As the housing market continues to recover in much of the U.S., shiny new houses are once again hitting the market in healthy numbers. Buying a new house, especially one custom built to your specifications, is an empowering experience. But is it the right financial move for you and your family? And are you covered with a home insurance policy?
Let's take a look at what the experts say about the pros and cons of buying a new home, as opposed to an older home.
Should I Buy a New House or a Pre-Owned Home?
First, let's look at the pros column for buying new.
1. You can customize a new house to your tastes and needs.
Stephen Melman of the National Association of Home Builders says that with a new home, it's no big deal to ask for a different type of flooring, appliance color, or wall covering. All of the contractors and materials are on-site anyway, or easily ordered, so it takes very little effort and expense to tailor the house exactly to your liking. You may also be able to choose doors, windows, roofing materials, and alter the layout of the rooms.
With an older home, you would have to either negotiate with the seller to change out a few of the features you dislike, or wait until you can save up the cash to make the changes yourself. In both cases, you will probably have to make many compromises along the way.
2. You can inspect a new home's construction from the ground up.
It's one thing to bring in a quality inspector to look at an older house, where the wiring, plumbing, and framing are hidden behind the walls, and the foundation is mostly obscured. It's quite another thing to be able to bring in a skilled contractor or inspector to monitor a new house as it is built, from the foundation, to the framing, to the wiring and plumbing, to the finished product.
Consumer resource Nolo advises that it's best to get an inspection for your new home at least three times: after the foundation is poured, after the house is framed, and after the house is finished. You might be surprised how often owners of new homes complain of plumbing problems and crooked foundations, less than a year after they move in.
With the right precautions, a new house can be a great source of comfort, knowing that you have years to enjoy without worrying about the roof or the air conditioning unit.
3. New homes come with better appliances and efficiency.
In most cases, new homes are better equipped for energy efficiency, in the quality of their appliances and the insulation and construction. This could save you money in the long run. According to the Department of Energy, a home in the north built after 2012 energy codes went into effect costs an average of $674 to heat each year, while one built as recently as 2006 costs $1289 to heat. That's a big difference when you add it up over the life of a 30-year mortgage.
The Downside of Buying a New Home, Instead of an Existing Home
1. There's very little room for improvement.
If you're looking for a higher return on your investment ten years from now, go with an existing home, where you can make changes to increase the home's value. CNN Money explains, "While handy homeowners can reap the benefits of sweat equity, a new home offers very little room for improvements and is likely to sell for about the same price as others around it."
Any increase in the value of a new house depends almost entirely on the rate of appreciation in the local housing market. But on the plus side, if you buy in the early phases of the community development, and the rest of the houses in your neighborhood sell at good prices, you could end up ahead of the curve. Builders often sell the first block of houses at a 10 to 12 percent discount, and then raise prices for the next blocks if demand is strong.
2. The good spots and big lots are already gone.
In most cities, the best home locations got snatched up long ago. A large percentage of new housing developments are spread far from the center of town, and often make a long commute a necessary evil. In addition, the lots tend to be cut much smaller than those of older houses. They may also lack established trees and be prone to rain run-off and mudslides, in some areas.
Developers try to offset these flaws by installing new landscaping, and building neighborhood clubhouses, parks, and pools into the community design. If you are interested in a more community-oriented atmosphere, and don't mind paying your HOA dues each year, this could be good news. If you prefer privacy and a big oak in your own back yard, it could be a problem.
3. Timing the buy can be tricky, and it can leave you high and dry.
Most builders prefer to sign off on a sale before construction begins. Depending on where you live, certain steps and permits must be in place first, and then you can hand over a down payment on a house that doesn't even exist. As you might expect, this can be dangerous for the buyer.
That's why Nolo advises that you shop around for a builder, just like you shop around for a house. It's a good idea to check into the developer's past by contacting business bureaus and former customers. Find out if they can be trusted to finish projects, and whether they receive many complaints from homeowners after the sale.
If you currently own a home, it can be tough to know when to sell and make the move, because most housing developments are built in phases, and completion dates are never certain. CNN Money comments, "The finished product probably won't be ready for six to nine months, which can be tough for those who need to move in soon."
You could even end up paying two mortgages for a few months, if your new home is ready before your old one has sold. And if for some reason the builder is forced to abandon the project, you may stand to lose your down payment altogether.
Are You Ready to Buy a New House?
If you think a brand new, custom-built house is right for you, make sure to enlist the help of a real estate agent who has experience with new home deals. A good agent can help you negotiate the twists and pitfalls of dealing with lenders, builders, and inspectors along the way.
Once you've decided to make the purchase, talk with a local independent insurance agent. Independent agents in our network can shop many different insurance companies to find the right homeowners insurance policy for your new house. They can also help you evaluate the new home repair insurance offered by your builder, and may even be able to get you better coverage at a better price. Enjoy your new house!