Buying a home is an exciting adventure. There are endless possibilities for not only the type of house you can buy, but also the area and neighborhood you’ll choose. As you begin to look at options, you may find yourself asking if you should buy or build your first home. As you can imagine, there are pros and cons to both choices.

As a first-time home buyer, building a house can often seem like the best option because you’ll be able to get exactly what you want. But those particulars can quickly get expensive, and often the overall project may take longer than you think. On the flip side, moving into a home that is already built will cost you some designer details but end up saving a whole lot of your time.

In the end, buying or building is a very personal choice that only you can make. We’ll provide all the facts here to help get you started!

Building a home – pros and cons


The cost of building a home depends on how much customization you want. According to some experts, the average existing single-family home is $233,000 and 1,500 square feet, which equates to approximately $155 per square foot. On the flip side, the average new construction home is $289,000, but it’s also much larger. Meaning the equivalent price per square foot is $103. That number is strictly a starting point so if you plan to build because you want a lot of nice features, expect to pay more.

Pros of building a home


Let’s start with the biggest advantage of building your new home: full control – just like we said above, you can choose every detail, down to the knobs on the bathroom sink. If you have a specific vision for your home, this is one way to bring it to life! Your contractor will work with you throughout the process – from the first sketch to final inspection – to build your dream home.

No big repairs

One of the benefits of a new home is that everything is new! You won’t have to worry about an a/c unit breaking down in the summer – and even if it does it will likely be under warranty. You also won’t uncover any surprises that can be costly, like old wiring or plumbing that needs to be completely redone.

Brand new finishes

As a first-time home builder, you’ll be delighted to learn that everything you want can become a reality. Exposed brick? Recessed lights in the hall? Custom tile or carpet? You name it; the finishes are yours to choose and brand new to enjoy. You won’t find this level of customization in any existing home.

Sustainable and efficient materials

Ongoing homeowner costs are almost always cheaper with a newly built property because all the materials are as up to date as possible. Windows, appliances, a/c and heating units, hot water heaters and more are constantly improving which means you’ll have better quality, often more sustainable, products that naturally save you on energy costs.

Cons of building a home


Before you make the decision to build new, realize there are still disadvantages of going this route. The first being that it can be hard to negotiate on price. Unlike an existing home, there’s little wiggle room on price with a new build. Your contractor has a fixed price for labor and materials are at their highest when they’re brand new. You can always work with your realtor to help negotiate where possible, especially with a larger homebuilder company, but it’s not equivalent to making a low offer on an existing house. There are no sellers involved that are ready to move or desperate to offload their home when it comes to brand new builds.

No early move-ins

The house won’t be ready until you get a certificate of occupancy so if time is of the essence, a new build may not be for you. The average home build takes seven months – often longer – so if you need to move on a deadline, look for something that already exists.

Dollars add up quick

If you walk through any model home then compare its market value to the builder’s original price sheet, you may be surprised to see upgrades in the five to six-figure range. Everything you want can add up quickly, especially if you plan to use premier materials like granite and marble or if you want a high level of customization, like gold knobs when the builder’s standard is silver.

But wait, there’s more! It’s not just the heavy lifting your builder does that gets expensive, it’s often the minor details you tend to forget. When you walk through an existing home, you’ll likely overlook things like blinds, soap and towel racks, painting, light fixtures and more. These details seem minor, but if you’re starting with a blank space, you’ll want to complete these finishings and need to be ready for those additional costs.

Loan approval can be tough

Applying for a loan on an existing home isn’t exactly a walk in the park but it’s often much easier than getting a new construction loan. That’s because there is an established asset with a house that’s built, versus many unknowns with a new build. There is also a complicating factor in that you’ll be making payments on a home you don’t have yet, while also paying for a place to live, which stretches your monthly paycheck a bit further than normal. The higher risk on the lender’s part means stricter application requirements for you.

Loan options for new construction

The Federal Housing Administration (FHA) offers “construction to permanent” loans for new homes. The construction to permanent option is exactly what it sounds like – a loan you get to start construction that then converts into a typical home loan when you’re ready to move in. You only pay interest on the portion you borrow during construction, and once you’re in the home, your loan becomes like any other traditional mortgage.

