If you don't mind waiting for the construction process to complete and you can afford a higher price for your dream home, having a new home built can help you get the exact features and design you want and avoid the limitations of buying an existing property. When comparing building costs, looking at the cost per square foot – which is the home price divided by the size – can help you with a rough comparison of your building options. This number, however, varies by many factors and comes with limitations.
Take a look to get a better idea of home-building costs and key factors.
Understanding New Home Pricing
Just like when you buy an existing home on the market, new home pricing depends on several characteristics of the property as well as the housing market where you build the home. The house's size (including the number of bedrooms and bathrooms) and the lot it sits on play a role along with factors like the type of driveway, systems and amenities the home has. Since you need to have land for the home, and the material and labor costs vary by location, the desirability and quality of the area affect the pricing as well as how much demand there is for new housing.
You can expect a new home build to usually cost more than just picking an existing home, since you get the perks of everything being new and having more control over what goes into the house. While companies sell new model homes with customization, you also have the option to hire contractors and customize every detail from choosing the home's design and material to adding high-end countertops and landscaping. Whether you want a small two-bedroom house or a two-story home with four bedrooms, the floor plan plays a major role in the final cost per square foot.
Read More: How to Tell What a Home Is Worth by Zip Code
Looking at Home Pricing and Sizes
The actual cost of a home depends on the various factors involved and can rise or fall depending on the economy, supply and demand. However, looking at some data through government agencies offers insight into the typical prices of new versus existing homes.
For some general numbers, consider that the U.S. Department of Housing and Urban Development (HUD) reports that new homes sold at a national median price of $333,100 in 2020, up from $321,500 in 2019. Looking at costs by region, the new home median prices ranged from $293,800 in the South to $472,000 in the Northeast. The national median for existing home sales was $296,700 in 2020, up from $271,900 in 2019. Considering the median price by region, the HUD's numbers for used homes ranged from $233,200 for homes in the Midwest to $444,800 for homes in the West.
Data from the U.S. Census Bureau offers better insight into the typical home size and cost per square foot for a new home. The typical new single-family house in 2019 measured 2,322 square feet and sold at a median price of $321,500 and an average cost of $383,900. Going by these prices and the size, this would mean a median price per square foot of around $138.50 and an average cost of $165.33 for single-new family homes. The U.S. Census Bureau also provided an updated median new home sale price for February 2021 of $349,400 but didn't give a specific size to determine cost per square foot.
Calculating Cost Per Square Foot
Reinbrecht Homes cautions that determining the real cost per square foot for a new home construction can be tricky, since every single cost for the finished home needs to be known. Therefore, you can expect only to have a rough estimate until every cost is identified and invoiced. Further, the home builder warns that the square footage usually just refers to the livable area and disregards components like a porch and garage. So, two houses with the same square footage can have very different prices depending on how big the garage and porch are as well as upgrades the buyer chooses.
If you can get the measurement of the home's livable area plus the estimated total cost, you can use a simple calculation to get the cost per square foot, and many times you can find the information with a price estimate or new home listing. For example, sites like Zillow and Trulia list new home constructions with the sale price and the number of square feet, and if you scroll down to the home's details, the price per square foot is already calculated. Otherwise, you can take the home's cost and divide it by the livable square footage to get the cost per square foot.
For your convenience, you can use a real estate price calculator that does the math for you. For example, a 2,500-square-foot new home with a $300,000 price would work out to $120 per square foot, while a 3,000-square-foot home costing $500,000 would be around $167 per square foot.
Read More: I Want to Build a House: Where Do I Start?
Pricing for Different Build Options
The method used for constructing a new house affects the final price tag and cost per square foot. Some of the most popular options include buying a new model home construction, doing the work to hire all the necessary professionals for your new home project, including a general contractor, or taking on the entire job on your own by hiring subcontractors and supervising it all yourself. These options differ both in pricing and the amount of work future homeowners have to do.
Buying a model home through home builders such as Ryan Homes means that the company handles all the work for you, but you pay a higher price per square foot (sq ft) due to markup from factors like marketing costs and the company's need to make a profit.
Hiring construction teams for the project can offer the best options for customization, and you may save money if you shop around for affordable land, labor and materials.
The do-it-yourself approach can have the lowest cost per square foot but also involves the most work. Unless you have all the skills, you'll still need to hire subcontractors.
For any of these home-building options, the cost per square foot goes up based on the particular options you want for the home. Whether you want granite countertops or luxury flooring, these come with higher costs than basic building materials and will boost your home's overall cost. Therefore, it helps to shop around to reduce expenses wherever you can and determine which upgrades you can go without to suit your budget.
