Whether you’re a first-time homebuyer or a current homeowner dreaming of a new abode, you may have visions of owning wide open space full of potential. A lot of people are compelled to buy land and build their dream home, but it’s important to ask yourself, “Is it cheaper to build or buy a house?”
It’s not an easy choice to make, and it depends on your financial goals. Before you make a decision and take the plunge, let’s look at the top considerations for borrowers and homeowners-to-be.
Is buying better?
For some, house hunting is an adventure. For others, it’s a big burden. No matter how you feel about searching home listings and engaging a real estate agent, there are advantages and disadvantages to consider when it comes to buying an existing home.
The pros of buying an existing home:
It may be less expensive.
In many cases, buying an existing home is less than building a new one (think land, permits, materials, labor, and more). Plus, a home loan often requires a lower down payment and comes with a better interest rate.
You’ll find homes in desirable locations.
If location is a priority for you and your family, an existing home may place you in better proximity to work or school. It can be difficult to find lots available to build on in already-developed areas, and property values may increase closer to urban development.
It’s most likely move-in ready.
If time is of the essence, an existing home is likely the way to go. Unless you settle on a real fixer-upper, most homes on the market will be in move-in condition.
You can renovate at your pace.
Even if the property isn’t your ideal home, you have the choice to make home renovations—and begin those upgrades when you have the time and money available.
The cons of buying an existing home:
The search can be stressful.
A search for the right home can be time-consuming and stressful. Especially in a sellers’ market, you may be one of multiple buyers making offers—and that presents you with higher prices, bidding wars, and the potential for rejection.
You may need to compromise on style.
The chances of finding an existing home that checks all your boxes are often slim. When you browse what’s on the market, you may find you need to settle for a less-than-perfect home style or features that don’t reflect your taste.
You may find maintenance issues.
Existing homes often come with existing problems. Dated appliances, plumbing or electrical problems, or a leaky roof can cause setbacks in terms of time and money.
Older homes come with unique challenges.
If the homes you’re looking at are a bit dated, they can come with challenges you’re unlikely to encounter with newer construction. Older homes are more likely to be less energy efficient and may contain hazardous materials like lead paint. A thorough inspection from a reliable, licensed home inspector can help you understand what you’re getting yourself into.
Is building better?
The idea of “build-to-suit” may create a thrill—or a bit of intimidation. If you’re wondering whether you’re ready to buy land and begin construction, you’ll want to consider all the advantages and disadvantages of building a new home.
The pros of building a home:
You may face less competition.
Once you find and buy the land on which you plan to build, there’s little standing in the way of you and your new home. You’ll likely avoid competition from other homebuyers vying for the same property.
You’ll have complete control of customization.
If you have a clear vision of your dream home, building a home will give you the control you need. Each choice is yours, from decisions as big as floor plan to details as small as cabinet hardware.
You can avoid unexpected maintenance costs.
A new home often means fewer maintenance needs—at least on the near horizon. New home construction often comes with a warranty for major systems, as do new appliances.
You have a chance to build a better home.
Builders today construct new homes with energy efficiency in mind, which can reduce your environmental impact and help you save on energy costs. Plus, you won’t have to worry about potentially harmful materials like lead paint.
The cons of building a home:
It may be more expensive.
It’s often more difficult to get a land loan than a traditional mortgage, as many lenders have more stringent qualifications and requirements to offset their increased risk.
The process can be long and stressful.
Construction doesn’t happen overnight. Building a new home involves many steps and stretches over a much longer timeline than moving into an existing home.
It requires a hands-on approach.
Even if you’re not the one wielding a hammer, building a new home requires more effort on your part. You’ll be tasked with managing contractors, approving plans, making decisions, and managing the budget.
You may experience unexpected costs and delays.
It’s not uncommon for unanticipated costs to pop up during a new construction project. Especially with recent labor shortages and supply chain issues, you may be looking at a build that stretches on longer than you expected.
Mortgage or land loan: What’s the difference?
Your decision to buy or build will also determine how you choose to finance your new home. If you decide to buy an existing home, you’ll apply for a home mortgage. If you decide that building a home is right for you, you’ll apply for a land loan.
You might assume that getting a land loan is a lot like applying for any other type of loan. There are some similarities but also a few differences that make financing land more complex than getting a traditional mortgage.
The qualifications for a mortgage or a land loan are similar. Lenders typically consider things like your credit score and debt-to-income ratio. Both types of loans require a down payment, are secured by the property they purchase, and are paid back over time.
However, the requirements for a land loan are often more stringent than for a traditional mortgage. Land loans may come with additional, unique requirements for borrowers to meet, such as:
Approval of your plan for land use or development
Fulfillment of property checks, like zoning, land-use restrictions, boundary surveys, and access to roads and utilities
Ability to obtain the necessary permits, such as sewer, utilities, and road access
Get a Land Loan with Marine Credit Union
If you have your sight set on a piece of property you want to call your own, Marine Credit Union can help you find the right loan to reach your goals. Get in touch with a Marine Credit Union lender today.