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    7 min read

    New Construction vs. Older Home - What is best for you and your VA Loan?

    Dec 2, 2020 7:15:28 AM

    So what is going to be?  New construction or an existing home? This is a tough question that many Veterans and Active Duty face. If you are active duty, or a now civilian working guy or gal, and you don't spend much time at home, a new construction may make sense due to the fact you won't have to be doing a ton of maintenance. Or, maybe you are a battle weary Veteran and just want some peace and quiet in the country away from people and annoying noises.  Whatever your choice, there are pros and cons to both sides.

    American flag hanging in front of house

    When the time comes to use your VA Loan and buy a home, you'll be faced with a number of critical decisions. Not life and death critical...but let's just say it can change your happiness factor and your financial peace of mind. 

    Up front, it may seem like a simple decision. Newly built homes are....no brainer here... new.  Who doesn't want a shiny new penny?  It seems obvious that this is the preferred path.  With a shiny new home, you can choose the floorplan, colors, and upgrades.  You will have new appliances, plumbing, and electrical. What could possibly be a con to this?  Well, you will be paying retail for your new home. You have limited ability to diversify your location and as I will explain, you will have some lifestyle differences compared to an older home. 

    An older home may offer more flexibility. If you are looking for a bigger lot, maybe acreage, an older home will give you that option.  Don't want the neighbors dog barking your brain out all night?  An older home will give you the ability to discern exactly where you want to live. Don't want to have to sit under your six foot maple tree that will take twenty years to grow into a shade tree? Older home with developed landscaping. Don't want to have look in your neighbors window as they watch Hallmark movies and eat bon bons? Older home.

    COST CONSIDERATIONS

    One of the major concerns that every Joe or Jane will have is ‘cost', and there is certainly a giant gap between the price of a newly constructed home and that of a resale property. Currently, the national average for new construction is $427,893 (not including acreage). That's assuming you are sticking with the basic model and not opting for any expensive upgrades, in which case the cost can rise significantly. It's also worth noting that new construction remains at an all time low, making competition for newly built homes rather fierce.  With the past year of COVID fun, lumber prices have doubled and new construction prices have soared. Prices on new construction are still continuing to climb and especially in areas where the supply can't keep up with the demand. It is a rare day that you will negotiate anything off of new construction because the builder knows that there is a line of buyers behind you waiting to pounce on the house. The good side to this though, is that if you put a new construction under contract, usually by the time you move in, you will see $15000-$30000 in equity already developed and you will have increased your net worth by that much simply by waiting for your home to be built.  Typically, I have seen GI Thriftwise choose this scenario over an older home when they are looking at a home simply for an investment or a stepping stone to their dream home.

    On the other hand, the average sale price of an existing home is approximately $313,000.   That is a $114,893 spread! Since VA Loans are still at an all time low, at the time of this blog, 2.25%, the savings you will see hit your bank account are profound.  Maybe with that savings, you can buy more Ranger Up t-shirts and some good beer. The other bueno in addition to the already crazy savings on the home itself, is the fact that, unless you are in a sellers market (a market where inventory is low and therefore sellers are not willing to negotiate in price and homes often come in above asking price) you and your VHN Realtor may be able to negotiate the sales price. Nothing like the thrill of the hunt when trying to negotiate a good deal! 

    REPAIRS AND RENOVATIONS

    So, there you are.  Sand box central and you get a call from your family saying the furnace won't work and the roof is leaking and Timmy has the flu.  While a new home won't do much for Timmy, a new home will carry a one year warranty on practically everything and appliances will have a new manufacturer warranty. Many builders also offer longer foundation warranties.  New homes offer a peace of mind and allow you to allocate your funds to other areas instead of costly repairs. You remind your fam that everything is under warranty and bam! Crisis averted. One thing to consider though, you will have to throw some money into your new home immediately. Many don't come with blinds, backyard landscaping, or all of the tiny incidentals that add up like, toilet paper holders, towel bars, patios and fencing.

    Older homes clearly may need some renovations or repairs.  Tired of the orange shag?  It is going to cost you.  Furnace is 15 years old?  It won't be long before this will cost you too. Of course, you knew this buying the home for roughly $100,000 less, so suck it up buttercup and plan ahead. I always recommend buying a home warranty, I like First American Home Warranty, for older homes as they will save you in spades.  I also highly recommend a good inspection by a licensed Veteran home inspector. No one likes surprises and these two steps will save the little bit of peace of mind you have left.