Read More: How to Add Cheap Square Footage to a House
Exploring Major Home Construction Costs
To get a better understanding of what affects the cost per square foot, you should learn about the major home construction costs you'll experience with any of the building options. For example, the National Association of Home Builders (NAHB) reported a national average total construction price of $296,652 for a 2,594-square-foot single-family home in 2019, and this accounted for around 61 percent of the new home's sale price.
Here are the types of construction costs the NAHB identified as well as how much of an effect they had on the total cost:
- Site work: This category includes preparation of the home site including getting a building permit, having inspections performed, paying the impact fee and having engineering and architectural services performed. It makes up around 6 percent of the cost.
- Major systems: While the actual appliances and fixtures get categorized as interior finishes, the prep work for the air conditioning/heating (hvac system), plumbing and electrical systems make up around 15 percent of the home construction cost. This includes tasks for home builders such as running wiring, creating ducts for the hvac and installing pipes.
- Framing: Making up around 17 percent of home construction costs, this includes making the home's skeleton structure and roof. While the framing process makes up most of the cost, sheathing, metalwork and trusses also play a role.
- Interior finishes: Making up around 25 percent of the construction costs, this includes items such as the insulation, lighting, flooring installation, kitchen countertops, cabinets, paint, inside doors and drywall. Appliances, plumbing fixtures like sinks and extras like a fireplace also help make up some of the cost. The upgrade options you choose in this category particularly can raise the cost per square foot.
- Exterior finishes: Making the exterior walls, putting in the outside doors and windows and finishing the roofing installation make up around 14 percent of the construction fees.
- Foundation: The early construction phase where the land is prepared for the home and the foundation is laid costs around 12 percent of the construction price.
- Final touches: Making up around 7 percent of the construction cost, this category includes the landscaping, driveway, and outdoor items like porches and patios and then cleaning up after the construction process completes.
- Miscellaneous: Although the NAHB didn't identify any specifics, other costs made up close to 4 percent of the total.
Read More: What Are the Costs When Building a House?
Considering the Other Costs Involved
Although you might not have to deal with certain costs if you build the house entirely yourself rather than hire professional home builders, you can still expect to pay a significant amount toward non-construction items when you consider the final sales price for your new home. This means the actual cost per square foot goes beyond just the labor and materials needed for the building process.
For example, the NASB allocated around 39 percent of a new home's sale price to items such as the land, financing fees, marketing and commissions, overhead expenses and profit. Some of these items – such as marketing, profit and commissions – mainly apply to new construction homes you buy through a company rather than one where you build it yourself or you simply outsource the work. Others, like the land cost and financing fees, depend on the location and lot you choose as well as the loan terms you can get based on your financial situation.
Read More: How to Get a Construction Loan in Tennessee
Financially Preparing for a New Home
Depending on the building method and other factors, the financing process for a new home can involve a construction loan followed by a regular mortgage, a construction loan that converts to a standard mortgage, or a regular mortgage from the start. The construction loan would account for the building costs and could require a down payment of 20 percent, while the regular mortgage would account for the final sale price of the home. If you're buying a new model home, you may just need a regular mortgage with a down payment that can range from 0 to 20 percent of the price.
To prepare for building a new home, take into account your income and current debts and living costs to determine your affordability so you can choose a home plan that fits your budget. At the same time, make sure your credit is in good enough shape to qualify for financing and that you have enough money to cover down payments and financing costs (such as closing costs) involved in the process.
Consider speaking to a lender to learn about programs for people who plan to buy newly constructed homes or have a custom home built on their own or through contractors. You can learn about special programs such as the one through the U.S. Department of Agriculture that can make it more affordable to build a home. You can also consider grant and assistance programs that may exist through your state or through charitable organizations.
Read More: Grants for Single Mothers to Build a House
- U.S. Department of Housing and Urban Development: Demand Data — Home Prices
- U.S. Census Bureau: Highlights of Annual 2019 Characteristics of New Housing
- U.S. Census Bureau: Monthly New Residential Sales, February 2021
- Reinbrecht Homes: Don’t Get Hung up on the Cost Per Square Foot to Build a House
- NYCRG: Calculator - Price Per Square Foot
- National Association of Home Builders: Cost Of Constructing a Home
- New York State: How to Estimate the Market Value of Your Home
- Quicken Loans: 10 Cheap, Budget-Friendly Ways to Build a House
- Ryan Homes: You're the Foundation of Every Home We Build
- Rocket Homes: Home Building Cost Breakdown
- Chinburg Properties: How to Estimate the Cost of Building a New House
- U.S. Department of Agriculture: Buy or Build a Home with USDA
- Consumer Financial Protection Bureau: Understand Loan Options
- Consumer Financial Protection Bureau: What Is a Construction Loan?
- The Mortgage Reports: Complete Guide to Building a House
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.