Pros and Cons of Buying A New Construction Home

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When you decide to buy a house, you can either buy existing homes that are already on the market, or you can buy brand new construction homes. So today we’re gonna talk about the pros and cons of buying new construction homes.

Hello, and welcome to the homeowner prep podcast. I’m your host, Eric. This podcast was created to provide real road advice and accountability. For first time home buyers, we’ll be interviewing industry experts, providing some how-tos and talking with first time home buyers about their personal experiences. That sounds interesting to you. Please be sure to subscribe and if you’re watching on YouTube, be sure to hit the little bell to be notified with new episodes are released. Now let’s dive into today’s episode.

Hello, and welcome to another episode of the Homeowner Prep Podcast. Thank you so much for tuning in. We’ve been getting some great feedback and some great questions as we’ve put out each episode. And today we’re gonna kind of answer a question that comes up pretty often.

You know, we deal with first time home buyers on a day-to-day basis. And a lot of times people think that, you know, “Hey, if I wanna buy a house, I have to, you know, go onto a website, you know, start looking at homes that are available online, and work with my agent.” But there’s actually another route and that’s new construction. So we do get questions about new construction, you know, how it’s different what are the cost differences, things of that nature, and mainly am I qualified to buy new construction?

So today we’re gonna talk about the pros and cons of buying a new construction home. There are definitely some things that we come across more often than not. And so I just wanna address a few of these things. The first thing to understand is that, you know, some research has been done over the last five years comparing new construction homes to existing homes or what we call, you know, resale properties. And what they found is that new construction homes do actually cost about 15% more than a resale existing home.

So, you know, those costs that you’re gonna have, you know, will cover a couple of those, but you know, when you’re buying new, like anything, you know, if you go and you buy a new TV versus a used TV, or, you know, anything like that, there’s gonna be a price difference. And so they found that that price difference is about 15% on average nationally.

So depending on where you’re at, you could be seeing a higher cost, but we’re gonna dive into just a few pros and cons. And we’re gonna start with some of the pros. You know, the first thing I love about new construction homes you know, me and my wife have bought new construction as well. And that’s that, you know, everything is brand new, you know, with a new air conditioner with, you know, new appliances, the new, sometimes the washer and dryer are included, you know, everything is brand new.

And so the good thing there is that you don’t have to worry about things breaking down as soon as you move in. Right? So big concern for a lot of first time home buyers is, you know, Hey, what are the repair costs that I’m now responsible for? You know, I don’t wanna be paying for my air conditioner when it goes out or, you know, these big ticket items and with new construction, you can avoid a lot of that.

You know, everything is brand new. You don’t expect, you know, a new HVAC unit to go out. All your appliances should be working perfectly, your electrical, your plumbing, everything has been approved by your city by contractors that are licensed and do this every day. So you don’t have to worry about things like maybe the homeowner doing their own work in the house that could cause an issue down the road. So there’s a little bit of peace of mind there knowing that everything is brand new.

So it’s definitely a pro the second pro that I like to call on is that it’s got all the latest bells and whistles. If you’re a, you know, the latest tech type of person, if you just love to have the newest, greatest buying new, construction’s the way to go. You know, if the, the trends and the fads are certain color schemes and certain types of stone for your countertops, you know, whether they’re quartz or granite or whatever you’re gonna have those days, you’re gonna have a home that is quote unquote on trend.

You know, these are the things that people are looking for. They’re some of the latest technologies that are used in home homes that make it more efficient. You know, you can have even your, your water on wifi and get alerted if you’re using too much water, you know, there’s a lot of you know, bells and whistles in new construction.

So if you’re the type of person who loves to have the latest and greatest new construction is the way to go, because you will have a lot of these new technologies, these new trends, new stone you know, just some of the latest things that are going on, and it does, you know, have a potential to save you money. You know, a lot of things that they’re putting into homes nowadays is really focused on efficiency, you know, whether it be the your electricity and using solar, or like I mentioned, you know, your, your water supply being on the wifi and set up on an alert.

Some homes may have, you know, some ring security, so you have some protection there. So it’s just something to consider as you’re thinking about, Hey, you know, am I gonna have to put all these things into an existing home and what, what that costs versus, you know, with it already being included in a brand new construction home. So you will have all the latest and greatest bells and whistles. And that definitely is a pro. If you’re into that type of stuff, the last pro that I wanna touch on is your financing.

