First-Time Home Buying Advice: Is It Better to Buy a New Home than a Foreclosed Home?
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According to the article, Homebuilder ads highlight pitfalls of foreclosures, on Businessweek.com today, the latest ads from homebuilders are highlighting the advantages of buying newly constructed homes rather than foreclosed properties. But, is this really in your best interest if you’re looking to buy.
First-Time Home Buyer: Is it In Your Best Interest to Buy a Newly Constructed Home as Opposed to a Foreclosed Property?
As with most things in life, it’s not that simple. And, as a home is often the largest purchase most of us ever make, it takes some careful consideration.
One of the best ways to figure out if buying a new home or a foreclosed home is best for you and your family is to do a simple pros and cons list. There’s nothing like seeing it in black and white to make it real.
To that end, following are some pros and some cons of buying new homes vs foreclosed properties.
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First-Time Home Buying Tips: Pros of Buying a New Home vs a Foreclosed Home
Pro: You’re the first one to live there (this is a sentimental/emotional factor you can’t afford to ignore).
Pro: You have more input and can put your “personal style stamp” on the property while it’s being constructed. New home-buying tip: Don’t be afraid to ask for what you want. If you prefer a different type of sod than the one being used, ask for it. On inexpensive things like landscaping, you’d be surprised at what some builders will agree to.
Pro: You choose whether or not to buy from that particular builder. Hence, you can do your due diligence on their reputation in the industry.
Pro: You can make sure that the home is up to par by having it inspected during various stages of the construction process. This means you won’t have to worry about the use of banned/hazardous materials (eg, lead paint), and shoddy workmanship (if you keep a close eye).
Pro: Home maintenance issues will ostensibly be years away (eg, roof replacement, HVAC servicing, floor and cabinet refurbishing, etc.). And if there are major issues, they are usually covered by some type of home warranty.
Pro: Get out your “I want” home buying checklist! You can often negotiate with the builder for extras, eg, include the major appliances, higher-quality countertops, more decorative light fixtures, etc.
Pro: Newer homes are often more energy efficient than older (possibly foreclosed) ones. Energy-efficient legislation like the Clean Energy Act of 2007 has come down the pike in the last decade or so that dictate this to a certain degree.
First-Time Home Buying Tips: Cons of Buying a New Home vs a Foreclosed Home
Con: New homes tend to cost more than foreclosed homes.
Con: Often, what you see is not what you get. Model homes often have the upgrades that make you fall in love with it. These often aren’t included and cost extra if you want them.
Con: For the most part, there’s little to no negotiating on the price of a newly constructed home because they have to keep the appraised value on all the homes in a neighborhood. So, for example, if they cut your purchase price by $20,000, they’d in essence be lowering the price for all the homes in the neighborhood.
Con: Paying for neighborhood amenities – In many new home subdivisions, there are amenities like pools, tennis courts, club houses, etc. And, you pay for them. If you purchased a foreclosed property that’s not part of a subdivision, you don’t have to worry about this.
Con: In light of the foreclosure crisis, it’s harder to qualify for home loans now. You have to have almost perfect credit (ie, a 750 or better FICO score) and put down a larger down payment (5-20% or more). And forget zero-down home loans; they practically don’t exist anymore.
It’s a lot easier to come up with $10,000 as a 10% down payment on a $100,000 foreclosed property than to come up with $20,000 as as a 10% down payment on a $200,000 newly constructed home, no?
Note: Got Bad Credit? Learn how to repair your credit so you can be “mortgage ready” – whether you’re buying new construction or a foreclosed property.
Conclusion: Pros and Cons of Buying a New Home vs. a Foreclosure Property
Of course, there are many more factors to be considered when buying a home, eg, school system, property taxes, commuting distance, etc.
The bottom line is, no one can decide what is right for your family but you when it comes to whether to buy a foreclosed property or a new home. But, these are just some factors to be aware of as you think through the process.
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