Building or Buying a New Home: Which Is Best?

building or buying

Purchasing new property is always exciting, but it’s also a decision that requires a lot of thought. Should you buy a new home from a home building company, a lot for a custom home build, or an older home potentially requiring renovations? There are so many options to choose from. Let’s go over the pros and cons of each so you can make an informed decision.

building or buying a house infographic

Types of builds

Before making the decision to build or buy, let’s go over all of the options for building a home.

  • House plans. Some companies like Drummond House Plans sell premade floor and house plans. They’re often cheaper than paying an architect to draft plans from scratch.
  • Prefab home. If you’re looking for a green building option, modular or prefab homes are great. Companies offer a selection of home designs to choose from and build each house in a factory before transporting it to the work site for completion.
  • Hiring a contractor. If you have already have a lot, you can get a house designed by an architect and hire a contractor to build it. Some construction companies also offer house plans; however, we don’t recommend going that route because they own the plans.
  • Self-build. If you have the right licences, you can attempt to build your house yourself. Though, you’ll need an architect to draft plans that comply with the Building Code.
  • Buying from a promoter. You can buy a lot and a house in a new development. Once the build is complete, you then take possession of the house.

Location, location, location!

Finding lots for sale in or near metropolitan areas is becoming increasingly difficult. In most cases, new developments are further and further away from major cities like Toronto or Montreal due to a lack of space. So, if you plan on moving to a home on an empty new lot, get ready for a long commute!

If you plan on buying a property that’s part of a new development, you’ll need to keep in mind that all services – stores, public transportation, sanitation services, etc. – will take a while to be built and established. For example, the forest behind your new home might become a public park or new elementary school, so keep an eye on the development plans!

Though, there are some upsides to buying a property that’s part of a development. For example, if you’re one of the first buyers, you get dibs on which lot you’d like. That said, you also have no idea who your neighbours will be until the day they move in.

For homes that are already built, you can specify location when browsing listings. You’ll also be able to ask the real estate agent or current homeowner what the area is like. For example, if you’ve got a family with a few kids, then a neighbourhood filled with retirees or empty nesters likely won’t be the right fit. You also won’t have to wait for public services or accommodations to be built as they’re already there! However, if you have a specific neighbourhood in mind, you’ll only be able to choose from what’s on the market and won’t necessarily have much choice on where the homes are located.

birdseye view neighbourhood

What’s more affordable?

The biggest advantage of building a home from the ground up is customization – you decide how it looks. However, the beautiful decor seen on home improvement shows often comes with a pretty hefty price tag. Many prospective homeowners don’t realize how quickly costs can rise when building their dream house. So, be sure to plan out a budget and stick to it. Just don’t forget a contingency fund for unforeseen circumstances.

Building a house yourself will save you money on labour costs (~30%), but keep in mind that you need to be licensed if you’re going this route. Ideally, you should be very experienced in construction and renovation as well as have great time management and planning skills. You’ll also need to hire skilled tradespeople and subcontractors for portions of the work you aren’t qualified to do. Managing a project of this size is a lot of work, so consider investing in a general contractor. They’ll handle all of this for you, and you’ll be able to invest your time elsewhere.

In terms of affordability, it’s often best to purchase a pre-existing home – just be sure to establish your needs and budget before you start looking at properties. Before you seal the deal, hire an inspector to check out the home. You’ll want to know if there are major issues with the roof, windows, HVAC system, or even the structural integrity of the home. Similarly, you may consider changing the layout of the home or making a room a little bigger.

modern house being built

What’s riskier: Buying or building?

Whether you’re going with cookie-cutter or custom, you’ll need to do a background check on any building company or contractor you plan to work with. It can be a long, tedious process, but it’ll save you time, money, and potential hardship. Verify their licences, permits, and legal records, and ask to speak to past clients and to see past projects. Be sure to ask potential contractors questions when meeting with them. In Ontario, new homes constructed by an HCRA-licensed builder/vendor are eligible for the New Home Warranty. Self-builds are not eligible for this warranty.

Purchasing an older home comes with risks as well, namely that you inherit all of the home’s problems after signing on the dotted line. To protect yourself, get an inspection done by a licensed professional. They’ll make note of any issues within the home so that you can make an informed decision.

Does my decision affect my financing options?

Financing a new build or a self-build is different from getting mortgage to purchase a new home. When getting a home built, you’ll need to work with your financial institution throughout the entire building process. The bank will need to approve your future home’s plans from the get-go. Plus, you’ll need to provide them with a cost estimate and a schedule for the work being done, quotes from suppliers and subcontractors, your building permit, and much more.

If they approve your application, you’ll receive funds as your home is being built and passes routine inspections. With each disbursement, the financial institution will hold on to a percentage (~15%) of the funds until the work is complete.

The mortgage will be in the promoting company’s name while the work is being done if you decide to buy from a promoter. They’ll be responsible for the capital and interest during the build and you’ll need to pay them back. Though, if you already own the land and are hiring a professional home builder, you’ll be responsible for the finances while the work is being completed.

Acquiring a mortgage for a pre-existing home is much simpler! Once the requested amount is approved, you’ll be able to shop around for a house that fits your budget and put an offer on the ones that interest you. When your offer is accepted, the bank will provide you with the mortgage, and you’ll be able to purchase the home.

Building vs buying: Which option is right for you?

It depends on your needs and how involved you want to be in the process. If you have a specific vision and don’t mind living outside of the city centre, then building a new house might work best for you. However, if you have time constraints, want to live in a specific area, or don’t mind renovating an existing space to meet your needs, then buying a house might be a better option for you. No matter what you choose, be sure to hire licensed professionals that can help you create the home of your dreams.