Building vs. Buying A Home

The options for homeownership may be more complicated than you think. Make sure you make the right choice.

subjective, dependent primarily on personal tastes and needs, there are pros and cons to each option. Keep the following criteria in mind when assessing which choice works best for you:

Purchase price. Buying a home is the single largest investment most Americans make. Pre-existing homes fare better in this category, with a 2005 national median purchase price of $219,000 versus $240,900 for newly built homes. However, a changing market is opening up options for all buyers. Stephen Melman, director of economic services for the National Association of Home Builders, says the housing slowdown will ultimately result in a more balanced market, and that the increasing inventory in some markets has shifted the strong seller’s market of recent years to a market more in favor of the buyer.

Negotiating room. The advantage here goes to buying. Individual sellers are typically more flexible than a builder. “Opportunities for negotiating are limitless,” says Tom Stevens, president of the National Association of Realtors. “You can certainly get more value now than six months to a year ago.” Stevens highlights that buyers can negotiate items such as new carpets or appliances. Most importantly, buyers can negotiate asking prices or to have sellers pay closing costs and/or homeowner association fees for a period of time.

Financing options. This is a much simpler process for pre-existing homes, which have the benefit of traditional financing: fixed- or adjustable-rate mortgages with 15-, 30-, or 40-year terms. If you choose to build a custom home, you have two primary financing options. You can find a lender for a construction loan — a short-term loan, usually less than 12 months — and then convert to a mortgage once the home is completed or choose a construction-to-permanent loan, which combines the steps. Builders may have their own financing available for an added premium.

Energy efficiency. New homes win here. They are generally built with energy efficiency in mind, including better insulation and energy-conserving appliances. These selling points can save up to 30% on annual utility bills. Existing homes, however, usually do not have the benefit of new technology and frequently have higher utility bills.

Maintenance and safety. Maintenance can be a large financial drain and a huge stress to homeowners. In this area, you can’t beat a newly constructed home. New homes typically have the upper hand because they are not only in excellent condition but also commonly come with first-year homeowner’s insurance/warranty. In addition, these homes are built to comply with newer, stricter safety requirements than older homes, including improved resistance to fires and earthquakes.

Time. Time is a large factor in the decision to build or buy, and if you do not have time, building may not be for you. It takes 30 to 60 days on average to close on a pre-existing home once selected. By comparison, construction on a home takes from three months to more than a year. When the Alston’s began their building experience in February 2005, they were originally told construction would begin in March. But as the months came and went,

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