Buy, Build Or Fix: What’s Best for First-Time Homebuyers?

What to consider as a first-time homebuyer

Whether you’re a first-time homebuyer or an experienced homeowner, it’s crucial to weigh factors like your needs, goals and budget before deciding on your potential home purchase.

Short-term and long-term goals

Think about your needs and goals, both short and long term.

“The best place to start is to consider your short-term needs and long-term plans and goals,” said Rob McGibney, president and CEO of KB Home, a homebuilding company.

Consider your lifestyle goals, such as starting a family or even “fostering stability as part of a community,” in addition to your financial goals, McGibney said. It can also help to consider “career plans, location (including nearby businesses), school districts and parks and your personal time.”

Know your budget

You must also figure out your budget for a home and how that fits in with your financial goals.

“Calculate your total budget, including closing costs and monthly expenses,” said McGibney.

Figure out your priorities

It helps to know what you definitely want and don’t want in a home.

“Knowing your motivation — and your budget — will help you decide what your priorities are when looking for a home,” McGibney said.

“Many of our customers are first-time buyers, and we hear frequently from them that energy-efficient homes and healthier indoor environments are a big motivator in their decision to build,” McGibney said. “Plus, energy- and water-efficiency can mean savings on utilities and overall lower homeownership costs.”

Still, building a new home is expensive. Buying a fixer-upper may be a good alternative, if you’re prepared for potential scheduling or cost issues.

“Buying a fixer-upper can mean unexpected costs, not to mention sweat equity, so it’s important to be realistic about your schedule and immediate desires,” McGibney said.

» MORE: First-time homebuyer benefits

Buying a new-build home

Buying a new-build home or a newer property that doesn't require many repairs can be an attractive option for many homebuyers. These homes were recently constructed or have been well-maintained, generally offering modern features, energy efficiency and personalization options.

The process of buying a new or newer home typically involves the following steps:

Research the area

Begin by researching the real estate market in the area you're interested in. Look for new developments or properties that have been recently built or well-maintained.

Figure out a budget

Determine your budget by considering your financial situation, mortgage preapproval and additional costs like taxes and fees.

Choose a property

Visit new developments, model homes or properties listed for sale. Assess your needs and preferences for location, amenities, size and layout. Consider factors such as proximity to schools, workplaces, shopping centers and public transportation.

Get a real estate agent

While it's not always necessary, working with a real estate agent can be helpful, especially if you're new to the homebuying process or want someone to negotiate on your behalf.

Make an offer

Once you've found a property that fits your criteria, you'll make an offer to the seller or the builder. If it's a new development, you'll likely deal directly with the builder. You’ll negotiate the purchase price and terms. If both parties agree, you'll move forward with the contract.

Secure financing

Secure your financing by finalizing your mortgage loan. Provide all the necessary documents to your lender and complete the underwriting process.

Get an inspection

In some cases, new or newer homes may still undergo home inspections. While the need for inspections may be minimal compared to older properties, you may still want a professional inspection to ensure everything is in order. It's also crucial to consider any ongoing maintenance and potential warranty coverage from the builder or manufacturer for various property components.

Sign the contract

Review and sign the contract, ensuring you understand all the terms and conditions. You may need to put down a deposit or earnest money. Coordinate with your escrow or closing agent to schedule the closing date.

Do a final walk-through

Before closing, conduct a final walk-through of the property to ensure everything is as agreed upon and any necessary repairs or changes have been made.

Close and move in

On the closing day, you'll sign all the necessary paperwork, pay the closing costs and receive the keys to your new home. After moving in, you can make any desired changes and personalize the space to suit your preferences.

Pros and cons of buying a new-build home

New-build homes appeal to buyers who want a move-in-ready space with the latest upgrades and minimal immediate maintenance. While these homes often come with higher price tags, they can save time and stress by reducing the need for renovations or repairs.

» MORE: Homebuying checklist

Building a new home

Building a new home, which you can do on your own or in partnership with a home builder, means designing and constructing a residential property tailored to your needs and preferences. It gives you greater control over your home's design, materials and layout, resulting in a unique living space that perfectly suits your lifestyle. Still, building your own home can be complex and time-consuming, and it requires careful planning, budgeting and coordination to be successful.

Here's an overview of the process and key steps in building a new home:

Define your vision

Begin by outlining your goals and requirements for your dream home. Consider factors such as the number of rooms and their sizes, the architectural style, energy efficiency and any specific features you want to include.

Determine your budget and financing

Determine your budget for the project and explore various financing options, including construction loans, savings or a combination of both. It's crucial to clearly understand your financial capabilities and the cost of building before proceeding.

Purchase land

Find and purchase a suitable plot of land for your new home. Consider factors such as location, accessibility, zoning regulations and local building codes. Engage a surveyor to assess the land's boundaries and potential challenges.

Hire a designer

Hire an architect or professional designer to create detailed plans for your home. Work closely with them to ensure your vision is accurately translated into a feasible and structurally sound design.

