Buying an Existing Home versus Building from Scratch
Everyone is different and when one person loves the history from an older home, another person will prefer the low risk and personalisation a new build can bring. As much as it comes down to personal preference, there are different positives attributed to each choice.
Building a new home
Designing your home from scratch will ensure your home is customised to your needs instead of fitting your needs around the property. Even if you choose from a selection of pre-designed homes, you can select the ones that will match what you need more so than an established house, which may have been a relic of another era. Saying this, many costs associated with building your own home are simply the base price – finishing costs can sometimes add up to 25% of the total cost.
A new build is likely to have far less risk in terms of maintenance issues, where established homes may have wonky floorboards or insulation issues. A newly built home is also likely to be more energy efficient, providing ongoing savings. Issues that may arise could also be covered by warranty in a new build, providing peace of mind.
Construction loans feature some great money-saving bonuses especially during the build of your new home. Many construction loans offer to lend a fixed amount to cover the cost of your construction and pay out these funds to your builder directly as key milestones of the project are completed. These progressive payments are called drawdowns and are paid until your project is complete. The benefit to you is that you only pay interest on the loan amount you have paid the builder, meaning you’ll save money in interest.
The First Home Buyers Grant in Australia can tempt those wanting to get on the property ladder to look into new builds. The savings in Stamp Duty exemptions can be substantial, though each state has a different First Home Buyer incentive so you must determine what you are eligible for in the state you aim to buy in.
Owner-builder mortgages are for those who want to build their home without the help of a licensed builder. Many Lenders can consider these projects high risk, and some won’t accept applications for these types of loans. Usually, there are limits of 60% of the total land and construction costs for owner-builders, meaning owner-builders will need a 40% deposit.
Buying an existing home
Desirable locations are usually already built upon, and rarely does a vacant plot become available. For location, existing homes usually trump new builds, as many newer homes are built away from the city where there is space.
While a desirable location comes with a price tag to match, it will also have established amenities like shops, schools and public transport. Due to the population increase in Australia, most new builds do not enjoy the plot size and established gardens that existing properties have. Established homes also come with more character or diversity, which many find a plus.
The path to settlement is usually much quicker in existing homes, meaning you can often move from one house to another without having to pay two mortgages or rent for a time. The cost of an established home is fixed, unlike building a new home where costs, if not managed, can spiral.
There are big advantages to the pre-purchase inspections that can be carried out in an existing home – you know what you’re getting, and you know it won’t change in between signing the contract and moving in. You can get to know the neighbourhood – and the neighbours – before choosing to purchase, and it can help to see and compare price points for other established houses too, which can help to determine future property value.
Which is the best?
Though in many states, building your home is effectively cheaper than buying, you will usually forgo prime locations and other benefits of an established home. Saying that you will reap the rewards of a low-risk, highly energy efficient home which can save you money in the long term. It’s totally up to you what you choose – we have loans to perfectly complement both decisions.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying or building a home, you can contact us for information about the best options for you when it comes to your mortgage.