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    ADDITIONAL COSTS

    So what other items will suck the money or keep the money in your fanny pack? New homes are usually more energy efficient, saving with utilities. New homes are super air tight, think SKPS, so old man winter won't make his way in to empty your pockets.  Older homes can be updated, but since materials are older, a bit more maintenance will obviously have to be done to keep it as efficient as possible.

    Of course homeowner's insurance can also affect your monthly payments. Since new homes are well, here we go again, new, insurance carriers will charge less to insure. Think new roof, new plumbing, new siding, new furnace, etc.  If older homes have already had several claims over their life, insurance could cost you a bit more.  But let me emphasize one thing....seriously!  Don't go with the first quote you get for insurance!  Most Joes and Janes like to call the recognized company that is only for military people and their families...but let me tell you!   I had a client this month cut their insurance costs in half by shopping around.  They saved almost $200 a month by making a few phone calls!

    Finally, let's look at taxes,  you know, paying "the man."  New construction homes almost always have a higher tax burden.  A trend we are seeing is "Metro tax districts."  While we will discuss these in a future blog, know that these special taxing districts have municipal bonds that sometimes double your tax rate. Older homes were not built in these areas and often have significantly lower taxes.  The impact from these tax differences can make the difference of upwards of $200 on your mortgage payment per month.  Certainly something to consider! 

    Another little know fact is that if you have a VA disability rating, your taxes could be waived or greatly reduced depending on your rating and the state you live in.  Your local VSO or VHN Realtor will be happy to help you determine how to apply for this tax break. I don't know about you, but I would prefer to throw extra money at my mortgage so that my net worth is more, rather than throwing it "the man." 

    Also remember, as we stated earlier, new homes need all of the finishes that will make it feel unique to you. Fencing, blinds, beer fridge, landscaping, hammock, toilet paper holder....use your imagination! 

    LOCATION, LOCATION, LOCATION

    So, what else you ask?  What else besides money, money, money? What about lifestyle and how your home affects your quality of life? Although new homes may offer all of the state of the art amenities, you may have to sacrifice a bit of peace and quiet.  Often in developing areas, building goes on for years.  All the noise, the beeping, the nails in your tires, underdeveloped schools, and proximity to shopping and recreation may play a big part in your peace of mind....not to mention lack of shade trees and established lawns.  New communities are often built far away from city centers because, let's face it, that is where the land is.  This will result in a longer commute which is proven to lead to that yuck feeling nobody wants.

    SO HERE IS THE POINT...THE SUMMARY

    So obviously you have much to consider when making your decision.  For some, new construction is perfect. Move in, keep it simple, go about your life. For others, they want the charm and something to work on to keep their mind and hands busy.

    Newly Built Homes

    Pros


    • Brand new construction with active warranties
    • Customizable floor plans
    • Cost of upgraded features and appliances can be folded into the mortgage
    • Green appliances for better energy efficiency
    • Fewer maintenance costs associated with repairs or renovations
    • Home may appreciate faster than existing homes

    Cons


    • More expensive than resale properties
    • Location may not be ideal (lack of schools and shopping opportunities, possible longer commute)
    • Usually needs blinds, backyard landscaping and other finishes
    • Property values are unknown, and possibly more volatile
    • Lacking in character – cookie cutter design
    • Ongoing construction in the neighborhood
    • Greater Tax Burden

    Existing Homes

    Pros

    • Typically less expensive, with more opportunity to negotiate price
    • More desirable locations
    • Known neighborhood dynamics
    • Proximity to schools, shopping, and places of worship
    • Older houses tend to have more character as compared to modern designs
    • Property values can be determined before purchase
    • Lower tax profile

    CONS

    • Smaller inventory of acceptable properties
    • May require extensive repairs and/or renovations
    • Fewer amenities/older appliances
    • Competition from competing buyers

    So what is going to be?  It's more than a cot covered in camel sweat, so weigh out the pros and cons and make a decision that works for you and your family. There is no clear right or wrong answer and you won't have to do push ups if you don't answer the question correctly. Look at your lifestyle, goals, and market and reach out to us at VHN so we can connect you with the bad ass Realtor that will help you navigate the ocean of opportunities.

     

    MICHELLE ROBERTS

    Written by MICHELLE ROBERTS

    Michelle Roberts, an Operation Desert Shield/Storm Veteran founded Veterans Housing Network in response to the overwhelming need to provide honest, non-predatory, local Real Estate expertise and service to her military family

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