When my husband and I took out a mortgage for our first home, the loan officer looked us straight in the eyes and said, “You gotta pay to play.” Argh, such crushing advice. In her defense, she knew we weren’t ready to buy the home we wanted. We were full of dreams and short on cash.
Thus, if you want to be a financially prudent homeowner, you first must know thyself. Will you build a new home, buy new construction, flip a slightly older home, or invest in a complete gut-job? You’ll find the answer in the things you already own.
Here are some of the costs to consider for each shopping style.
The Anthropology Shopper
My sister-in-law, Sadie loves a curated collection of luxury goods. She surrounds herself with beauty, eats quality organic food, and doesn’t tolerate anything that smells or looks used. If she discovers mold in her bathroom, she will threaten to sue. Given the shortage of existing homes for sale this year, if you’re like Sadie, you might want to consider a new build.
By building a home, you’ll be able to choose upgrades from the start that would be much costlier to redo later. For example, upgrading to larger closets, vaulted ceilings, stone countertops or heated floors could cost you tens of thousands of dollars after the home is built, so it may be better to do these projects during the home’s initial construction.
Just be careful of going overboard with premium upgrades that won’t appeal to future buyers. If it stretches your budget now — and you’re thinking you might not get your investment back at resale — then these upgrades just aren’t worth it. (We’re looking at you, weird medieval chandelier in the baby’s room.)
The Eddie Bauer Enthusiast
My sister, Tiffany is not a lover of risk. In fact, she feels most comfortable surrounded by the beige tones of the 90’s which remind her of childhood. She values quality and affordability but doesn’t care much for the details. If this sounds like you, consider buying a new construction home.
Buying a new construction home will likely mean you’re buying an energy-efficient home in an appealing neighborhood, meaning you’ll pay less than the average $3,000 annual cost of utilities. Plus, a desirable location will ensure your home’s value appreciates over time.
However, don’t forget to factor in homeowners association fees, maintenance fees for co-ops or any other shared costs for the privilege of living in your dream home.
The Craigslist Bargainer
Allison, my other sister-in-law, loves a good bargain. If she’s not deal-making, she feels bored. As someone who actually enjoys negotiation, she inevitably knows which buttons to push to get what she wants — and she’s certainly not afraid to push them. Nothing lasts long with Allison. She’ll flip a profit and then move on to the next thing. Personalities like Allison want to buy a slightly older home and resell it quickly for a profit.
In order to pull this off without losing money, be sure to choose investments wisely and be prepared to pay a hefty down payment. Also, timing is essential. To avoid stiff competition and bidding wars, buy during the colder winter months to score a great deal, then sell when spring buyers come out in hordes.
The biggest up-front cost to the frequent buyer is closing costs. These include inspections, appraisals, attorney fees, title insurance and property transfer taxes — all of which add up to 2.5 percent of a home’s total cost.
The Etsy Crafter
Brittany (that’s me!) is brave enough to try a few DIY projects. She likes quirky things, as long as they suit her needs and look nice. Creativity inspires her, and she feels uneasy without projects to do. Buyers like Brittany might want to look for a fixer-upper.
Buying a fixer-upper is a lifelong commitment to weekend projects. But you can potentially get into a larger home for a lower price, and if your renovations meet or exceed your expectations, the home’s resale value will likely be much higher than the price you paid for it initially.
On the flip side, don’t go full HGTV on your new nest without doing careful research on the renovation costs and potential ROI. In fact, before taking a sledgehammer to your kitchen wall, check to see if the wall is load-bearing and, if so, consider hiring an architect and/or a structural engineer to assess the project. Removing a wall could cost tens of thousands of dollars, plus the cost of staying in a hotel while the work is being done. (On second thought, maybe leave the wall and just cover it in shiplap.)
In the end, your best financial option to either buy or build depends on your lifestyle, family, and tolerance of risk. Of course, there are benefits and hidden costs for each scenario. To uncover more advice on building a home, consider checking out the FAQ section on various home-building websites. Or, you can be like me and let your banker scare you straight into buying a fixer-upper without a backward glance. Hint: We’re six years in, and all our weekends are booked until the end of time. Hey, at least our house looks great!
