When you’re buying a home, you have to make lots of decisions — where you want to live, what type of house you want to look at, and most importantly, deciding between moving into an older home or building a brand new one.
There’s no getting around it: up-front costs of building a new home are more expensive than buying one that already exists. However, the average home sales price continues to climb in the Northern Virginia region. In July, the average home sales price was $619,082, up 1.58% from July 2018.
But just because the sticker price of an older home is significantly less doesn’t mean that there aren’t additional hidden costs associated with it. Older homes can potentially come with a barrage of problems, which requires extra cash to fix.
So, should you buy a new home — and can you actually afford to do it? Here’s a breakdown of everything you need to know about buying a new home versus an old one, plus the logistics of securing a loan.
Weighing The Pros And Cons
When trying to determine if you can afford a new home, it’s important to know all of the pros and cons before you buy. Here are some things to consider:
- Additional Maintenance: An older home may be fine today, but eventually there will be maintenance that you’ll have to take on.
- Warranty: An old home doesn’t always come with a warranty like a new home will. In many states, including Virginia and the District of Columbia, home builders are legally required to provide a home warranty for at least a year on workmanship and materials.
- Age of Appliances: An older home may come with new appliances or may not. The average cost of replacing appliances can range between $350 and $8,000.
- Renovation Costs: Not every room in an older home will be your taste, which could cost extra money for renovation. A new home can be designed exactly to your specifications.
The Logistics Of Buying A New Home
Buying a new home has a slightly different process than buying an existing home. Here’s what you need to know:
- You’ll need to secure a construction loan — A construction loan is needed to pay for the work to be completed on your home. You can secure a stand-alone construction loan and then get a regular mortgage later, or a construction-to-permanent loan (which combines the two).
A construction loan requires a bigger down payment because it is considered “riskier” for the lender, and the interest rates are typically higher than a traditional home loan.
- You may need a jumbo mortgage — Because new builds are more expensive, you may need a “jumbo mortgage,” or a home loan that is bigger than the conforming loan limits (a fancy term for the maximum amount Freddie Mac or Fannie Mae is allowed to loan). To qualify, you’ll need a credit score of at least 680 and a debt-to-income ratio of 43% or lower.