Building your own home from scratch holds a lot of allure You get the floor plan and style you want, brand spanking new. But the reality is that building from scratch can turn into a full-time job—it’s not for the faint of heart. The decisions and potential problems that can waylay moving into your dream home are endless. Of course, knowledge is power, and being as prepared as possible upfront  is the best way of deciding if building your own custom home is a project you’re ‘built’ for. In this two-part series, I’m covering everything worth knowing about ground-up construction versus buying an existing home, including seven of the biggest challenges you’ll face.

What Does It Cost to Build a Custom Home?

If you’re thinking of building, you aren’t alone. As of May 2023, the sale of newly built homes has ticked upward across the country. But what does it actually cost to build, and how does that compare to buying? According to HomeAdvisor, the current national average of building in the U.S. is between $111,980 and $484,293 for a home measuring 1,500 to 2,000 square feet. Builders usually look at price per square foot instead of the total cost, and that can vary dramatically. For a basic starter home, depending on your individual lot challenges (is it on a slope, is there easy access for machinery, etc.), you’re likely to spend somewhere between $450 and $650 per square foot. Luxury builds will run north of $1,000 per square foot. These numbers are dramatically different than any online calculator will give you, but they come from clients who have recently finished projects both in Nevada and California and local architects I work with. 

Of course, there are a number of variables in play that will affect what a new build ultimately costs. Average prices vary based on where you’re building, and the state, the region, and even the land itself will influence the final number. Then there are the actual building costs, which include:

• Land and site preparation: In addition to purchasing a parcel, there are excavation costs that vary depending on factors like slope, where the water is located, how far you have to trench to reach the water, whether or not you need a well or septic, distance to electricity, and more. Site prep is generally one of the most uncertain costs, so planning and seasonal timing are key, Excavating for utilities and foundations are among the most costly considerations. 
• Permitting: Permit pricing can be several thousands dollars for new construction, depending on the city or municipality, and you’ll also need to factor for electrical, plumbing, and HVAC permits.
• Materials: Sensibly, you can expect to pay more for a bigger home with higher-end interior and exterior finishes.
• Labor: Building a house from the ground up requires all sorts of professionals for specific tasks like installing plumbing, wiring, HVAC systems, hanging drywall, installing the roof, painting, installing cabinets and countertops, landscaping, and more.

There are considerations on the financing side, too. Vacant land can be financed, but most people end up paying cash. Financing a new build also requires a construction loan, which is more complicated than a traditional mortgage on an existing home. Be prepared for a higher down payment on construction loans, with higher interest rates to go with it. That’s in addition to having to provide a purchase contract with the project’s plans, specifications, and budget details, plus a timeline for construction. Lenders will be evaluating both you, the borrower, the project plan itself, and usually the builder as well. The most recent lender I spoke with that will roll land costs into a construction loan requires the construction to be completed within 12 months, which means they vet the plans, the permits, and the builder—and you better hope it’s not a long, hard winter, because there are penalties for not closing on time. 

Construction loans are usually short-term, designed for the duration of the build. Once the home is finished, you can pay off the balance or convert the loan into a conventional mortgage. Interest rates, loan type, and terms will depend on your lender and personal credit history.

The Takeaway

When it comes to building versus buying, there are a lot of variables. Still, it’s safe to assume that it’s a costlier option. In most cases, it’s cheaper to buy a ‘tear down’ or do a back-to-the studs remodel and go from there—at least you have the utilities on site already.  Custom homes on pre-prepped parcels such as Schaffer’s Mill and Gray’s Crossing in Truckee aren’t bad options, as there are often pre-approved builds and construction teams already familiar with the location on hand.

Stay tuned for next week’s post, where we cover the seven biggest considerations of building a custom home.