Is It Better to Buy New Construction vs an Existing Home?
There are many factors that determine how much a house sells for, but in many cases, yes it can be cheaper to buy a new construction home. This is because of buyer incentives offered by the builder to home buyers. This may seem counterintuitive, but the longer new homes sit unsold the more the builder loses since they cannot begin new projects until they get their initial investment back from building the homes, and of course turn a profit. What's a builder to do? Offer incentives to buyers to get those homes sold! According to Builder Magazine, the average incentive offered by builders is $13,258 in 2023.
How do I find the right builder or new community?
Finding the right community or builder depends on the person. Find a specific city or area you'd like to live and do some searching to find new construction homes in your area. The builder will usually be listed so you can do some research on them to be sure they've done good work in the past. If you'd rather get a recommendation, builders do still have lenders that they find easy to work with. If you don't have anyone you feel confident asking, but you do love your bank, check with them as they may have worked with builders in the community you're interested in. Then, you can do some research on those builders and go from there.
How do builder incentives work?
Much like a coupon, incentives cut the cost of purchasing property in a new community. However, these discounts are not always as simple as a straight price cut. You can either take the cash and use it as closing costs, get upgrades to the home if it's not already finished (such as higher end cabinets or flooring), or even buy down your interest rate. If you'd like more information on buying down your interest rate, our friendly WaFd Bank loan officers are ready to help!
Just be sure to negotiate the incentive—they want to sell, and you want to buy, so find a number you're both happy with. They may even offer to pay your closing costs, which can be up to 6% of your loan.
Pros and Cons of New Construction vs an Existing Home
- Cons of Buying an Existing Home:
The biggest concern would be unexpected repairs to older appliances, roofing, heating systems, or other things your inspector may have missed that you now have to foot the bill for. Older houses can also be poorly insulated and generally energy inefficient so you have to pay a lot more for your heating bill. There is also the potential for outdated technology and fixtures. At some point in the future you might have to replace things that can be very expensive, such as rewiring the house if it has knob and tube wiring, for example. Lastly, many homes have outdated floor plans that just don't have the vibe you want for your home unless its been extensively remodeled. If it has, you'll want to be sure the required permits were filed to ensure the work has been done correctly. - Pros of Buying an Existing Home:
These homes are often move-in ready as soon as your loan closes, as long as there aren't any remodeling projects you want to get out of the way first. Neighborhoods are also more established and landscaping and other projects have been done by previous owners in many cases. You'll also have more location choices (as inventory allows) and, if you love historical homes, there is also the allure of a house with those historical details that come with story behind it. - Cons of New Construction:
There is the potential for a new construction home to be more expensive, but this really depends on the area. You'll also have to weigh the commute, as many new neighborhoods are further from major cities or may not be in the area you want to live in. This may not matter much to you, but landscaping takes years to mature, so your yard might feel a bit exposed while you're waiting for hedges or trees to grow. Lastly, there is of course the risk of delays if your home isn't built yet due to material or labor shortages. - Pros of New Construction:
First, your home will be brand new and in pristine condition, which means low maintenance and no need for projects or fixing things for years. Your home could also be customizable if your new neighborhood is still being built, so you have your choice of flooring, countertops, and more. It will have the benefit of being energy efficient too, since materials are just getting better as the years go by. Depending on the neighborhood you choose, you might have amenities that are private to the community like a pool or park. Lastly, in a tight market with limited inventory, new construction can be easier to find than waiting for individual sellers to list their home.
Four questions to ask your builder:
- What warranties are offered?
- Do you have references of past clients?
- How long has this company been in business?
- Will the new neighborhood have an HOA?
Best Practices When Buying New Construction
You still want to work with a real estate agent—the builder will have an agent, and they'll have the builder's best interest in mind, not yours. Make sure your agent is knowledgeable in new construction so you can get the most for your money and take advantage of little-known offers.
Before signing anything, read the fine print (yes, all of it). Understanding your agreement could save you a lot of headaches down the road and will give you the chance to ask clarifying questions and/or negotiate further. If there is a "must close by date" caveat in the fine print, ask about what happens if the home completion falls outside of that date range and get the answer in writing. Also, be sure to request a list of offered incentives and any requirements to get those incentives in writing to avoid miscommunication.
Lastly, always weigh your options. It's easy to get caught up in the excitement of buying a brand-new home, so making sure you understand the terms, conditions, and all other details will help you ensure you set yourself up for success down the road.
WaFd Bank Is Here to Help
Our loan officers are here for you, and they're also good at math! We'll crunch the numbers for you to make sure you can get the most out of your home savings, whether that's buying down your interest rate or putting all of it toward your down payment. WaFd Bank is also a portfolio lender, which means we prefer to keep loans on our books so we're always there to work with our clients, so you'll know where to go with questions or to get help. Give us a call at 800-324-9375, visit your neighborhood branch, or find a loan officer ear you to get started today!
All loans subject to credit approval.
