These days, it isn't always easy to find a property to buy. It is even harder when you are looking for your dream home. For many people, building their own homes is a solution to help them get exactly what they want. While it is totally viable option, it is a very different process than buying a resale home. For one thing, it is a lot harder to tell how much a new home will cost. Hopefully, this article can help.
What is the average cost of building a home?
The average construction costs of building a new house will depend a lot on what you decide to build and where. The location of your lot, the size and style of your home, its features, materials, and more will all affect the final price. Every project is very different.
Generally, the cost of building a new home (when done efficiently) is comparable to the cost of buying a resale home. Every home was at one time a new build, and most homes only gain value once they are built, so at the very least you are making a good investment.
Considering cost per square foot
One useful way to calculate all the complicated costs involved in a newly built home is the cost per square foot. Just like home prices, cost per square foot varies greatly across different regions. A report from Atlus Group outlined some new build prices across major Canadian cities.
On the upper end, the most expensive new build homes per square foot are in Vancouver, where new builds with pre-made plans can cost up to $265 per square foot. The GTA is the second most expensive with up to $240 per square foot.
The lowest possible new build prices are found in Halifax, with prices per square foot potentially as low as $90. Most expensive of all are custom build homes which can cost upwards of $1000 per square foot.
Mortgages for new builds
Chances are, you will need to borrow money to finance your dream home. Financing a new build home is similar to financing a resale home, but there are some key differences as well.
Firstly, if you are buying land to build your home upon, you may need a separate loan in order to purchase the property. Some other mortgages will allow you to buy the land as part of the construction loan.
Your lender will be able to offer you a construction mortgage or a self-build mortgage. These sorts of mortgages often require a higher down payment than traditional mortgages, at least 25% - 30%. There are two types of construction mortgages:
A completion mortgage loan will not pay out until the project is completed. This means the mortgage can be modified to fit your project as you go, but you also don't get to actually access the money until the house is completed.
Draw or progress-draw mortgage
A draw or progress-draw mortgage pays out the money of the loan in increments. The lender will determine how much you need and then set out a schedule by which funds will be made available.
Construction mortgages also have their own special terms. Some construction mortgages have a time limit that the home must be completed by or certain builders you must work with.
It is easier to get a mortgage for a new home build if it is not your first home, and you already own property from which a home equity line of credit can be used to fund and secure your new mortgage.
Production vs Custom homes
When it comes to newly built homes, there are two different types to keep in mind.
The first type is production homes. Production homes are built by companies who sell houses built according to a number of pre-made designs. These houses are cheaper than custom builds and can be built much faster and easier. However, pre-designed homes also do not offer the same level of customization as a truly custom home.
A custom-built home is just that—a home custom designed by yourself, exactly to your liking. Or, more accurately, a house designed by a trained architect you hired. In fact, a custom home requires you to take on the services of many professionals to design and build the home, meaning extra work for you, as well as added price. The benefit is a new house to the exact specifications that you desire.
The land that you build your home on will be a major part of the total cost of your build. There are many things you need to consider in choosing a lot:
- Overall location - Is the lot in a place you will be happy to live for many years? Are you looking to build in an expensive urban area or a cheaper rural area?
- Size - Is the size of the lot big enough for the home you want to build? Is there any additional space for a yard, a driveway, or a shed?
- State of the land - Is the land ready to build on? Or does it need significant clearing?
- Grading - Do you plan on having a walk-out basement? If so, you will need to find land with a slope. Alternatively, uneven land may need to be levelled if you wish to have a flat area to build.
According to Statistics Canada, the average cost per acre of farmland was around $3,300 in 2020. But, this price can go up or down based on your specific province.
Finding and working with a contractor
Once you've found the land your house will be built upon, you need to find a contractor who can actually do the job. A contractor will offer you a quote for the build, and the quoted amount will depend on the contractor you talk to. It may be a good option to consult multiple contractors and take bids on who will build your home. But, it’s important to remember that the cheapest contractor isn't necessarily the best; all contractors will have strengths and weaknesses, such as specializing in a certain type of home or completing projects faster.
Labour and material costs
The actual work of building your home will incur two major construction costs: labour and material costs.
Material costs are the price of the actual building materials that go into your home. If you are working with a contractor, you will likely pay their rate for materials, which represents the price they paid plus any extra fees to cover logistics. The materials you choose can make a big difference in the overall price you pay, also in the value of your home. While you want quality materials for a quality build, you shouldn't always go with the most expensive materials. Instead, consider where the biggest difference can be made, and where you can save on cheaper materials.
Your contractor needs to pay for materials, but they also need to pay their workers. That's why you will also pay labour costs on your home build. Labour costs will either be charged per project or on an hourly basis.
Labour and material costs can vary depending on what is being done. For example, more specialized work like HVAC or electrical can have higher labour costs and more expensive materials.
Building Permits and other costs
Another financial consideration is the cost of building permits. Construction can be a disruptive and lengthy process—and it must be done right. For this reason, governments have enacted building codes that the construction industry must abide by and that municipalities are in charge of enforcing. A building permit signifies that your construction project is compliant with building codes, local laws, safety and fire regulations, and any other relevant rules.
Building permits will often cost you a fixed rate and a scaling rate based on the square footage or value of your construction. You may also have to pay for inspections related to your project.
Often, you will need to get multiple different permits for different parts of your project, and many permits will require one or more inspections on your property. It can be quite the process to get all your permits in order, but it is absolutely crucial. Otherwise, you could face large fines and an unsafe finished product.
How long does it take?
Building a home is certainly not the option for those looking to move into their new home as soon as possible. Ultimately, the time it takes to complete the building process will depend on a lot of decisions you make and how fast you and your contractors can work. At times, it can be up to a year before even construction begins as you work with designers and contractors.
After consulting various sources, it seems you can expect a house to be built in just under a year at the fastest, and over two years on the slower side. This is an important consideration for budgeting because while you are building your home, you may still need to pay carrying costs or rent on another property while you wait.
Building vs Buying: Is it worth it?
Building and buying a home are both perfectly viable options for those looking for a real estate investment. What you choose will depend on your own situation.
Resale properties are good for people who don't have the funds to organize a new build. An existing home is also suitable for someone who wants to live in a city where finding vacant land would be all but impossible. Resale homes are also good for real estate investors who want to make money in real estate so are simply looking to buy without all the added work. Finally, new homebuyers will have a much easier time buying resale as opposed to building new.
New builds are ideal for people who are very particular about their home's materials and layout and are willing to pay top dollar to get it done. It is also a good option for those looking to capitalize on undeveloped land they already own. It is also more suited for someone who is willing to take on project management responsibilities, as there are numerous moving parts when building your home.