Buying vs. Building A Home

With the charm of open spaces, thriving city life, and a booming economy, Texas presents unique opportunities for prospective homeowners. But, when laying down roots in the Lone Star State, you may need to choose between buying vs. building a house.

The decision isn’t always easy; each comes with pros and cons, costs, and other considerations. But, as you’re weighing your options, it’s also important to understand some key factors for each. That way, you can make the best choice for you and your family.

Here’s what to know about buying vs. building a house in Texas. 

A Look at the Texas Housing Market

Anyone looking to buy or build a home in Texas has probably noticed fluctuations in the housing market over the last few years. And that’s been driven by a few factors. 

Population growth is booming in Texas. Between 2010 and 2020, four million people moved here, with Houston, San Antonio, and Dallas among the top 10 cities with the highest population growth. And the trend hasn’t slowed down; over 800,000 more people have come to Texas since 2020.

All these new Texans need a place to live that, combined with the market frenzy in 2020-2021, helped eat into available inventory and drove higher prices. Now, inventory is going up across most major cities, and homes are listed for longer before being sold, indicating more of a buyer’s market. 

The last few years impacted the building market as well. Land prices have been on the rise. The median price for small land tracts is approximately $7,500 per acre, and rural land costs have risen to over $4,500 per acre. Construction costs also saw a spike due to supply chain issues and historically high lumber prices — though both have begun to normalize in the last year.

So all these factors contribute to the current market, and whether you’re looking to build or buy in Texas, it’s important to keep these in mind.

Is it Cheaper to Buy or Build a House in Texas?

Today, the average home price across Texas is just under $300,000, up 2.7% from 2022. However, prices are higher in major metropolitan areas like Dallas-Fort Worth, Houston, and Austin. There, median prices may range from $330,000 in Houston to $535,000 in Austin.

Meanwhile, the average cost of building a single-family home in 2022 was just under $395,000, according to the National Association of Homebuilders (NAHB). Of course, prices fluctuate throughout the country. In Texas, the average price per square foot to build ranges between $90 to $135 — with some luxury builds going upwards of $250/sq. ft.

Total prices for building a house in Texas can vary based on location, land, finishings, and even the type of home. For example, a traditional stick-built home may cost slightly more than a pre-fabricated modular home or barndominium. 

Build vs. Buy: Breaking Down the Costs

As you explore your options, you may wonder how much more expensive building is vs. buying in Texas. The answer isn’t quite so cut and dry since many factors go into both that can raise or lower the price. So, a better approach may be breaking down some of the biggest expenses of each. That way, you can run your numbers and see which best fits your budget.

How much does it cost to buy a house in Texas?

There are several costs to think about when you’re buying a home. Most are well known, but there are some potential hidden costs, too, including:

• Downpayment. The part of the purchase price you pay upfront. 
• Closing costs. These usually include origination and appraisal fees, title insurance, and survey costs. In Texas, homebuyers typically pay about 1.5% of the home’s purchase price.
• Insurance and taxes. You’ll need to purchase homeowners insurance and pay county-assessed property taxes. 
• Homeowner’s association fees (HOAs). Some homes in managed neighborhoods may add a monthly fee on top of your mortgage payment.

In general, you’ll need to cover the upfront costs of your downpayment plus another 3-10% of the home’s purchase price for additional fees.

There are some other costs to be aware of too. For example, depending on the home’s age and condition, you may need to set aside extra funds for maintenance and repairs. A common rule of thumb is about 1% of the purchase price. Or, you can take on a more extensive remodeling project to shape the home to your needs. In that case, consider a home remodeling loan to help finance the project.

In addition, the average utility bill in Texas is $402 per month, so you may want to upgrade windows and HVAC systems for better efficiency during hot days. And finally, don’t forget about moving and furnishing costs.

How much does it cost to build a house in Texas?

Home construction in Texas is often a more involved process than buying. First, you’ll want to pick a reputable builder to help you through it. If you have friends who have built homes, ask them about their experiences or seek out reviews online. Don’t be afraid to shop around and compare pricing.

When building, you’ll need to budget for the following:

• Land costs. Unless you own the land you want to build on, you’ll need to purchase a lot and prepare it for construction.
• Site work. These costs cover preparation, including building permits, inspections, and architectural fees.
• Foundation and framing. These costs may vary depending on the size of the home you want to build.
• Exterior finishing. These costs cover roofing, siding, windows and doors, and other exterior needs.
• Systems. You’ll also have to consider the plumbing, HVAC, and electrical systems, including keeping energy efficiency in mind.
• Interior finishing. According to the NHAB, these expenses represent the biggest slice of building costs, covering everything from drywall to lighting and appliances.
• Landscaping. These costs cover improving your home’s curb appeal and adding a driveway, porch, and other outbuildings to the plot.
• Contingency Fund. Setting aside a contingency fund (often 10-20% of the total construction cost) can help cover unexpected expenses that inevitably arise during construction.

A good rule of thumb to help you estimate some of these costs is to look at the square foot ranges for value-conscious, mid-range, and high-end finishings. 

For example:

• $90-$135/sq. ft. for budget-conscious builds.
• $135-$200/sq. ft. for mid-range builds.
• $200+/sq. ft. for high-end builds.

If you already own the land you want to build on, a 2,000 square foot home with mid-range finishings for $150/sq. ft. could run approximately $300,000. That aligns with the average price of buying a home in Texas.

Costs can vary significantly depending on your choices in materials, finishes, and more. Consulting with a local builder or construction professional can provide a more detailed and accurate estimate based on your specific plans and local costs.

