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Buying a New Construction Home vs. Existing Home
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Among the many decisions homebuyers must make is whether buying a new construction home vs. existing home is right for them. Approximately 13% of buyers decided that building a new home was their preferred option in 2020, compared with 87% who bought an existing home, according to the National Association of Realtors’ 2020 Home Buyer and Seller Generational Trends Report. If you’re considering both options, it’s important to learn the pros and cons of building a house or buying a previously owned home.
The costs of building vs. buying a home
Many buyers wonder whether it is cheaper to build or buy a house. Some buyers assume that a newly-built home is more expensive than an existing home, but the gap between the median sales price of new and existing homes narrowed in recent years. The national median sales price for an existing home in July 2021 was $359,900, according to the National Association of Realtors, while the median sales price of a new home that same month was $390,500, according to the Census Bureau. Typically, newly-built homes are about 15% more expensive than existing homes, according to Builder magazine.
|Median Sales Price New Home (July 2021)||Median Sales Price Existing Home (July 2021)|
Financing the cost of building a home vs. buying a home requires a similar process whether you’re buying a home from a builder in a new community or purchasing an existing home. If you plan to design and build a custom home, you’ll need special construction loans to purchase the land, pay for building a new home and finance the home over time.
Pros and cons of building a new home
You’ll get a modern floor plan. Newly-constructed homes are designed to appeal to today’s buyers, so you’re more likely to find a floor plan that fits with the way you live. Most new homes have an open floor plan with flexible rooms rather than a traditional formal layout, large windows and more storage than an older home.
You’ll likely have lower maintenance costs. Since all the systems, appliances, roof and foundation are new, you’re less likely to need to pay for major or minor repairs within the first few years of homeownership. That can make a big difference for first-time buyers who are adjusting to owning rather than renting. In addition, your utility bills may be lower because newly-built homes adhere to the latest building codes and are typically more energy-efficient than older homes.
You may be able to personalize your home before it’s built. Depending on whether you build a custom home, buy a home from a builder who allows you to choose finishes, fixtures and optional features, or choose a recently completed new home, you may be able to design elements of your own home. In some cases, you can make structural changes to the exterior and interior, while in others, you can choose the floors, appliances, cabinets, paint colors and lighting fixtures.
You’ll likely have warranties on some parts of your home. Builders typically offer one- or two-year warranties on items such as materials and workmanship, plumbing and electrical systems, according to the Federal Trade Commission. Some also offer a 10-year warranty on structural items. You’ll typically have a manufacturer’s warranty on the new appliances and heating and air conditioning system in the house, too.
Your home will likely be smarter than an older home. New homes often have locks, thermostats and other features that can be controlled with your smartphone. Many builders choose healthier materials, such as low-VOC paint and upgraded ventilation systems, for better indoor air quality.
You may have to wait to move. When making the build or buy decision, your timeline for moving is one of the most important factors when choosing. Most homes take at least four to six months to build, according to the Census Bureau, but 10% of homes built for sale in 2020 took 10 to 13 months or longer to complete. If you need to move more quickly, an existing home may be a better option, unless you can find a recently completed or nearly completed home from a builder.
Your lot may be bare for a while. When a new community is under construction, the area may not have much mature landscaping. Some builders include plants or grass with a new home, but others may leave the landscaping to you. Depending on the size of your lot, this could tip the cost of building a home vs. buying higher.
The location may not be ideal. Given the high cost of land in urban and close-in suburban areas in many markets, many new homes are built in more distant locations. This could mean a longer commute or less access to amenities you enjoy.
You’re likely to need to pay homeowner association fees. While there can be advantages to a homeowner association (HOA), such as community amenities and rules that keep properties well-maintained, some homeowners prefer not to live within an HOA. Most newly-built homes — unless you’re building a custom home — are in an HOA. Many existing homes are in an HOA, too, but not all.
Pros and cons of buying an existing home
You’re moving into an established neighborhood. Top priorities for many homebuyers are the school district, local amenities and a sense of community. When you buy an existing home, you’re buying in a neighborhood with schools, parks, shopping centers and commuter routes already in place. In new communities, many of those amenities have yet to be built.
You may prefer the location. Deciding between building vs. buying a home depends in part on where you want to live. Most newly-built homes are in locations more distant from an urban core or inner suburb because those areas have less available land for new development. If you want to live closer to a city or to amenities, such as coffee shops, stores and restaurants, you may want to choose an existing home.
You’re more likely to have trees and mature plants — and maybe a bigger yard. Whether they’re on your land or just in the neighborhood, thriving plants are more likely to be near an existing home than one that has recently been constructed. When building a new house, plants and trees can be uprooted and it can take a long time for new landscaping to be established. Depending on the community, older homes often have larger lots than newly built homes.
You may be able to move more quickly. When you buy an existing home, you and the sellers will negotiate the timeline for the settlement and moving day. But when you’re building a new home, you’re dependent on the builder’s timeline. That timeline can be less certain because of potential delays in getting materials, hiring contractors and possible weather issues.
You may be able to add value with upgrades. Some homebuyers prefer a fixer-upper so they can personalize it and possibly increase its potential resale value with cosmetic upgrades. A fixer-upper loan can be used to finance your purchase and renovate the house before you move. Some people prefer an existing home because it has history and character from previous residents.
Your floor plan may be outdated. One of the benefits of buying a new construction home vs. existing home is that new homes are designed to match the preferences of today’s homebuyers. Older homes may have smaller closets, smaller windows and a more closed-off, formal floor plan instead of an open kitchen.
You may need to budget for some big repairs. Depending on the age and condition of the home, you could have to pay for a new heating and air conditioning system or a roof, which could cost thousands. Your plumbing and electrical systems could need repairs or you may need to replace appliances within a few years. Most appliances have a life span of about a decade, although some last longer, according to Consumer Reports.
Your home’s design will be less personal. Adding a finished attic or a sunroom, or choosing your kitchen cabinets and counters to suit your tastes can be accomplished more easily with a newly-built home. Remodeling to change the structure of an existing home can be complicated and expensive.
Your utility bills could be higher. An existing home may have less energy-efficient appliances, an older heating and air conditioning system, less insulation and lower-performing windows. That means your home can use or lose extra energy, which will increase your utility bills and possibly make it cheaper to build vs. buy a home.