How Much Does It Cost to Build a House? It Depends

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By Clever Real Estate Updated October 21, 2021


House Flip

Building a custom dream home is one bucket list item many people have. But there are a few variables that you should consider before diving in and research you should do. There are a few questions to find the answers to, like How much does it cost to build a house? Do I have the time to build a house? What really goes into building my ideal house?

This is an in-depth look at prices associated with building your future dream home.

What is the cost per square foot to build a home?

Before budgeting for your dream jacuzzi and walk-in shower, start crunching the numbers of the basics. Start with the square footage and cost per square foot to help you determine your base cost.

The average cost to build a house is $291,874, which would make a 2,000 square-foot home approximately $150 per square foot.

You'll probably have some special add-ons to consider as well, which varies the price significantly.

With so many variables, the price could range in price from $150,000 to $400,000 and even higher.

Where to Build a House

One of the most expensive aspects of building a custom home comes down to the location of your property.

The location will definitely affect the building cost. If you are looking to live in the mountains with a lot of trees and uneven land, the cost of clearing the land can be as high as $33,400.

That price doesn’t even include the cost of the lot! That price only reflects the excavation, retaining walls, and other necessities to start building and laying the foundation will tack on to the price.

If the desired property location isn't on a mountain, but a big city like Los Angeles or New York, this will also affect the total cost dramatically.

These areas have limited space and an elevated cost of living—especially in the center of the cities. Building in these sort of areas increases your land and building costs because the demand to live in these areas is so high.

If you’re looking for a smaller land price tag, check out more suburban areas, where you can still be close to the city without shelling out thousands of dollars.

Benefits of Building a Custom Home

Customizing a home can be very rewarding with benefits like choosing the square footage, deciding to include a deck or wrap-around porch, getting to handpick the windows and doors, as well as so many other customizations for your future home and family.

With all these options it is easy to fall in love with your future dream home.

Timeframe for a Custom House

Building a custom home is not for the faint of heart, as it can take a lot longer to build than other home options on the market, like modular or prefabricated homes.

The average length of building a custom home can be up to a year (or longer!). This is because the future homeowner is picking out every detail from the sinks to the door handles, and even the type of cement grit. A potential home buyer who chooses to purchase an existing home will have far fewer choices to make.

Modular and Prefabricated Homes

There are lower-cost custom(ish) home options that still allow you the freedom of choice: modular or prefabricated homes.

In many areas, modular and prefabricated homes are a popular option. These homes are manufactured off-site and then assembled on location. Although these are not available with complete custom home designs, there are various shape, color and size options to choose from.

Modular and prefabricated homes are 10-20% cheaper than the cost of building a custom home.

Prefab Houses

You have several options with prefab construction.

Panel Building

One option with prefab homes is panel building.

Panel construction involves pre-made walls that are fastened to the floor of the home. Panel homes are ideal for custom home designs because they offer fast building and customizable walls in half the time of a ground-up build. Home builders have more options and can build a panel home faster because they are able to install sinks and toilets before they even deliver the walls.

It is also cheaper to ship panel home parts than a modular home, which appeals to those who are on a budget! The paneling process speeds up construction and lowers costs.

Modular Home

The second option for prefab is a modular home. Modular homes are built in sections then delivered to the piece of land to be assembled. Modular homes offer limited alterations and do not offer garages or porches.

If prefab and modular aren’t ideal options, a hybrid construction of panel and modular homes may be more appealing. This allows for more custom design options than the modular construction choice.

Cost Comparison: Custom vs. Prefab/Modular

The cost of building a prefab/modular home can be anywhere in the neighborhood of $50,00 to 300,000. This price is more straightforward because everything is pre-made and they establish the cost up front.

This is harder to calculate while building a custom home because of all the extras that go into it.

Custom Home Building Costs

A custom home will vary in price due to the material and machine costs, labor costs, and everything else needed to establish a livable home.

Machine costs occur when the property requires special machines to level or remove objects that are in the way of building. This can add $70 to $90 dollars an hour to the overall costs.

Labor cost for building a custom home include costs for an architect at $60 to $125/hour, engineers at $100-$150/hour, and land surveyors at $300 to $700. You don't typically need these sort of experts when building a prefab/modular home, though.

The foundation is obviously incredibly important to the integrity of the structure. Things that need to be excavated or otherwise removed—like flooding or large objects—to prevent future issues can cost upwards of $30,000. Any additional work can increase costs substantially as well.

Framing costs are dictated based on the size and location of rooms, and other important features like roofing. The average cost is $1,500 to $6,500 and this includes the overall frame, trusses, and metal work needed to build the home.

Costs of Systems

Other major costs include large system appliances like plumbing, electrical, and HVAC. These comprise the majority of your home cost.

The size of your HVAC system and the type of system needed for the local area will heavily dictate the price of installations. Opting for energy-efficient homes and choosing to add solar paneling will add to the cost of the bottom line. It requires special installation plus the number of outlets and the amount of wire needed will add more cost to the home.

Interior finishing is the face of your home. This includes drywall, interior trim, painting, lighting, appliances, flooring and plumbing fixtures. These items can add an additional $85,000 to the bottom line.

The plumbing alone can cost about $4.50 per square foot. Other detailed choices that can add up include crown modeling, drop ceilings, brass or silver fixtures and even type of cabinets.

Who is in charge of the custom home building process?

That would be the general contractor. A general contractor is the prime contractor is responsible for building a home for a flat fee or 10-20% of the home value. The general contractor is responsible for day-to-day oversight of a construction site and management of vendors and trades. The general contractor will conduct communication between all parties involved with building the home.

Home Loans to Build a House

Can you build a house with an FHA loan?

Yes. It is called a "one-time close mortgage" and FHA approved lenders offer it. Using the FHA to mortgage building a home can bring some unique benefits— such as no payment is due until the work on the property is complete.

What credit score do you need to build a house?

Before applying for a one-time close mortgage it’s important to check your credit score. The FHA only requires a 580 credit score but many mortgage lenders overrule this requirement and only accept a credit score minimum of 660 for a one-time close mortgage.

How do I apply for a construction loan?

Another loan option to consider when planning on building a dream home is a "construction loan." This can be difficult to come by because you're essentially asking a lender to give you money to build while offering them no collateral.

Collateral is when the bank has a way to recoup their investment if the borrower can’t make the payment. This could mean defaulting on your loan or filing for bankruptcy. When asking the bank for a loan to build a home, the borrower doesn't offer anything in the way of collateral.

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