Get permits and approvals

Navigate the bureaucratic process of obtaining building permits and complying with local regulations. This step may involve submitting your plans to the local authorities for review and approval.

Choose contractors and suppliers

Research and hire reputable contractors and suppliers to execute the construction of your home. Get quotes and references from multiple sources to ensure you get the best value for your money.

Start construction

The construction phase involves breaking ground and building the actual structure. It typically includes site preparation, foundation laying, framing, roofing, plumbing, electrical work, insulation and interior finishing.

Supervise the process

Oversee the construction process closely to ensure it adheres to the approved plans and specifications. Regularly communicate with your contractors to promptly address any concerns.

Design the interior

Plan and execute the interior design of your home. This includes selecting materials, fixtures and finishes that align with your vision and budget.

Schedule final inspections

Once construction is complete, schedule final inspections to ensure the home meets all safety and building standards.

Move in to your home

After receiving the necessary certifications and permits, you can move into your new home.

Pros and cons of building a new home

Building a home is a big decision, and it’s important to be prepared for the challenges that come with it. Weigh the pros and cons:

Fixing up an older home

Buying a fixer-upper involves purchasing a property that needs significant renovation or repairs with the goal of fixing it up to improve its condition and value. This option is often chosen by homebuyers or real estate investors looking to increase their property's equity or create their dream home while potentially saving money compared to buying a move-in-ready house or building a house from scratch.

Here's a step-by-step overview of buying and repairing a fixer-upper:

Identify your budget and goals

Determine your budget for the purchase and renovation of the property. Consider what type of renovations you’re willing to undertake and your long-term goals for the property, such as selling it, renting it out or personal use.

Search for a property

Look for properties listed as fixer-uppers or distressed properties. Consider real estate websites, local listings, auctions and real estate agents specializing in investment properties.

Conduct a property inspection

Once you find a potential fixer-upper, conduct a thorough inspection with the help of a professional home inspector. Identify all the repairs and renovations needed, both cosmetic and structural, and estimate the costs involved.

Negotiate and purchase

Use the information from the inspection to negotiate the purchase price with the seller. Aim to get the property at a price that leaves enough room for repairs and unexpected expenses.

Create a detailed renovation plan

Develop a detailed plan for the renovations. Prioritize essential repairs, identify areas where you can save money and consider the design and layout changes you desire.

Secure financing

Secure financing for the purchase and renovations. Options include traditional mortgages, renovation loans or personal loans if you don't qualify for traditional financing.

Get permits and regulations

Check local building codes and regulations to ensure you obtain the necessary permits for the planned renovations. Non-compliance could lead to costly delays and fines.

Assemble a team

Depending on the scope of the work, you might need to hire contractors, architects, interior designers and other professionals. If you plan to do some of the work yourself, ensure you have the required skills and time.

Start renovations

Begin the renovation process. This may involve demolition, structural repairs, electrical and plumbing work, cosmetic changes like painting and flooring, or heating, ventilation and air conditioning (HVAC) upgrades.

Oversee the process

Ensure the work is done correctly and meets the required standards. Regular inspections of the project can help catch any issues early on. Also, keep a close eye on your budget throughout the process. Unexpected expenses can arise, so it’s essential to have a contingency fund.

Schedule a final inspection

Once the renovations are complete, conduct a final inspection to ensure everything meets your expectations. Evaluate the property's new value and consider whether it aligns with your goals.

Move in, sell or rent

Depending on your initial intentions, you can move into the property, sell it or rent it out.

Pros and cons of fixing up an older home

Consider the pros and cons to help you decide if a fixer-upper is right for you:

Who it’s best for: Should you buy, build or fix a home?

The right choice for you depends on factors like what you’re looking for in a home, how much you can afford to spend and your current and future goals.

Buying a new-build home

Consider buying a new-build home if:

• You want a move-in-ready home with minimal maintenance
• Energy efficiency and modern features are a priority
• You prefer having warranty coverage and fewer immediate repairs

Building a new home

Consider building a new home if:

• You want full control over the layout and design
• You have time to manage a complex and long-term project
• You are prepared for a larger budget and unexpected costs

Buying a fixer-upper

Consider buying a fixer-upper if:

• You want to save money upfront and invest in renovations over time
• You enjoy do-it-yourself (DIY) projects or managing contractors
• You are comfortable handling potential hidden issues and challenges

FAQ

Bottom line

Buying a new-build home can be a great option for those who want a modern, energy-efficient home with customization options. However, be aware of the potential costs and risks, such as construction delays and price drops. In comparison, building a new home or buying a fixer-upper can allow for more customization and control, but be prepared for potential challenges, such as prolonged timelines or unexpected costs.

Overall, your ideal home purchase option will depend on your needs and preferences. If you're unsure which choice is best for you, talk to a real estate agent, financial advisor or other experts.