The Cheapest Way to Build a House

Housing inventory reached a record low in the United States in 2022. Several factors (including the COVID-19 pandemic, investment buyers, and high construction costs) have limited the number of available homes. If you have been looking to buy a house in the past year, you might have been affected by this shortage. 

This begs the question: is it possible to build a house instead? Would it be better – and even more economical – to build instead of buy? There are some cases where building your dream home is a better idea than trying to buy it. Learn about the cheapest way to build a house and how to draft a financial plan for your future abode.

Is it cheaper to build a house or buy one?

In most cases, it is cheaper to buy an existing house instead of building a new one. As of Q4 2022, the median home sale price in the United States was $467,700. However, building still costs more. Most experts estimate that it costs between $150 to $500 per square foot to build a house. For a 2,000-square-foot home, you can expect to pay between $300,000 and $1 million depending on the materials, location, and labor where you are building.

Home building costs have increased dramatically over the past year. Materials and labor shortages have driven up prices and it costs $84,700 more to build a house in 2022 compared to 2021. 

Regional prices will have a big impact on the cost to build a house. You could pay millions of dollars to build your dream home in Seattle or San Francisco, with both land prices and labor rates running high. Conversely, you could save money by moving to less populated areas. Not only will you save on materials and labor, but you might be able to afford a bigger piece of property as well.  

Follow these steps to estimate your home cost and determine whether building is right for you. Even if you follow all of the tips for the cheapest way to build a house, you might still pay more (or at least the same amount) than if you bought an existing property.

Consider Your Goals for the House

Before you start the construction process, think about why you want to build a house. Are you looking for a cheap solution to find property in a competitive market? Or are you looking for a dream home that you will live in for several years – if not decades? 

Your plans for your house will affect how you invest in it. Start with your roof. A basic asphalt roof can last between 15-20 years. A slate, copper, or tile roof can last more than 50 years. It costs about $8,000 to replace a roof on average. 

If you are planning to live in this house for a few years before moving, you might be satisfied choosing the basic asphalt option. However, if you want to live in this house for the long term, it might be better to invest in durable roofing materials. These materials cost more upfront but come with peace of mind that you won’t have to pay for a roof replacement for half a century. 

There are plenty of ways to save money if you are looking for the cheapest way to build a house. However, the cheapest option isn’t always the best choice for the long term.

Purchase Cost-Effective Land

As you research the cheapest way to build a house, you will realize that every part of the construction process has pros and cons – with different costs for each option. One of the best examples of this is the price of land. Land values will vary depending on the location, parcel size, and features (like a gorgeous mountain view or lake access); however, prices will also depend on the existing amenities. 

Land is given a label depending on how developed it is – or how ready it is for home construction. There are three types of land you can purchase with different levels of development: 

• Raw land: there are very few amenities associated with this land – if any. There are no roads to the property, electric hookups, sewer or septic systems, or water connections. All of these elements will need to be added before you can build your house.   
• Unimproved land: there are some amenities already established on this land. There might be a paved road that connects the land to a larger highway. There might be electrical hookups because of other homes nearby. However, this land still needs some infrastructure improvements before you are ready to build on it. 
• Improved land: this land is ready for you to build on. It has all of the essential elements for water, electricity, internet connections, and sewage. 

Raw land is the cheapest to buy. However, you will need to pay to make improvements before you are ready to construct your house. This takes time, money, and effort to work with contractors. Improved land is the most expensive, but you might save a lot of stress by choosing this option. Evaluate the cost of different land types as you shop for your parcel.

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Identify How Much You Can Build Yourself

Budgeting the cost to build a house isn’t easy because there are so many moving factors. Every part of the building process comes with two costs: materials and labor. For example, your plumber will charge for the cost of the water heater, pipes, faucets, drains, and other elements that are essential for your house. They will also charge an hourly rate for their work or a flat fee for the whole project.

If you hire a general contractor to take over the home build, you will pay for the materials, the labor costs for the construction team, and the labor costs for the contractor to manage the home project. 

Essentially, you pay these people to save yourself time and stress. By hiring professional contractors, you can rest assured knowing your foundation, plumbing, electricity, and other home elements are installed by qualified individuals. By hiring a general contractor, you don’t have to manage these teams and instead receive a fully-built house. If you want to save money when building a house, you need to take on more of the work yourself. 