When you go to a new construction or new development will often include your closing costs. So, you know, with new construction and new developers, they often will have an in-house lender or a lender partner that they work with, who knows all the costs of buying that new home based on the models, based on, you know the tax rates and things of that nature.

And oftentimes to incentivize you to use their in-house lender, they’ll be willing to pay towards your closing costs. So if you’re not familiar, closing costs can range anywhere between two and 3% of your purchase price. It’s gonna cover, you know, taxes and your lender fees, and a lot of other costs that are incurred when you buy a property. And so having somebody there in house lender that will cover those closing costs could save you thousands of dollars.

You know one thing to really be aware of is that sometimes they’ll say, Hey, we’re gonna cover your closing costs, but somehow they work it into the loan. So really take a look at your paperwork, make sure that, you know, prices haven’t changed, make sure that there’s nothing that they’re including now to cover those closing costs or make sure they’re not raising your rate in comparison to another lender that you could have used in order to cover those closing costs, because the truth is all lenders can cover your closing costs, but it’s gonna cost you something, you know, typically your rate will go up for them to cover those costs.

So, you know, make sure that that rate is comparable to, you know, if you are already working with the lender and the biggest thing that I will say about that, even though it is a pro that they have in in-house lending. I always tell my clients, check with the lender that you’re already using. You know, if you’ve already connected with the lender, they’ve already done your pre-approval, you know, and they’ve already put some work in, just check with them, you know, say, Hey, you know, we went to go look at a new construction home.

They have in-house lending, they’re offering to pay this with this rate and give your lender the opportunity to at least match it, you know, see if they can match it or beat it again, there’s fees that are incurred. And a lot of times those in-house lenders will just kind of bump your rate in order to cover those fees.

So your lender that you’ve been working with will be able to explain that to you will be able to at least try to match or beat what they’re offering and just give them the benefit of the doubt. You know, especially if you’ve been working with them and they’ve put in a lot of time with you to help you get to the point to where you’re actually out looking at homes, you know, giving them an opportunity to at least match or possibly beat what the in-house lender was offering.

So those are a few of the pros of buying new construction, and, and now we’re gonna kind of get into some of the cons. The first thing like I mentioned was you’re gonna pay a higher cost to buy new construction homes, typically. And I say that typically, because depending on what the market is doing, you know, oftentimes like we came out of a market back in 2021 where people were paying a lot more for a resell existing home because they were having to offer so much more above asking price and they were having to cover the difference in appraisal price.

So the good thing with, you know, having new construction is that they’re giving you the price up front, you know, and so they’ll say, Hey, this house is on sale for 750,000. That’s the price it’s just about, Hey, is there a waiting list? You know, how do you get your name, you know, in the hat, if you would. And so you would pay that price.

Now, an existing home may be asking 750, but then you’re competing against a number of other buyers who are raising the price in the market. If it’s a, if it’s a seller’s market. And so you, you could end up paying a lot more than seven 50 for that same home. So although the, the numbers have come out and yes, they say that new construction is on average, 15% higher than a resale home. Keep in mind of what the market is doing.

Keep in mind, you know, the level of competition. And if buyers are having to pay above appraised value in order to even get a property into contract. So, you know, just keep an eye on that. The second con I would say is that you have to have some patience, new construction homes take a long time to build. It’s very rare that you’ll find a move in ready, new construction home.

Typically, if that happens, that means that somebody has already gone through the process that has already started to, you know, put in the finishing touches and then for some reason or another, they backed out. And so that’s when a home could be moving ready, you could have an opportunity like that, but more often than not, you will be going into a new development and having to wait for your home to be built.

So it could be six months, nine months. Some folks have waited over a year for their home to be built, just depends on where they’re at in the phase releases. And so you just have to understand that you have to have more patience in going in and dealing with a new developer. Oftentimes they may give you a schedule and an estimated timeframe, but it’s all depending on whether it’s all depending on, you know, if they can get people who actually can do the construction work.

So if there’s a shortage in construction workers and then material costs, you know, so these will have an impact on your final delivery date. So just have some patients know that it’s going to take you longer, a typical home. You can see a home that’s active or resell existing home, put in your offer, get it accepted and close in 30 days where new construction, like I mentioned, could be months away.

You know, you could put in your, your down payment to hold the property and then be waiting six to nine months for them to finish the project. So, you know, that’s just something to consider. You definitely wanna make sure that you have some patience when you’re dealing with new construction. And the last thing that I wanna mention kind of ties into the, the overall costs.

