At Burnett Real Estate, one of the questions we’re asked most often is “should I buy or build my home?” To many, a home is the single biggest investment you will make in your lifetime so this is an important question. There are a lot of personal, financial, and emotional factors to consider when making this choice.
Each method has their pros and cons. Your specific needs will likely dictate whether buying or building your home is the best option for you. We’ve had a lot of experience in handling both approaches. While there may be other elements to consider, here are the most common pros and cons of buying and building a home.
Also check out our article on 7 Tips for Building a Successful Custom Home
1. Price and Value
Pros of Buying: Generally speaking, buying a home will almost always be less expensive than building. Things like location, land cost, the interior and exterior finishes you choose for the home can certainly make building more expensive than buying. Older homes may be undervalued and able to be purchased at a fraction of your budget, leaving extra money to spend on renovations. Buying allows you to really drill down to precise locations and school districts, but then you have to find a home that has the features you want at the price range you want to pay.
Cons of Buying: Fluctuations in the market can drive up prices, leaving you paying extra for a home you already know needs renovations or updating. You are also competing with other prospective buyers who may outbid you. While most home owners work with a broker who helps determine the value of the home, you are still bidding on a perceived value that can sometimes be driven by what an owner thinks their home is worth rather than the appraised value. This emotional connection sometimes causes sellers to ask too much.
Pros of Building: You have more control over the cost of the home based on how you finish it inside and out. New home buyers tend to look for modern, updated homes so your home has a better likelihood of retaining or appreciating in value going forward if you intend to sell it at some point. You can have greater comfort that the HVAC, water heater, appliances, roof, etc all have a lot of life left in them.
Cons of Building: In almost all cases, it will be more expensive to build a new home as opposed to buying an existing one. The exception would be if you build a very simplistic home, but covenants in neighborhoods may not allow you to build simplistic.
2. Personal Preferences
Pros of Building: You control the look, feel, design, and features of the home. In short, you can build your dream house.
Cons of Building: Adding in every detail can get costly. If a home becomes too unique it can be difficult to sell later. The Koi pond, waterfall, and elevator all seem great now, prospective buyers who don’t share that view may not want to pay for it later. It is also can be a plethora of difficult decisions regarding house plans, tile, paint, stain, carpet, brick, etc. If you are indecisive or if you and your spouse aren’t on the dame page it can become a point of contention. When I was building custom homes in the 90’s and 2000’s I have seen husband and wives get into shouting matches over finishes.
Pros of Buying: Modern homes are built with the broadest appeal to the widest potential customer in mind, but with the idea that new owners will want to add their personal touch through renovations and upgrades. So while they may not have everything you’re looking for, there’s generally room to personalize painted features, colors, flooring, landscaping, etc.
Cons of Buying: Certain “must haves” may be hard to come by, limiting your choices.
Pros of Buying: Purchasing an existing home offers a much easier path towards securing financing. Most home buyers aren’t paying 100% out of pocket and a traditional mortgage is easier to obtain than a home construction loan. For example an RD or VA Loan can get you into a home with no money down. An FHA loan can get you into a home with 3.5% down payment. A new construction home generally the bank wants you to own the land as your collateral for the loan. There are ways around this though. For example, if a builder owns the lot, the Builder can get the loan and sell it to you upon completion. The builder will generally want some non-refundable money and a contract from the buyer to facilitate this process. I have seen builders charge anywhere from $2500 to $25000 depending on the overall value of the home and how unique it is with regards to finishes and location.
Cons of Buying: First time home-owner loans can sometimes pay higher than normal interest rates due to lower down payments. If you decide to sell the home before the loan is repaid you may lose out on some of the benefits of the loan. Some first-time home owner loans do not allow you to refinance or otherwise change the terms. For example you may have a pre-payment penalty if you pay the loan off too quickly.
Pros of Building: A home construction loan can cover most of the costs of the construction and, in some cases, may be converted into a mortgage. Some lenders offer a “one time closing” so you don’t pay double the closing fees. You could have to come up with A LOT more down or own the lot in order to get the loan.
Cons of Building: Many lenders will not approve such a loan until your builder has secured the necessary permits. This means you need to have more cash available up front to cover costs while you are waiting for the loan to be approved, and of course there is no guarantee that it will be. Also, where will you live while building? If you own a home, you could end up paying two mortgages once your home is built. If you rent, you may incur the cost and headache of multiple moves and perhaps even have to pay some storage fees.
4. Location, Location, Location
Pros of Building: Build what you want, where you want, how you want. You control your land, home, property, even your view.
Cons of Building: … you usually can’t REALLY build what you want, where you want, and how you want it. While there is more flexibility in building, you still need to be choose an appropriate location where you have access to utilities and other services. Choosing to build also means need to be prepared for a multitude of additional building, architectural, even environmental permits. These can take time, with no guarantee of approval. If you want to be out in the countryside you may have to drill a well at cost of about $10,000. Then you may have to have filtration or purification systems. You may also have to install a septic system if sewer is not available. This is about $4000. You will need to have land that will accommodate a septic system.
Pros of Buying: Existing neighborhoods means access to utilities and services are already in place. You needn’t worry about the infrastructure to support you. Even if the home is not perfect, the essentials are already in place.
Cons of Buying: Choosing a neighborhood can be as big a decision as the house itself. Who are your neighbors? What’s the traffic like? What are you close to? What are you far away from? Are you okay with the small yards and neighbors all around you? All important things to consider.
Pros of Building: You will be more involved in the process, knowing what the budget and time frame are from day one.
Cons of Building: Building a home will always take longer than buying. Poor weather, unexpected problems, and other instances can (and will) delay construction. If you are waiting to move in, you will have to make temporary living arrangements during construction, storage for personal effects, multiple moves, etc.
Pros of Buying: Buying is always a quicker process. Even with waiting for bank approval, closing dates, etc. you will move in sooner than waiting for new home to be built. The closing process is typically 30 to 45 days.
Cons of Buying: Waiting on loan approval and closing dates can be a lengthy process. Old owners sometimes get cold feet and pull out of a deal at the last minute. There are repairs a professional inspection might find and the seller may not want to make. There could be appraisal, title, or financing issues that kill the deal last minute.
Time, cost, and convenience are the three driving factors when it comes to deciding whether to buy or build your home. In fact, all of the above list can be looked at from a cost, time, or convenience perspective.
At the end of the day, this is a personal decision that each prospective home owner needs to make for themselves. If you’re looking to buy or build a home in Northwest Arkansas, we’d love to help you out! Contact Us today and figure out whether buying or building is right for you!