Late last year, my wife and I purchased a new construction home. If you know about my nightmare foreclosure then you might think I would have been a bit hesitant to join the ranks of homeowners again. After all, that fiasco was horrifying enough to deter anyone from buying another property for a lifetime.
However, time heals all wounds and, mentally, I was ready. Plus, with the newest addition to our family, we were fast running out of space in our rented, upstairs apartment. After paying off most our debt and being nearly debt free a few years back we were able to accumulate enough for a down payment.
As a result, last summer we started house hunting. Initially we focused our search on resale homes – homes that were built in the past and currently owned by the folks ready to sell.
Eventually we expanded our search to include the possibility of buying a new construction home. At first I had excluded the notion of buying a new construction home. In my mind, I likened purchasing such a house to buying a brand new car. In other words, buying a new construction home would be an inherently bad decision with the detriments generally outweighing the benefits.
In the end, we did indeed purchase a brand new construction home because it made the most sense for us. While there are definitely some disadvantages to new construction homes, there are also some advantages that you might not realize. Let’s take a look at both sides of the spectrum when it comes to buying a new construction home. We will start with the advantages.
Note – for the purposes of this article, “new construction” home means those from a builder, such as Lennar or Beazer, that develop a community of similar homes. This article excludes homes where someone purchases their own single plot of land and designs their own home by finding their own independent contractor.
Advantages of Buying a New Construction Home
- Warranty – One of the largest benefits of buying a new construction home is that it should come with a warranty from the builder. Our warranty included 1 year for pretty much everything. Other parts of the house, such as the framing and foundation, have a 10 year warranty. This can be advantageous for several reasons. First, if something breaks, there’s a decent chance the warranty will cover it especially within the first few years after purchase. This can keep your maintenance costs rather low. Conversely, if something breaks right after you buy a resale home, the bill is all yours!
And, yes, you can purchase an out-of-pocket home warranty for a resale home. It probably won’t cover as much and you’ll have to pay the premiums each month.
Trick! – you may want to consider skipping a home inspection during the actual purchase. While getting a home inspection is critical when buying a resale home (although, as was my case during my nightmare foreclosure, home inspections can be worthless if the inspector is incompetent), it might not be necessary upfront when buying a new construction home. This will save you money during the close. Now, here’s the trick: wait until right before your initial 1 year warranty expires and then get a home inspection. If something has gone wrong in that first year, then hopefully the inspector will catch it. You can then submit a warranty claim. If you’d done the home inspection solely upfront, then you might not catch stuff that goes wrong afterward (if there is anything that is).
- Choice of Floor Plans/Upgrades – When you buy a resale home you get the home as is. Sure, you might be able to negotiate with the seller to put in some new carpet or lay a fresh coat of paint down. That’s pretty much the extent of your customization options. However, with a new construction home, you likely will have the option of choosing the floor plan that best fits your needs and budget. Beyond that, you should also have the opportunity to choose what upgrades you’d like, if any. For example, picking the cabinets, counter tops, flooring type, interior paint, etc. are all possibilities that you can have done “out of the box.”
- Newer Technology – I love my solar panels! Our new construction house also has cutting edge insulation. The outcome? We have been averaging $15/month electricity bills in the consistent 90 to 100+ degree heat of the summer.
Purchasing a new construction home means you are getting newer technology and up-to-date building standards as a part of your house. Sure, you could renovate or have new technology added piece by piece to a resale home, but that can be a costly hassle.
Trick! – Ok, so this is not necessarily a trick per se, but it is a nice “did you know.” Current tax law allows for a credit to be taken on your income taxes for 30% of the cost of a solar system. Remember, a credit is a dollar for dollar reduction of your tax liability (which is better than a deduction). The neat thing is you still get to take this credit when buying a new house even though the solar system comes included in the purchase price of the house! In other words, you are financing the cost of the solar system through your mortgage yet you can take the full credit on your taxes during the year of the purchase. This can give you a nice little “break” income tax wise while wrapping the actual payment of the solar system into your long term mortgage.
- Nicer Neighborhood – New construction home neighborhoods are generally going to be well-maintained with desired amenities nearby. Of course, you never know what type of immediate neighbors you might end up with. On the whole, though, there can be a certain appeal to live in a neighborhood that still has the “shine” on it. All of this is subjective, of course, and there’s nothing to say more mature neighborhoods won’t have a similar type of appeal. The “niceness” of new construction homes and their neighborhoods can definitely be an advantage over resale neighborhoods.
- Financing – Most likely the builder will have its own financing option available for you to use. You should be able to use your own lender of choice and if you have already found a great mortgage deal then awesome. I was initially skeptical of using the builder’s mortgage company (which was an affiliated subsidiary company) because I assumed it would be too pricey rate and fee wise. Turns out they were actually fairly competitive.
The real benefit to using the builder’s financing comes during the closing process which can be long and drawn out (depending on when in the construction process you sign the purchase agreement). Outside lenders might not be familiar with the builder’s closing requirements, timing, or general process. That means you will likely have to play the middleman – undoubtedly a stressful and frustrating experience. The builder’s loan officer and the processor will be intimately knowledgeable about the whole process and that makes for a smoother overall ride all the way through closing.
- Lower Cost of Initial Maintenance – On average, with a new construction home, there is going to be less maintenance and replacement costs incurred. If you buy a 15 year-old resale home that has an original roof with a life of 20 years, you are going to have to pay for it the be replaced in roughly 5 years. When you buy a new construction home the roof life is going to have 20 years remaining (or longer since the material may be of higher quality). Also, keep in mind the warranty if something does go wrong early on in your ownership of a new construction home.
- Closing – From my experience, the whole process leading up to and including the closing process was quite smooth. The builder provided a list of all important dates and items due based on the pre-determined construction schedule of the house. And, as mentioned above, the builder’s lender worked hand-in-hand to square away the financing side of things. That’s not to say you won’t have to ask questions and follow-up on various items. I am also not guaranteeing a hassle free experience since each builder operates differently. The main difference from a resale home is you work directly with the builder’s representatives instead of contacting your realtor who then contacts the seller’s realtor who then contacts the seller. It can make a difference.
- Resale Values – We will take a closer look at resale values in part 2 which will discuss the drawbacks of a new construction home. The truth is, buying a new construction home will not guarantee you will be able to sell down the line for a higher price than an originally purchased resale home. There are too many variables to factor into what the home value will be. However, there is possible credence to the theory that, because new construction homes will generally have more recent technologies, less deterioration, etc. in 5, 10, or 15 years then they may maintain their values better compared to the older resale homes that were available when you originally purchased.
What do you think? Would you consider buying a new construction home? How much do the advantages listed above influence you?
**Be sure to check out Part 2 Disadvantages of Buying a New Construction Home**
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