Homebuyers today can find a vast selection of homes on the market from which to choose. While most homebuyers know exactly what they are looking for in terms of number of bedrooms and preferred square footage, many may find it challenging to decide between a new home or used a home in need of attention. Purchasing a brand new home or a fixer upper is a matter of personal choice, and weighing the advantages and disadvantages of each choice may help simplify the decision.
In Pictures: Financing For First-Time Homebuyers
The Pros and Cons
Brand new homes are ideal for the homebuyer looking for a property in a new neighborhood that is ready to move into. Often these homes allow for some type of buyer customization; for example, the buyer can select from a variety of flooring choices and interior wall colors. New homes that have been professionally built offer many other advantages:
- Structurally sound - foundation, flooring, walls, roofing, etc.
- Reliable and functional wiring and plumbing - There will be ample outlets, closet lighting and practical number of bathrooms.
- No lead-based paints - Due to the 1978 ban on lead-based paint in residential structures.
- Decreased risk of asbestos construction materials - Due to the bans initiated by the Environmental Protection Agency in the 1970s and in 1989.
- Built to new code regulations, typically resulting in a "safer" home - For example, windows that can withstand higher sustained winds, and certain outlets being ground fault circuit protected.
- A new home warranty
As good as all this sounds, a brand new home does come with several disadvantages that could be a deal breaker for potential homebuyers:
- Typically more expensive
- Lacking in charm - "Cookie cutter" homes may not have any of the charm that older homes possess.
- Less desirable neighborhood - The homebuyer's price range may preclude them from purchasing a new home in their dream neighborhood.
- Immature landscaping - The home may initially be situated on nothing but a dirt lot.
What You Need to Know When Buying a Fixer-Upper
Fixer-uppers are used homes that require substantial remodeling or renovations to be comfortably livable. Frequently these homes are sold "as is," with the seller assuming no responsibility for the home's condition or any defects. This is a case of caveat emptor: buyer beware. Fixer-uppers come in all shapes, sizes and conditions, and it pays to do a little homework before signing any contracts. If you are interested in purchasing a fixer-upper, be sure to have the home professionally inspected for serious structural damage, such as a rotting foundation or a leaky roof. The final purchase price should be contingent on the results of the inspection. (Learn more about purchasing a property in 10 Worst First-Time Homebuyer Mistakes.)
Pros of a Fixer-Upper
Even though stepping into a fixer-upper can be a serious financial and time commitment, it comes with many advantages:
- More house for your money - But beware, any money you save in the purchase price may go into renovations.
- More charm - Think arched doorways, original hardwood floors and claw-foot tubs.
- More creativity for the ambitious homeowner through remodel/renovation choices.
- More desirable neighborhood - A lower price may permit the homebuyer to purchase in a more attractive area.
- Satisfaction gained from completing a large, challenging project.
Cons of a Fixer-Upper
Of course there are drawbacks to purchasing a fixer-upper. Unfortunately, the extent of any damage may not be totally unveiled until after the papers are signed, even with an inspection. Like peeling back the layers of an onion, one repair could lead to others that were not immediately visible. Even the most motivated, renovated-oriented homeowner can become disenchanted by costly repairs. (Learn more about finding the right house that's structurally sound; read Do You Need A Home Inspection?)
Other disadvantages to purchasing a fixer upper include:
- Stress of living in a construction zone - Unless you plan to live offsite while repairs and renovations are completed.
- Unforeseen expenses - Even the most well-thought out budget will typically be exceeded.
- "Invisible repairs" - Expensive repairs, like replacing the wiring, that will not add much to the resale price of an investment property because buyers can't see the repair.
- Neighborhood restraints - For resale purposes, it is recommended that the renovations and/or remodel not increase the home's value significantly beyond the surrounding homes' values.
Purchasing a home is an exciting time whether you plan on living in it for many years or intend on fixing it up and selling for a profit. The advantages and disadvantages inherent to brand new homes and fixer-uppers can be carefully evaluated prior to signing any contract, helping ensure that homebuyers are making the best decision.
Don't miss what's happening this week in the financial world. Check out Water Cooler Finance: Buffett's Bank Fraud And Financial Eruptions.