Why Building A new Home May Be A Better Financial Choice For You Than Buying An Existing Older Home
For this example, I’ll assume that you are able to put 20% down in both situations for simplification of math and to give an apples to apples comparison.
Buying a 25 year old home for $250,000
Borrowed $200,000 @ 3.25% for 30 years
$875/mo principal & interest
Building a new home for $350,000
Borrowed $280,000 @ 3.25% for 30 years
$1,219/mo principal & interest
In Scenario 1, after living in the home for a few months the owners realize that the home needs a fair amount of updating and maintenance.
- New furnace
- New hot water heater
- New washer and dryer
- New refrigerator
- New stove
- New dishwasher
- New windows
- New roof
- New paint
- Refinish Driveway
- Clean up overgrown landscaping
- New kitchen cabinets and countertops
- New flooring
- New paint
- Update hardware
So you decide to take out a loan for renovations and updates to bring the home more current.
Let’s be conservative and say that all the above is going to cost you $120,000 and won’t get you everything you want, but will at least get the home looking more updated and all your mechanicals taken care of.
If you took out a rehab loan on the property assuming 80% LTV after work is done and got a 3.5% APR for 30 years your new payment would be: $1,437/mo.
In scenario 2, where you build a new home, you’ve got a lower payment than this and everything is set for many years to come. Everything is brand new, most likely including the homes surrounding yours. Being next to other new homes improves your value now and in the future.
As you can see, the actual cost is going to be less with building a new home. In this scenario, I used two actual homes that were equivalent in square footage and in comparable locations. The one thing to remember is that not only are you paying less ultimately for the new home, you’ll also have newer technology in terms of insulation, electrical, heating and cooling, and most likely a better floor plan for you as the home was built exactly the way you wanted.
New homes are easier to maintain, easier to clean, and are built with better materials than homes built 25 years ago.
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