Buying land in Texas

Something else to add to your potential budget is the cost of buying land. Across Texas, the median price per acre for small land allotments is about $7,500. However, prices can vary based on location. For example, acreage in Dallas-Fort Worth and along the Gulf Coast tends to be higher than in the Panhandle and South Plains.

The decision to build a home can be influenced by whether you own or need to buy land. Here are some factors you should consider in each scenario:

If you already own land:

• Zoning and Restrictions. Even though you own the land, you’ll need to check the local zoning regulations and deed restrictions to ensure you can build the type of home you want.
• Land Suitability: The condition and features can affect your building plans. Consider soil condition, drainage, slope, and whether any part of your land is in a flood plain. These can affect the design, the type of foundation you can use, and the overall construction cost.
• Utilities: Check if utilities are already connected. If not, you’ll need to budget for bringing in power, water, sewer or septic, and possibly gas.
• Access: The land should have good road access to construction equipment and, later, for everyday use. If your plot doesn’t have road access, you may need to factor in the cost of building a road or driveway.

If you need to buy land:

• Location: One of the biggest considerations is where to buy land. The site will affect not just the price of the land but also your lifestyle. Consider proximity to work, schools, shopping, services, and the space you need.
• Cost: You’ll need to budget for the cost of the land, which can vary widely depending on location, size, and other factors. Remember, the land cost is on top of the cost of building your home.
• Zoning and Restrictions: Just like if you own land, you’ll need to check what you can build on any land you’re considering buying.
• Land Condition: Consider the same factors as above regarding soil condition, drainage, and slope. You can also get a land survey done to understand the boundaries of your property and where you can build.
• Utilities and Access: Check if the land already has utilities and good access or if you’ll need to budget for those costs.

In either case, working with local professionals — such as a real estate agent, builder, architect, or surveyor — can provide valuable guidance and help you understand all the factors that go into building a home in Texas.

While land in Texas is increasing in price, there are still plenty of opportunities for purchasing rural, recreational, and buildable land in metro areas.

The Pros and Cons of Buying vs. Building in Texas

With a general sense of the costs associated with building vs. buying in Texas, you should take a deeper look at some of the advantages and challenges of each. Of course, every homeowner is different, so while building may be the perfect solution for your family, others may choose the convenience of buying. It all comes down to meeting your needs and budget. 

The pros of buying a home in Texas:

• Speed and Convenience. Buying an existing home is generally quicker than building a new one. Once you’ve found a home and they’ve accepted your offer, you could close and move in within 30 to 60 days.
• Less Decision Making. When buying a home, you don’t have to make all the design and construction decisions required to purchase land and then build a house, making the process less complicated for many.
• Generally less costly. You may spend less buying a move-in ready home and get slightly better mortgage rates compared to a construction loan.
• Established neighborhoods. Existing homes are often in established areas with more community, mature landscaping, and well-developed amenities than new developments.

The cons of buying a home in Texas:

• More compromises. When you buy a home, you may have to compromise on cost, design, location, and size compared to your ideal home.
• Maintenance and repair costs. Even recently built homes may have repair and updating expenses, so you’ll have to set aside a budget to help cover those.
• Potentially stressful. Depending on mortgage rates and marketing timing, buying a home could be very stressful, with multiple bidding wars and going through numerous homes before finding the right one.

The pros of building a home in Texas:

• Customization: Building a home lets you get exactly what you want regarding design, finishes, and features. Everything from the floor plan to the light fixtures can be tailored to your preferences.
• Newness: With a new home, everything is fresh and untouched. You’ll have the latest appliances, systems, and building materials, which can mean fewer repairs and lower maintenance costs in the early years.
• Efficiency: New homes tend to be more energy-efficient, saving you money on utility bills and better for the environment.

The cons of buying a home in Texas:

• Time and Complexity: Building a home is a complex process that may take upwards of a year. It also involves many decisions, which can be stressful.
• Higher Upfront Cost: Building a custom home can be more expensive upfront than buying an existing one. Also, while the house is being built, you’ll have to cover your current housing costs.
• Unexpected Delays and Costs: Construction projects can face delays due to weather, contractor schedules, or other issues. You might also encounter unexpected costs due to changes in plans or unforeseen problems.
• Less Predictability: It might be harder to predict future property values when building a new home, especially in a new neighborhood.

Ultimately, buying or building in Texas depends on personal preferences, budget, and timeline. Both options have benefits and potential drawbacks, so it’s essential to consider the factors most important to you.

Lending Considerations

Something else to think about as you decide between building a home in Texas or buying a home is your lending options and associated costs. 

When buying a home, the process is relatively straightforward. You’ll need to review your finances to see how much home you can afford and then work with a lender for a traditional mortgage. Once you find a home you love and purchase it, you’ll pay your mortgage monthly for the rest of your term, which may be up to 30 years. 

With building a home, you may need to secure multiple loans. The first is a construction loan, a short-term loan used to finance the building costs. Then, once construction is complete, you’ll need a mortgage. 

However, there are a few ways to secure financing with a lender for buying land and building a home to help simplify the process, including construction-to-permanent loans. With these loans, construction and mortgage loans are combined into one. It can help save you on closing costs and streamline lending.

Get Help From the Experts

Whether you’re building or buying a home or land in Texas, we can help you explore your options. 

The experts at Texas Farm Credit’s Mortgage Division have worked with people like you, and we have the resources, tools, and experience to help you secure the loans you need.

Get in touch today to get started.