Building a New Home vs Buying an Existing Home

Building a new home vs buying an existing one is a question that always sparks debate in today’s real estate market. With surging construction costs, the thought of building a house generally takes a back seat. However, the desire to customise and build one’s own house never fades. From a financial standpoint, buying a home has various advantages. On the flip side, buying an existing home is often quicker, cheaper, and less complicated.

As the construction industry continues to advance, each option comes with its trade-offs. It is a deeply personal decision, considering the challenges and proceeding with what suits best. This blog helps you to understand the significance of each in detail so that you can make a more informed decision.

Is it Cheaper to Buy or Build A House?

The question of whether it’s cheaper to buy a builder’s house is always a confusing one. It’s difficult to jump to a conclusion. There is always a fluctuation in prices and demand in the real estate market. Construction has become increasingly expensive due to material costs and labour shortage. Many often hinge on the question—what do you get for your money?

CASE 1: Building a House:

The average cost to build a 1,000 sq ft house in India is around ₹20-25 lakhs. The costs for architects, plumbers, electricians and all other construction services can be ₹2,500 per sq ft. The land cost can range anywhere between ₹1,500-30,000 per sq ft, depending on the location. The below table will give you the approximate calculation for building a new house as follows:

CASE 2: Buying a House:

In big cities like Mumbai, Delhi, and Bengaluru, the typical cost of purchasing a house is between ₹7,000 and ₹10,000 per square foot. However, there may also be additional monthly or yearly maintenance costs, especially for multi-unit residences. 

Comparison of Prices: Buying vs. Building

On average, the cost per square foot to buy a house in a major city is often higher than the cost to build one. For example, in Mumbai, purchasing a house can cost around ₹10,000 per sq ft, while building one may cost approximately ₹8000 per sq ft including construction and purchasing land.

The cost of building can vary significantly based on various factors.Market conditions and location play a crucial role. Though both new and existing homes can be appreciated, all aspects create an impact. To meet market demands, custom-built homes may have a higher resale value. This can offer wider design and layout attributes.

Pros and Cons of Building A New Home 

Pros of building a new home 

• There is freedom to customise for exact specifications. Hence, individual expectations are satisfied from layout to finishing.
• New homes often come with modern amenities and energy-efficient appliances. This is an added advantage where better insulation and energy-saving systems are integrated. 
• In a new home, everything is brand new. There is no worry about repairs for a while. 
• Many new homes come with warranty features. It covers certain repairs and replacements that are valid for a particular time. 
• Safety codes are maintained in new homes, which provides peace of mind. 
• New homes that use modern materials create a healthy living environment. Therefore, it is less likely to contain harmful substances like asbestos or lead.
• For better convenience and security, integration of smart home technology is feasible. 
• New homes often have higher resale value. This is an added benefit for the future.
• New Home construction often contains special financing options. Also, insurance premiums may be lower with updated safety features.

Cons of building a new home 

• It is time-consuming, resulting in several months to years for the construction process to finish. It can be stressful, and delays are anticipated due to various factors.
• Financial challenges and the need for temporary housing are often disadvantages in building a new home.
• Market fluctuations can impact your budget because they cause changes in material and labour costs.

Pros and Cons of Buying An Existing Home

Pros of buying an existing home 

• Existing homes provide immediate availability for occupancy. This reduces the waiting time compared to new constructions. 
• These homes are often located in established neighbourhoods. It fosters a strong sense of community and makes it ideal for settling in.

• More room for negotiation of the price is possible in the case of existing homes. There is also a deduction of interest in property tax and mortgage. 
• Established infrastructure is often already in place for existing homes. It has schools and public services nearby with proper road construction. 
• It offers location flexibility in the city. 

Cons of buying an existing home 

• Older homes are generally outdated and cause a potential for more hidden issues.
• It often results in higher maintenance costs over time due to the ageing system. 
• The floor plan and design features of old homes may not meet modern preferences. 
• These homes are less energy efficient, leading to higher utility bills. 
• They have limitations with customisation and renovation. This is mainly because of the existing house’s structural constraints. 
• Unlike new homes, existing homes do not come with builder warranties. This results in an increased risk of unexpected repair costs.
• The property tax is also higher in established areas compared to developing locations. 
• Old homes cannot be altered to function for modern designs as the layout is not flexible. 
• They have a high risk for damage as it has an increased potential for pest issues.

Time Considerations For Building A New Home and Buying An Existing Home 

Time considerations for building a new home 

• The planning and design take place for several months. It involves a set of processes, from layout planning to construction and architectural designs. 
• It also takes time to obtain all the necessary permits. 
• Cleaning and preparing the site for construction can take a few weeks.
• Weather conditions and availability of labour and materials can cause delays at various stages.
• The requirement for customisation and any changes to the original plan can add time to the construction process.

Time considerations for buying an existing home

• Finding the right home can take several weeks to months.
• Mortgage pre-approval, making an offer, and negotiating terms can take a few days to weeks. 
• Scheduling and completing home inspections with necessary renovations are needed before closing the process.
• Existing homes allow quicker occupancy when compared to new buildings, excepting the renovation process. 
• Existing homes can have hidden issues, and market conditions can affect the purchase and extend the time.

Financial Tips to Pay for a Newly Built Home

• Get pre-approval for a mortgage to understand the loan and interest rate. 
• Assess your financial readiness by analysing your cash flow, savings, etc. 
• Investigate the builder’s reputation. Research quality and reliability with customer reviews. Negotiate the construction price with the builder. 
• Understand the features and upgrades included with the property. Avoid unexpected costs in the future by knowing all the specifications beforehand. 
• Ensure all legal documents are clear and explore various financial options available with the builder before proceeding. Also, plan for property taxes well in advance.

Financial Tips to Pay for Buying an Existing Home 

• Firstly, check your credit score. Improve your score if required to get a better mortgage rate.
• Understand different loan types and compare the fees and rates in the market.
• The closing fees can range between 2% and 5% of the home purchase price.

Additional Costs And Fees For Both

When dealing with mortgages, it’s important to understand the various additional costs and fees associated with both interest rates and closing costs. Here’s a detailed breakdown:

Interest Rates

Interest rates are the borrowed money expressed as a percentage of the loan amount. It is influenced by several factors: 

• The loan type can be either a fixed-rate or an adjustable-rate mortgage. 

Fixed interest rates are the same throughout the long term. It provides stability in monthly payments, whereas variable interest rates change periodically based on market conditions. There is a fluctuation in the payment. 

• High credit scores typically qualify for a low interest rate. 
• The loan term has a significant impact. The shorter-term loan often has a lower interest rate.
• Several economic factors and market conditions can affect interest rates.

Closing Costs

Closing costs are fees paid after the closing of a real estate transaction. Here are some key points: 

• For the processing of loan applications, the basic charge is between 0.5% and 1% of the loan amount. This is considered a loan origination fee.
• The appraisal fee for a property typically varies from ₹10,000 to ₹20,000 (depending on the flat or villa).
• The legal charges for handling the deal and its closing depend on the company or individual involved.
• Inspection fees range from ₹3,000 to ₹20,000.
• The government usually charges 5% to 7% of the property’s market value for stamp duty and 1%  of the property’s market value for registration.

Conclusion

Building a new home or buying an existing one is a complex choice to make. The market trend suggests that buying an existing home is a go-to choice. However, building a new one always gives opportunities to align with the requirements and standards of individuals. Both paths generally meet the long-term goals and values. Ultimately, the choice depends on a variety of factors as explained.