But typically with new construction, they’re gonna have HOAs. They may have Mello Roos, which are additional monthly costs or annual costs that are on your taxes, and they may have additional costs because solar is required in your state. Depends on where you’re at. Depends on the regulations, but here in California, they have to put a certain amount of solar on any new home. So in order to get that paid for, they’re either going to charge the buyer to say, Hey, you have a choice.

You could either pay for your solar on a monthly basis, or you could pay for it outright up front and it send your purchase price. So that cost will be incurred by you, the buyer when it comes to HOAs, there’s typically HOA on new development, you know, HOAs, again, we’ve talked about HOAs in other episodes, but they’re catch 22. They do help you keep your property values up, but they do increase the cost of home ownership.

And so, you know, find out what the HOA costs are on a monthly basis. Make sure it’s something that’s in your budget, make sure it’s something that you can afford comfortably. And I would always say, if you have an HOA, make sure you stay involved. You know, you don’t have to necessarily serve on the board, but make sure you attend meetings and know what’s going on.

So that way you’re staying involved and informed on any decisions that they’re making. And then the last point that I had made was just the Mello Roos. You know, Mello Roos are typically on taxes for 20 to 30 years. You know, they’re paying for roads. They may be paying for schools. They may be paying for all the things that are necessary to support this new development. And so Mello Roos cost can be in the thousands on an annual basis.

So again, make sure you’re qualified for it. Make sure it’s not gonna break the budget, make sure you’re not living to pay the mortgage now that you have HOA and a Mello Roos and solar to pay for. So just keep an eye on these additional costs. When it comes to new development, you most likely, you know, you may have an HOA on a existing home depending on this age, but most homes, you know, that are resale may not have an HOA.

You may not have Mello Roos, cause it’s already been paid for depending on the age, in the home again. And there may not be solar on there. So you have a choice that, that if you wanna put solar on or not. And, and the reason I like you to be in control of that decision is because it depends on how long you’re gonna be in that home. Solar may not make sense for you if you’re gonna be moving in one to two years, where if you’re gonna be there, you know, this is, Hey, this is gonna be my long term home. I’m gonna be here for at least 10 years. Then the solar cost makes sense for you. So just keep an eye on those things. When it comes to new construction, you are gonna have to pay these additional costs in order to get the home.

And so make sure it doesn’t break the budget. I just wanted to cover a few of these pros and cons. Obviously you have a choice. You can buy resell and existing homes and you can buy, you know, new construction homes and, and that’s your decision, but at least know the pros and cons of going into each one thing. One last thing I will say is when you’re buying new construction, even though things are new, make sure you get your inspections done, walk through your home. Don’t feel like it’s going to be perfect. New does not equal perfect.

They’re gonna be issues with any type of home, you know, a new construction home. Typically before you close, they’re gonna have you walk through with their construction manager and they’re gonna give you some tape and you’re gonna tag issues that you find around the house, take your time, go through the house, find any, and every issue that you can, if you have an agent, I hope you have an agent cause you need to have some representation, no matter if you’re buying new or existing homes, have your agent help you, you know, find issues, ask questions, raise these flags.

Now, before you move in, typically you’re only gonna have a year warranty on the majority of stuff in the home. So you wanna make sure that you’re addressing them before you move in. So do your inspections, do your walkthroughs do not assume because it’s new. That is perfect. So I do wanna leave you with that. If you have any questions, definitely don’t hesitate to reach out to us.

One thing I wanna make sure that you understand is whether you’re buying new construction or existing, we’re here to help you. And so you can always come to our website and get started with us at homeownerprep.com/start. Again, whether you’re ready or not, we can help you no matter where you’re at. And so I do wanna encourage you, you know, just get started, get the process started if you’re renting right now, you know, the amount of money that you’re just outlaying compared to, you know, if you had actual home ownership and you know, you’re building equity is vastly different.

And so we want to get, you started so visit our website at homeownerprep.com/start. And if you just have a direct question that you wanna send us, you can always reach us on our social media. More often than not, we get questions on our Instagram @homeownerprep. So feel free to reach out. I hope you got some great value from today. I hope this clarified, you know, buying resale or buying new construction, some of the pros and cons. If you have any questions, again, reach out to us. And until the next episode have a blessed day,

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