The cheapest way to construct a house is to be your own builder. Labor accounts for 40% of your total home-building costs. The more people you need to hire to complete specific tasks, the more your building fees will grow.

Evaluate what you can and cannot do on your own. While painting and landscaping are exhausting projects to complete, you can save a lot of money by doing this work yourself. However, you will need to hire trained and certified experts to handle your HVAC, septic, electric, and other essential home systems.

Explore Modular Homes

Another option for finding the cheapest way to build a house is to consider modular homes. Modular homes (or pre-fabricated homes) are constructed in a factory and then delivered to your land. More than 90% of the house is built off-site and the assembly is completed once all of the modular pieces are ready. 

Modular homes are not trailers, tiny homes, or poorly constructed homes. They have the same quality levels as any stick-built house that you can assemble on-site. They also have the same resale and appreciation levels as any other homes on the market. 

Consider working with a modular home company to design the best house for your needs. You might be able to save money by working with an organization that specializes in large-scale home construction. If you are worried about having a property that is tailored to your needs, know that you can make as many improvements and adjustments to your home as you want once it’s built.

Plan for Secondary Costs

On average, it takes between seven and eight months to build a house. This timeline can take much longer if there is a labor shortage in your area, if materials are hard to find, or if external factors prevent your team from working. For example, if you are building during a rainy summer, work could come to a grinding halt anytime there is a storm. 

As you budget for your building costs, consider secondary expenses. Where will you live when your home is under construction? Will you need to keep renting a place or will you move around in temporary housing? If you are staying in a hotel, you might have higher food costs because you can’t cook at home. Other aspects of your life, like your commute and school costs for your kids, could be impacted during the building process. 

Building a house is a great way to learn about personal finance. Make sure you account for these secondary factors so you don’t spend more than you need to before your home is built.

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Develop a Financing Strategy

Once you have a plan for your home building costs, you can move forward with securing financing. The cheapest way to build a house is with cash. If you can buy your land with cash and pay your contractors out of pocket, you can save thousands of dollars on your home costs. 

Most buyers and builders can’t afford to pay for their properties with cash, which means they need to secure financing. Take your time searching for the right lender and improving your financial health (debt-to-income ratio, credit score, etc.) because even slight changes to your interest rates can affect how much your home build project costs. 

Studies show a one percent increase in interest rates can raise your monthly payment by $100. That might not seem like much up front, but $100 over 12 months and a 30-year mortgage adds up. These long-term costs can make building much more expensive than buying – and you will have to recoup these costs when you decide to sell your house. 

It is possible to get an FHA construction loan if you want to build a house. If you plan to live in a rural area, you might qualify for a USDA loan. These programs are designed to provide favorable interest rates to qualified groups. 

Evaluating your financing options is nowhere near as exciting as picking out backsplash designs or choosing your bathroom layout. However, you can save a lot in the building process by finding the right loans.

Talk to a Realtor About Your Options

Building a house is a complex undertaking. While you will enjoy living in your dream home, the financial and time costs that come with building aren’t for everyone. Even if you take steps to follow the cheapest way to build a house, you could encounter unexpected expenses. 

Talk to a Realtor about your options and what the market in your area is like. They might be able to help you find a house that you can remodel into your dream home instead of building from scratch. They can also help you evaluate different land parcels if you are ready to build. 

To find a Realtor, turn to UpNest, which is owned by parent company Realtor.com. The UpNest platform allows you to evaluate multiple agents in your area so you can compare reviews, commission rates, previous sales, and more. 

Our network agents have been carefully vetted and often offer competitive, lower-than-average commission rates to UpNest customers. There is no obligation to sign up with one of our network Realtors and the service is free to use. Try UpNest today and let us help you.

What is the cheapest type of house to build?

In general, ranch-style homes are the cheapest houses to build. Their shapes are usually a simple block so there won’t be any extra costs for custom bump-outs. Builders also don’t have to worry about constructing multiple stories when designing these properties.

Is a two-story house cheaper to build?

It is typically cheaper to build up than to build out. You’ll gain the same square footage in your home but you will be able to work with a foundation, roof, and parcel of land. This can cut your costs significantly.

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