New Homes vs. Old Homes: Which Is Right For You?

 

What does your dream home look like? Is it a classic Victorian set far back from the road with stately elm trees shading the formal garden, or a brand-new split level in an up-and-coming housing development with a communal pool, tennis courts, and a playground for the kids?

Old vs. new: It’s an age-old debate. And when it comes to choosing whether to purchase an existing home or opt for new construction, there’s a lot more to factor in than the curb appeal or how it would look dressed up in Christmas lights.

For most of us, a home (new or existing) is the biggest purchase we’ll make in our lifetime, so it’s critical to make the right decision.

Do homes really age like fine wine, or is newer always better? Let’s explore.

The Pros of Buying a New Construction Home

To some, a new home is the ultimate status symbol; others simply enjoy the convenience and peace of mind that comes with new construction. And there’s no denying that brand-new homes have their fair share of benefits. Let’s take a look at the pros of newly-built homes.

  • Builder’s warranties. New homes generally are backed by a builder warranty for the first 10 years or so. Your roof (probably) won’t leak, and if it does, it’s covered, along with most of all the other structural components of your home.
  • Customization options. When you work with a builder, you have more freedom to customize your new home. Go ahead and get the granite countertops you’ve always dreamed of, or the sunken garden tub in the master bath. (Just be aware that these “extras” come at a price.)
  • Less maintenance. New appliances, wiring, and plumbing mean that things are less likely to break down right away. You may have years or even decades before you’ll have to worry about replacing the dishwasher or having a plumber come to work on the bathroom sink.
  • More neighborhood amenities. Since new construction tends to come in the form of subdivisions, you may enjoy things like a neighborhood clubhouse, pool, playground, or other recreational facilities.
  • Energy efficiency. Double-paned windows, HVAC systems, energy efficient appliances, and adequate door and window seals keep energy in, lowering your heating and cooling bills and saving you money over the life of the home. You may even get certain tax rebates or incentives for promoting energy efficiency.
  • “Smart” features. Builders have jumped on the smart home bandwagon, and a new home will more likely feature high-tech amenities like built-in USB adapters, whole home speaker systems, thermostats you can control from your smartphone, and more.
  • Less competition. In a hot market, existing homes can be snatched up quickly, often before the listing ever goes live. Since builders often construct dozens of new houses at a time, it’s easier for you to get the home of your dreams without having to stand in line or engage in a bidding war.

The Cons of New Construction Homes

A new home isn’t all shiny appliances and Alexa-enabled bathrooms. For all the benefits of new construction, there are some drawbacks, too.

  • A higher price tag. According to one source, the average cost of purchasing a new home is $300,000, versus $278,000 for an existing home. Sure, you may recoup that difference eventually, but it’s still good for some sticker shock at the onset.
  • Strict homeowners’ association rules and fees. The amenities that were a pro in the last section could very well become a con eventually. Someone has to pay for that pristine neighborhood pool and state-of-the-art fitness center, and that “someone” is likely you. HOA fees can range from $200-$400 per month—and that’s not to mention the strict rules that come along with the privilege, like having someone tell you what color your house can be painted and when to mow your lawn.
  • Higher property taxes. Generally speaking, the more your home is worth, the more you’ll be shelling out to Uncle Sam for property taxes. And in new neighborhoods with higher than average property values, that can be a pretty penny.
  • Location, location, location. There’s no room for new construction in populated cities, which means that most subdivisions are on the outskirts or beyond. This can lead to an increase in commute time and/or more money you’ll need to shell out for public transportation.
  • Uncertainty. That shiny new subdivision looks good now, but how will it look in 10 years? What if half of the houses go unfilled, or the neighborhood deteriorates considerably? What if that gorgeous field behind your back deck is bought up by a sewage treatment plant? All neighborhoods can change, but it’s particularly difficult to project how a brand-new neighborhood will shake out.

The Pros of Existing Homes

While some love the “new home smell,” others are equally enamored with the homes of yesteryear—whether that means a 5-year-old ranch-style home or a 19th century Craftsman. And there are some definite pluses in the existing home column.

  • Cheaper selling price. An existing home can be 20% less expensive than a new home, allowing you to effectively get more house than you could have otherwise, had you chosen a new construction.
  • Lasting construction. When it comes to purchasing existing homes, the phrase “they just don’t make ’em like they used to” gets thrown around a lot—but for good reason. Where today’s newer homes sometimes seem to feature construction materials made by the cheapest bidder, older homes were built to stand the test of time—and they’re still standing. In many cases, you can expect solid construction through and through.
  • Location, location, location (again). These existing homes were built when the city was less crowded. You might find the perfect home within walking distance to your job, popular restaurants, museums, parks, and other prime destinations.
  • A history. Yes, it might sound cheesy to the “new home” crowd, but an existing home has a character that new tract houses just can’t hope to aspire to—yet. Architecture and history aficionados appreciate old-world charm and the stories an older house has to tell.
  • Established neighborhoods. Where a new neighborhood could transform completely over a decade or so, existing homes have matured along with their neighborhoods, meaning it’s less likely for drastic changes to occur, and often prohibited by zoning laws. What you see is what you get.
  • Bigger yards and mature landscaping. In a new subdivision, space comes at a premium. In some, it’s possible to pass your neighbor a cup of sugar through your open kitchen windows. Older homes tend to have bigger lots, providing more outdoor space for children, pets, and entertaining. And since the trees, bushes, and shrubbery have had years or decades to mature, the landscaping feels much more settled.

