Should you build or buy your first home?

The pros and cons of building or buying your first home

2020 has made us all look a little more closely at where and how we live. Being stuck inside our homes and apartments more than usual this year (thanks COVID!) has us wanting more from the spaces we live in.

Whether it’s a better home office set-up, home-schooling zone, or a garden to relax in, the idea of ‘home’ has evolved with the changing times of the ‘new normal’.

Finding a home that ticks all these extra boxes (and that’s in your budget) is the big challenge for first home buyers, with many asking the question: should you build or buy a house? So, to help you make your decision, we look at the pros and cons of building vs buying a home.

Pros of building a home

1. Make it all yours

When you build your home, you can take personalisation to a far greater level than buying a house that someone else has built or decorated. With building, you get to choose the land, the builder, the design, and all the finishes – from carpets, wall colours, to kitchen appliances, etc... If you want a specific floor plan or design to suit your tastes, your imagination can run wild. It will all just depend on your budget and what’s possible from an engineering perspective. Choosing your own finishes and appliances also provides greater peace of mind, as the items are brand new and covered by a warranty.

2. Government assistance

To help first home buyers with some of the costs of building a home, state and federal governments offer a number of financial grants and schemes. These include: 
* First Home Owners Grant (FHOG) – Administered by the states and territories, payments and eligibility criteria may differ, with at least $7,000 available for home builders.

* First Home Loan Deposit Scheme (FHLDS) – Initially introduced to combat the impact of COVID-19, the scheme helped first home buyers build or buy a home with a smaller deposit. The Australian Government announced in the 2020-21 Federal Budget an extra 10,000 places for the 2020-21 financial year. This latest allocation is specifically for the purchase of new homes.

3. Having a sustainable, greener home

Building a home not only allows your personal style to shine through, it also means you can choose more energy efficient materials and options that help you save money and the planet.

Cons of building a home

1. Longer wait time to move in

Building a home takes time. From when you find land to build on, buy it, consult with a builder, choose a home design, ponder over finishes, construction, inspections, yada, yada, yada, six to 18 months may have passed before you’ve moved into your dream home. On the other hand, buying an existing home takes significantly less time. And what’s worse, you’ll find yourself paying more rent if you build, as you’ll be waiting longer for your new home to be built – all that rent money could be going off your mortgage!

2. Funding construction

Building a home takes time AND money. Financing your dream home may require a special type of home loan called a construction loan. Typically, these loans periodically release funds to your builder based on the contract. You should know that there are some things to consider when you compare them with average home loans. Generally, construction loans have higher interest rates, charge higher fees, come with more restrictions (less features) and require a larger deposit. Note that some lenders won’t even lend for any new constructions, which may limit your options as well.

3. ‘The Uncontrollables’

While you may have more control over the things you want in a home, the construction process comes with its fair share of uncertainties. Bad weather can wreak havoc with your builder’s schedule and your plans to move in on time and within budget. Other delays that can impact the cost and completion date of your new home include fixing up any poor workmanship, equipment failing, not to mention waiting for council approvals.

4. Living away from the city

Unless you have a big enough budget to buy an inner suburban block of land that’s been subdivided, or an older home to knock down and build (council restrictions permitting), you may find your search gets restricted to newly released land that’s further away from the CBD. If you need to commute to the city for work this may be a problem – although COVID has shown how many people have successfully learned to work from home.

Pros of buying a home

1. It’s more convenient

If COVID has shown us anything, it’s that EVERYTHING can be bought online. Buying a home can be done remotely from your couch (although not advised) – online search, virtual tours, emailed offers and online loan applications. Depending on the amount of time needed for settlement, you could be moved in within weeks.

2. Buy wherever your budget allows

Do a quick search on any of the big real estate websites and you’ll quickly find there are far more built homes for sale than vacant blocks to build on. You’ll also see that the vacant land that is available is usually restricted to outer lying areas. Established homes can be bought in most areas and is only really restricted by your budget.

3. Lower financing costs

As mentioned, construction loans for new builds come with higher interest rates and fees than home loans for existing houses. There are also more lenders offering a greater variety of home loans (variable and fixed home loans) that come with more features. To see what the costs of borrowing for a home are for you, check out our home loan calculator .

Cons of buying a home

1. Nothing is brand new unless you renovate

Depending on the age of the house, there will be a level of wear and tear on the home. The older the property, the more wear and tear. It  can be cosmetic and easily fixed with a coat of paint, or structural damage requiring extensive work (and money).

2. Higher energy/maintenance costs

Established homes can come with higher energy and maintenance costs. Unless the home has been completely renovated, it will still have the original materials and design principles in use at the time of building. For older homes, poor insulation and a lack of energy efficient options can quickly translate into big electricity bills. Older, hazardous building materials, like asbestos, may also need to be professionally removed if you intend to do any renovations which can add to your costs.

3. Features of the time

Homes are usually built around the needs of the people living in them at the time. This means you usually won’t find Media Rooms or other mod cons in many older homes built early in the 20th century. That said, kitchens and bathrooms can be updated – but at a cost.

Whether you build or buy your first house, comes down to a number of key factors. These include your personal choice on design, the cost of building, your budget and how much you can borrow . Ultimately, it’s weighing up what matters most.

A CUA Home Loan Specialist can talk to you about your options.  
Get in touch with one here.

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