Another option offered by the FHA is the 203k (rehab) loan, which isn’t exactly for a new build but could cover you for major construction. If you want to buy a home that is falling apart at the seams, this loan allows you to finance not only the purchase price, but also the needed improvements.

Which leads us to buying an existing home. If you decide you don’t have the time or budget to build new, you could still get what some of the features you want by looking for new construction in an existing neighborhood.

Buying an existing home – pros and cons


Whether you buy something built (but relatively new) or ten-plus years old, here’s what you need to know about purchasing an existing home.

Pros of buying existing

Less work, and probably less stress – If you talk to anyone who’s built a home from scratch, they’ll likely share details of where things went wrong. There are bound to be surprises with such a big endeavor, whether they are permit, budget or design related. An existing house doesn’t share those challenges, which means you can walk right in and leave stress at the door.

Easier to negotiate

When you’re dealing with a homeowner who is ready to sell, you have more room to negotiate on price. They may have a job waiting for them across the country or have already bought their next house, which means sacrificing a couple of thousand dollars isn’t a showstopper when you make an offer.

Finishes and final touches are already there

They may not be exactly what you would have chosen, but they’re there and they come with the house. This gives you the chance to replace what you decide over time instead of having to come up with all the money to furnish the house at once.

Get ready to move! The average home purchase takes just 30 days versus the seven-plus months it may take to build. This means your move will be done with an existing home before a new build may have even broken ground! If you don’t have alternative living arrangements that are flexible, moving in faster is a nice option when you purchase something ready to go.

Cons of buying existing


You may have to compromise – unless you get really lucky, the odds are that the seller did not have your exact taste. This means you may have to compromise on a few minor details, maybe as easy to fix as a fresh coat of paint or as difficult as replacing carpet after you move in. Either way, you can take your time with these details and update what you like as your budget and time allow.

Improvements and upgrades

Depending on the age of the home you eventually buy, you may need to budget for some more substantial improvements or upgrades. A ten-year-old fridge or hot water heater will eventually go out, so it’s best to start budgeting and adding to your savings for when these items come up.

Higher ongoing costs

If you buy a home with older windows and appliances, you may notice higher electric bills than what you had been paying in your brand-new apartment. As you upgrade these items, you’ll reap the reward, but it may not happen overnight if you have to make improvements slowly.

Loan options for existing homes

You’ll have more loan options to choose from for an existing home, which means this could be another area you’ll be able to save a little money. Remember to shop around and get the lowest upfront fees and ongoing interest rates before you commit to your mortgage.

FHA

An FHA loan is a great first-time homebuyer loan because it’s backed by the Federal Government which means it’s not as rigid as other mortgage loans when it comes to requirements. You may be able to put as little as 3.5% down and it’s a fixed rate, which means your mortgage payments won’t fluctuate over the life of the loan. You also don’t have to have perfect credit to get approved, the minimum requirement is a 580 score.

Freddie Mac Home Possible

The Home Possible Mortgage makes home ownership more… well… possible with low down payments and in some cases, no credit score required. With as little as 3% down you may qualify for this mortgage. And your down payment can come from many sources, including other family, employer assistance programs and even sweat equity.

Fannie Mae HomeReady

The HomeReady loan is similar to the two described above and helps first-time homebuyers have options, especially those with low to moderate income. Down payments can be as low as 3% and credit score requirements start at 620.

Veteran’s Administration or VA

VA loans are offered to active or retired military veterans and if approved, no down payment is required. They are also backed by the Federal Government so interest rates are competitive for first time home buyers. Although it varies by lender, typically these loan types require a credit score of 620 or better.

U.S. Department of Agriculture or USDA

The USDA loan program is available for low-to-moderate income homebuyers but they are only available in specific geographic locations. If approved, no down payment is required but you’ll want to aim for a credit score of 640 or better.

As you consider whether to buy or build, remember there is no right answer. Buying your first home is about what’s best for you so consider the pros and cons we’ve covered here and move confidently in either direction. Regardless of whether you build or buy, any home purchase comes with its share of unexpected costs or surprises so plan to have a solid savings in place. To learn more about our savings program for first-time homebuyers, click here.

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