, but doesn’t allow the versatility that a fully-custom home likely would. After all, these planned neighborhoods usually feature set, blueprinted styles and more affordable materials.

Option two? Secure your own lot and hire an independent builder to build a custom home from foundation to finishes. This route is more involved, but grants the buyer (that’s you) more control over the process. 

Custom Construction Loans

Let’s say you opt for option two. In this choose-your-own-adventure story, you’re again looking at two routes:

1. You need a plot of land to build on. Unless you already have one, you’re going to need to buy one. You could obtain separate mortgages for both the land and the construction, but this requires two applications, two underwritings (which means double the credit hit), two closings, and will result in two mortgage payments. 
2. Alternatively, you can go for a one-time close loan. This accessible loan type allows you to bundle the purchase of the land and the labor into one loan. That’s one down payment, one closing, and one mortgage payment. If this option sounds like a better fit, get in touch with one of our experts to discuss the ins and outs of one-time close loans.

Looking Ahead

Next up? A whole host of steps…

Plans

If you’re hiring an independent builder, they may have existing home plans you can choose from. If not, or if you’re looking for something different, you can purchase new plans. Heads up, though: new plans may cost you, but it’s up to you to decide how the cost compares to the outcome. 

For pre-drawn plans, expect to pay upwards of $2,000 or more. For custom floor plans that allow you to map out pretty much every aspect of your home, expect to pay upwards of $10,000 or more. Note: These price points are estimates based on industry norms, but the exact cost will vary depending on the builder you choose.

Builders

When picking a builder, you’re going to want to do your research. Contractors can sometimes get a bad wrap for skipping out on work or using cheap labor and materials, but that’s not always the case. Our advice? Read as many reviews as you can, seek out referrals, and interview multiple builders before selecting one that you feel is equipped to build your dream home. 

Permits

Permits are required for just about every part of the construction process, as are inspections for the work being completed. Adding gas lines? Permit. Grading a yard? Permit. Wiring? Permit. They can be time-consuming and expensive to obtain, but they’re vital because they often require plans. Plans are beneficial because they show that your builder has the professionalism and foresight to hit deadlines and keep the project moving forward. 

Construction

When your team is ready to build, here’s a rough idea of the process you’re looking at, from start to finish:

• Preparation (grading, leveling, etc.)
• Foundation (crawl space vs. slab)
• Framing
• Rough plumbing, electrical, and HVAC
• Siding, roofing, and insulation
• Drywall and fixture installation
• Countertops and flooring
• Finishing touches
• Final walkthrough

Inspection

Not only will local and state officials come through to verify your home’s work is up to code, this is also your chance to look for anything you want taken care of before signing off.

Here, nothing is too small to bring up to your builder. Sure, things will settle over time, but you’ll want to keep an eye out for drafts, leaks, flickering lights, doors that aren’t level, and consistent paint coverage. Not sure about something? Ask your builder. 

After all, this is your home, your expense.

Building Is Great Because…

While building a house might be more complicated than buying an existing home, it comes with its own set of benefits. For starters, what’s not to love about whole-home customization? We’re talking location, layout, lighting, flooring, fixture finishes, equipment…everything. 

With that customization, you get access to new options for energy efficiency, meaning your new construction home can help you save on bills while saving a little bit of the environment. And, because you’re building from the ground up, you face little to no competition with the rest of the housing market.

Downside? The COVID-19 pandemic continues to have lasting impacts on the industry, meaning lead times are longer and materials are more expensive. Speaking of expenses…

The Cost of Building

Details vary, but Architectural Digest reports that building a house can cost anywhere from $500 to $1,000 per square foot depending on location. Meanwhile, American Home Shield’s 2022 American Home Size Index shows that the average size of a house in the United States is roughly 2,500 square feet. 

Crunching the numbers shows us that building a house that size can cost anywhere from $1.2 to $2.5 million—averaging out to $1.875 million. 

If that number caused your jaw to drop, take this bit of solace: Other resources pin the average cost of a custom, similarly sized home at roughly $500,000—just a little north of the average “sold” price of a home in 2022. 

What’s it all come down to? When building a house, your location, equipment, and finishing touches will push your costs up or down. The safe bet is to leave some cushion in your budget, just in case. Even safer? Get pre-approved for construction loan financing with a lender you trust (ahem, we know one).

The post What To Expect When Building a Home appeared first on Cardinal Financial.