The Cons of Buying an Older Home

Old-world charm, bigger yards, and a cheaper asking price are fantastic, but they can come with some serious drawbacks, including:

  • Repairs. Older homes are notorious for needing repairs. Sometimes it’s something relatively simple, such as replacing the water heater. Other times, the fuse box explodes on Monday and the septic tank overflows on Wednesday. When buying an existing home, it’s crucial that you have an emergency fund set up to handle any unexpected home repairs.
  • Trouble obtaining financing. Some homes pass inspection with flying colors, and the loan goes through immediately. For others, the home inspection leads to tons of unforeseen problems and can cause your lender to back out of the deal. Existing homes can be much more difficult to finance due to underlying problems.
  • Competition. There may be 20 new tract homes available, but there’s only one of this home. Competition can be fierce, and you may end up offering more than you wanted for it just so you can call it your own.
  • It may not be up to code. Outdated plumbing, asbestos in floors or ceilings, unsafe electrical wiring—the list goes on. An existing home may cost you thousands of dollars just to get it up to code, and if you’re not planning for the expense, it can be a disaster.
  • Outdated everything. If you’ve ever pined for an avocado-green fridge, stove, and oven, you may be in luck—but you’re also in the minority. Appliances and fixtures in existing homes could be as old as the home itself. You may find yourself purchasing all new appliances, which adds up over time.
  • Increased energy bills. Older homes have a tendency to be drafty, meaning your hard-earned money (literally) goes straight out the window, and updates can be expensive. For example, you’ll spend about $19,000 to reoutfit a 2,450-square-foot home with energy-efficient vinyl windows. Looking to upgrade those baseboard heaters to a full HVAC system? Expect to spend $6,000-$12,000 for a 1,000-square-foot house—and prices only go up from there.

Other Homebuying Considerations

New or old, existing or not, there is plenty of thought that must go into what sort of home you want to buy. It may be advantageous for you to take a tour of houses from both camps to better determine what best fits your needs.

You may be a staunch “new construction” buyer and fall in love with a cute little bungalow in your favorite neighborhood; you might think you want a brick home on a quarter-acre lot only to be wooed by the technology and convenience of a newly-built home.

4 Tips for Paying Off Your Mortgage Faster

Pay off the principal you borrowed more quickly, and you’ll own your home earlier, and pay less in loan interest. You may even save tens of thousands of dollars over the life of the loan.

So if you’re ready to own your home free and clear, here are some strategies for paying off your loan in less time:

  1. Make extra payments whenever possible

Regularly paying your mortgage is good, but making just one extra payment per year to the principal balance can help you pay off your mortgage even faster. You’ll increase the equity of your home, which is based on how much of the principal (outstanding loan balance) you’ve paid off. Plus you’ll also reduce both the outstanding loan balance, and the length of your loan.

Whether you have a 15- or 30-year mortgage, your amortization schedule shows the changes in how principal and interest payments lower your loan balance and the total interest paid over the years. When you make extra payments – whether monthly or periodically – you can reduce your loan amount or interest.

The simplest way to make an additional payment each year, without breaking the bank is adding in Additional Principal to payment. Let’s look at how this would work. You’ll take your monthly payment divided by 12 and put that amount in the Additional Principal Amount when setting up your automatic payment.

Monthly Payment = $2,000
Additional Principal= $166.67 (2,000 ÷ 12)
Total monthly Payment = $2,166.67

Even if you don’t sign up for AutoPay, you can make extra principal payments on a quarterly or semi-annual basis, or anytime you want, just be sure you’re allocating the payment to principal only. You’ll pay down your loan a little quicker, which will result in paying less interest over the loan’s lifetime.

You can even put windfalls into your mortgage. Big tax refund? Most taxpayers do receive a refund, and putting it toward your principal is a solid move for many homeowners. Maybe you receive a year-end bonus? Any amount – large or small – can help reduce your principal owed.

To compare payment plans, and the difference made when you add a little extra, see this Mortgage Calculator.

  1. Ensure bonus payments are paying off principal

Be sure you don’t just send in extra money; you’ll want to make sure all the money is applied as an extra principal payment. Go to your online account, and select One-Time Payment. Then choose Principal Reduction, and schedule a date to make the bonus payment.

Or, contact a PennyMac representative about sending and applying a bonus payment (such as that tax refund or year-end bonus), before sending it in.

  1. Refinance into a shorter-term loan

If you’ve paid down your loan, or you’ve received a raise at work and are bringing home more each month, then consider taking the next step – refinancing your loan into a shorter-term loan.*

For example, if you’re in a 30-year home loan, investigate PennyMac’s conventional fixed-rate 15-year loan. The monthly payment will be about 50-60% more, as you’re repaying your loan in half the time. But you could also benefit from a slightly lower interest rate, and cut total interest payments in half.

  1. Pay down other debts

The quicker you pay off other debts – particularly debts with high interest rates such as credit cards – the more cash you have to pay down mortgage principal.

In fact, you may even consider rolling any high-interest debts into a cash-out refinance; the rates are typically half to one-third the interest rate of a credit card.

If you have more than 20% equity already and an urgent home repair or an emergency comes up that requires cash, consider using either a cash-out refinance or obtaining a home equity line of credit (HELOC) to deal with surprises, versus a high-interest credit card.

As always, ensure that boosting payments and debt repayment options work well with your budget, and any check fees before embarking on any new payment approach.

Use any of these five tips to paying off your mortgage faster and you’ll be on your way to owning your home, payment-free in no time.