When making a large purchase — like a car, designer bag or piece of furniture — one of the big questions to ask is whether to buy new or used. New items are in pristine condition but have higher prices. Pre-loved, vintage or second-hand items often offer extra character at a more affordable price point but may not always be in tip-top shape.
Buying a home is similar. You could opt for an existing home that’s had one or more previous owners or choose to build a brand-new home. Which option makes sense? If you’re ready to ditch renting for homeownership, it helps to look at both sides.
Is it cheaper to build or buy a house?
It goes without saying that a home is a big investment. And making the decision between building a house or buying one can certainly impact what you’ll pay. But when it comes to which is cheaper? The answer is: It depends.
According to data from the National Association of Home Builders, both the median and average prices of existing homes are typically lower than new construction. But due to fluctuating economic factors and varying rates of competition in the market, this isn’t necessarily always the case.
When building a house, think about cost in terms of things like building materials, supplies and labor. Prices of materials like lumber and steel can vary, so your timing can impact your total cost. Similarly, the size and degree of customization you desire will influence price.
If you’re interested in buying a home, the discussion shifts to things like home values and supply and demand. Market competition and current interest rates will affect how much home you can afford and your mortgage payment.
With either type of home, you’ll likely have to take out a mortgage. Depending on location and house size (and its cost), you may require a jumbo loan. These loans allow you to finance higher-priced properties and may come with higher interest rates and more stringent requirements.
Plus, you’ll have other ongoing costs after you seal the deal. For example, it’s important to factor in what you may pay for maintenance, upkeep, insurance, property taxes and homeowners association dues if you live in an HOA.
Building Benefits and Drawbacks
You can find plenty of good reasons to put money into a new construction home that you build from the ground up. The biggest pro? Customizing the home to your liking.
For example, say you want a home that’s eco-friendly. If you’re hiring a builder, you can ask them to use green materials and incorporate environmentally conscious features, such as solar panels and energy-efficient appliances.
Or perhaps you’re a caregiver for a disabled parent or child. You could custom-build a home that’s livable and accessible for the entire family.
The trade off, of course, is that the more customizations you include, the greater the building price could be. It’s worth considering other potential drawbacks as well.
Building a home typically means a longer wait to move in compared to buying an existing property. It could take several months for construction to be completed, then there may be additional wait time to have the property approved for occupancy.
Finally, a brand-new home, especially in a neighborhood that’s primarily new construction, may lack some of the charm or unique characteristics you might want in your living space.
Buying benefits and drawbacks
One of the perks of an existing home? Lots of options and flexibility. First, you can go with a move-in ready property — basically, one that doesn’t require extensive repairs or upgrades. You may want to do small updates, like new paint or light fixtures. But otherwise, a move-in ready home is free from any major issues that would prevent you from getting settled in as soon as you have the keys in hand.
Or you might go with a home that fits most of your needs but requires a little TLC. (Think: updating the kitchen counters or giving the landscaping a boost.) It could also be a house with some wear and tear that needs a few repairs.
Finally, you could buy a home that needs some serious work — AKA a fixer-upper. Maybe you find a house in your dream location, but the foundation is in trouble. Or you could purchase a lower-cost home for its “good bones” and then renovate it to make it just what you want.
If you choose a home that needs little to no work, buying existing property can be a less stressful option than building one. That’s because you’re only dealing with your real estate agent and your lender, such as Ally Home, versus builders, suppliers, designers, contractors and more.
To build or not to build?
Both new homes and resale properties offer a variety of perks that can make either option attractive. But to make your decision wisely, it’s important to consider all aspects of both scenarios. At the end of the day, you want to love your space — and however you get there will depend on your budget, personal taste, and preferences.
Ally Home is here to help make your home building or buying dreams come true.