1) building costs can range immensely depending on the finish work, from $250-500/sq ft
2) neither one is 'better', empty land can be hard to come by in Santa Barbara, but there are several lots currently for sale though and I know of another that's not 'actively' listed. Buying a SFR is definitely the easier route but may not be what you are looking for.
3) We have no shortage of excellent builders in Santa Barbara, I can recommend several whether doing a remodel or starting from an empty lot
4) The only local bank that is currently doing construction loans is Community West Bank.
I would be happy to schedule a time to meet over coffee and review your options with you. Or send me an email and I can send you listings to review.