For many Americans, owning their own home is part of the American Dream. While purchasing an existing property is an option, building a custom home from the ground up allows for complete control over design, features and location.
However, new construction comes with significant upfront costs that are important to understand before embarking on such an ambitious project. This article breaks down the various expense categories homebuyers can expect when building their own house in the United States.
Land Acquisition
One of the biggest line items is acquiring the land itself, which depends greatly on location. Prices vary wildly across different states and regions. On average, bare residential lots typically cost $50,000-500,000 depending on size, characteristics and neighborhood desirability. Rural acreage tends to be cheaper while developed community plots and premium waterfront properties command higher prices.
Builders estimate allocating 10-30% of total budget just for the land purchase alone when factoring mortgage interest over 30 years. Other associated costs include property surveys, appraisals, legal documentation, taxes and permits adding another $3,000-$8,000 usually.
Construction Costs
Hiring a general contractor to oversee the entire build process incurs labor charges making up the bulk of expenses. National averages show construction costs breaking down as follows:
- Basic Home (1,500-2,000 sq ft): $100-150 per square foot
- Average Home (2,000-3,000 sq ft): $125-175 per square foot
- Custom Home (3,000+ sq ft): $150-250+ per square foot
Cost Categories
Construction budgets must account separately for:
- Foundation & Framing: $15,000-30,000
- External Finishes: Siding, roofing etc. $15,000-30,000
- Internal Finishes: Drywall, flooring etc. $30,000-50,000
- Mechanical Systems: HVAC, plumbing, electric $25,000-50,000
- Custom Features: Decking, fireplaces etc. Variable costs
- Depending on materials, external/internal design complexity and customizations, total build costs for an average-sized home range anywhere from $150,000 up to $500,000 nationally before furnishings and landscaping.
Design & Permitting Fees
Homeowners should dedicate 5-10% of construction costs to architectural design fees if employing a professional to draft floorplans, elevations and 3D renderings tailored to their specific needs and property. Blueprints are legally required for the permit application process as well.
Permitting charges add another $5,000-$10,000 covering various local and county approvals for foundation work, framing, plumbing, electrical, insulation and final occupancy. Many areas now assess impact or construction excise taxes amounting to 1-2% of total project valuation too.
Construction Financing
Construction loans are a much safer option than paying out of pocket for materials and labor billed periodically throughout the build. These short-term bridge loans offer lump sums equivalent to project costs, drawn down periodically as milestones are completed.
Interest rates on construction loans tend to be lower than credit cards or personal loans since the partially-built house acts as collateral until conversion to a traditional mortgage. Overall financing charges add 5-10% over the construction period. Borrowers save thousands opting to fund new builds this way versus cash payments.
Additional “Soft” Costs
Besides physical construction, builders should earmark at least 10-15% more for associated “soft” non-build expenses:
- Insurance: Liability, flood etc during build ($2,000-5,000)
- Utilities: Temporary power, water ($2,000-5,000)
- Inspections/Testing: Soils, framing etc ($1,000-3,000)
- Furnishings/Fixtures ($5,000-50,000+)
- Landscaping/Hardscaping ($5,000-25,000)
- Moving/Storage ($2,000-5,000)
- So in total, factor a minimum 30% buffer on top of raw construction costs for the complete turnkey finished product and smooth relocation.
- Smarter homebuyers pad estimates by 50% or more to cover unexpected change orders or delays extending timelines.
Potential Cost Savings
- While building a custom home demands substantial upfront investment, long-term benefits can outweigh buying an equivalent existing house. Cost-cutting opportunities include:
- DIY Labor & Trades: Subtract 30% doing some work yourself.
- Reusable Materials: Save 50%+ using own stone, beams or reclaimed fixtures.
- Green Building Practices: Minimize 5-15% with energy-efficient systems.
- Bulk Order Discounts: Negotiate lower quotes purchasing materials in volume.
Conclusion
When budgeting for a new construction home, the consensus is to estimate at least $150-300 per square foot excluding the land depending on complexities, market and desired amenities. Securing low-rate financing and utilizing cost-saving strategies wherever feasible will help maximize value from such an major asset purchase for decades ahead. Overall fulfillment of a custom dream home often outweighs the significant monetary investment required to bring it into reality.