Many prospective homeowners want to build their dream homes instead of buying ones. They want to own brand new houses with all of the features they believe meet their dream-home checklists. Before you make any decisions, however, you should be aware of some important financial considerations. Unless your bank account is equal to some of the wealthiest people on the planet, you need to understand the financial ramifications of building versus buying. Some of these financial issues recommend building, while others favor buying an existing home. Be aware that it's easy to get caught up in the emotional whirlwind of buying a new home. When this emotion rules, it is easy to disregard or downplay financial issues that, over the long-term, will be more important. Don't fall into this trap. Consider all the financial issues involved in buying the home you crave.

See: Rent to Own; Own to Rent

Building Vs. Buying an Existing Home
There are some excellent financial reasons to consider building a new home. On the other hand, there are not-so-positive factors that may sway you to purchase an existing home. Take into consideration the following points:

Energy Efficiency
Energy-efficient design has become an important argument for building a home. With energy costs in a seemingly endless upward spiral, the prospect of enjoying lower energy bills forever is attractive. A state-of-the-art, energy-efficient new home may work wonders for your household budget every month. Older homes, while charming and full of character, can be energy drains because of outdated design and amenities. You might consider energy-efficient upgrades for an existing house, but such home improvements can be costly.

Deferred Maintenance
Maintenance and repair, a common initial expenditure when buying an existing house, is not an issue with a newly built home. Everything is new and hopefully made of quality materials. Not all existing homes have deferred maintenance issues, as some homeowners are conscientious about maintenance. However, with a newly built home, you can be quite comfortable knowing that you will not need a new roof, heating system or an expensive plumbing or electrical overhaul. Should a system bring problems in a brand new home, the warranty should cover any reinstalls.

Annual Maintenance
The obligation of annual maintenance, if not addressed, can result in a hefty repair bill down the road. If you build a high-quality home, the out-of-pocket annual maintenance cost should be less than with most existing homes. In some cases, the annual maintenance costs of an older home may be similar to the cost of a newly built house.

Appliances, Floor Plans and Decorating
What do appliances, floor plans and decorating all have in common? They eventually become outdated. When you buy an existing home you run the risk of inheriting outdated features that will need to be replaced. For example, older home architects and builders spent little time designing floor plans to maximize traffic flow for family rooms near kitchens. These floor plans, featuring multiple segmented rooms and long hallways are seldom seen in new homes. Replacing old appliances or renovating outdated, wasteful floor plans could be costly.

Construction Costs
In addition to furniture, appliances and small décor, consider the costs of building materials and labor. This financial consideration often makes buying an existing home look like the better choice. The simple truth: A home built in the 1970s or 1980s cost less to construct than a similar home in present dollars. The more complex, cloudy issue is new home prices tend to reflect cost-plus-profit issues, while existing home prices are "set" by location and what a buyer is willing to pay.

The Bottom Line
As you can see, there is no right or wrong option. There are obvious advantages to building and buying a newly completed home. However, should a new home be built with substandard quality materials or workmanship, buying a high-quality, existing house that has been well-maintained, would be a better financial choice.

Regardless of your personal preference, you should be aware of financial issues with both options. Be sure to budget sufficient funds or have a financing plan (mortgage, home equity line-of-credit, other funding) to cover hidden costs, moving to your new home, making necessary repairs and upgrading outdated items.

See: The Most Expensive Home Insurance Perils

Related Articles
  1. Home & Auto

    6 Neighborhood Red Flags

    There are some qualities you can’t discover about a neighborhood until after you’ve moved in. But there are ways to scout out red flags ahead of time.
  2. Retirement

    5 Ways to Use Your Home to Retire

    Retirement is going to cost a lot, and for homeowners who face a shortfall, their home can be a source of income. From downsizing to renting, here's how.
  3. Home & Auto

    Read This Before Buying a Vacation Home with Friends

    Going in with friends to buy a vacation home will save you on the mortgage and expenses. But if there's conflict, it could end up costing your more.
  4. Home & Auto

    The Most Expensive Neighborhoods in London

    Understand what makes London such a desirable place to live and why it is so expensive. Learn about the top five most expensive neighborhoods in London.
  5. Home & Auto

    Why Housing Costs Shouldn't Exceed 30% of Your Budget

    Financial experts will argue that there’s no problem with allocating 50% of your net income to housing, but that barely leaves enough money for living comfortably. Reducing housing expenses to ...
  6. Investing Basics

    Tiny House Movement: Making Market Opportunities

    The tiny house movement throws all assumptions about household budgeting and mortgage management out the window, and creates new market segments too.
  7. Investing

    Where Should I Keep My Down Payment Savings?

    While saving up for a down payment, where should you keep your money. A bank? The stock market? It all depends on your timeline.
  8. Home & Auto

    The Most Expensive Neighborhoods in Manhattan

    Understand why Manhattan has some of the priciest residential real estate in the world. Learn about the top four most expensive neighborhoods in Manhattan.
  9. Home & Auto

    The Most Expensive Neighborhoods in Los Angeles

    Understand the layout of the greater Los Angeles area and what is driving up home values. Learn about the top eight most expensive places to live in LA.
  10. Credit & Loans

    Yes, You Can Buy a Home with a Reverse Mortgage

    A special type of FHA-insured reverse mortgage called the HECM for Purchase lets seniors use a reverse mortgage to buy a home.
  1. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  2. Can I take my 401(k) to buy a house?

    Once you reach 59.5, you can use the funds in your 401(k) retirement savings account to buy a house or any other expense ... Read Full Answer >>
  3. Can I take my 401(k) to buy a house for my children?

    Under the standard regulations for 401(k) retirement savings plans, you may elect to withdraw funds from your 401(k) for ... Read Full Answer >>
  4. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>
  5. What does the American Dream mean to different generations?

    The American Dream at its core is the belief that every generation should enjoy greater prosperity than the generation before ... Read Full Answer >>
  6. When should a real estate broker release earnest money deposit funds?

    As soon as an agent or broker accepts an earnest money deposit, he becomes an escrow agent. This means that, in most cases, ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!