I will start by saying that, for most people, it is not cheaper to build a house than to buy one.
Why does it make sense for us to build a house?
Mr. Farmhouse Finance and I live in a desirable area with great schools and proximity to NYC. After we got married (one big financial undertaking at a time), and started seriously putting money away for a down payment on a house, we began looking at what was available in our price range. We were very disappointed with what we could afford to buy. Most of the houses in our price range were older (think 1950s split levels or raised ranches, not charming 1800s farmhouses), and on very small lots. There are beautiful old farmhouses all over the place, but we would spend a fortune fixing one up or pay a premium to buy one that was already renovated.
Help from Family
Around the time that we started looking at houses, we had family members buy 30 acres of land (for a swinging good deal). They offered to subdivide the land and give us a piece. That coupled with the fact that our general contractor is also a relative, makes building very affordable to us.
Does it make sense for you to build?
If you are planning on building a house, do your research and keep in mind these extra costs:
If you are buying a Board of Health (BOH) approved lot, this cost could be exorbitant. I have seen one acre (or smaller), BOH approved lots for sale for $100,000. This cost alone could make you reconsider your decision to build.
If you are dealing with a town planning or zoning board, you will be paying every time the town lawyer or legal consultant reviews your documents (think hundreds of dollars a pop).
You will need to hire an engineer to draw maps of your property, plotting the best position for the house, septic and well, as well as designing the road/driveway and any grading for drainage that will need to be done. This will likely set you back a few thousand dollars.
Even if you order your plans online (like we did), you will have to pay an architect to “stamp” them and make any changes that you want. Be prepared to spend $2,000+ on your plans, and potentially a lot more if you’re really customizing your house. In addition, if you buy your plans on a CAD file, you’ll also have to print out the jumbo plans for your contractors.
Since this cost is usually built in to the price per square foot of your house, many people don’t realize that the general contractor adds 10-15% to the cost of your house. It makes sense though because these guys don’t work for free.
With all this being said, for some people, getting to build a house is the realization of a lifelong dream. The extra costs do not outweigh the joy that designing and living in your own home can bring.
Would you rather build a house or buy one?
Illusion of Scarcity Worksheet (PDF)
Download this free worksheet and start paying yourself first.
- Budget for financial obligations and recurring expenses
- Prioritize your financial goals
- Make all your transfers on payday