Buying a home is one of the most important financial decisions you’ll ever make. Home ownership has always been a primary step in personal wealth creation, and thriving real estate markets prove that this is still true today.
When buying a home, should you look for an older house or new construction? What are the advantages and disadvantages of each? And how can you best prepare to buy your first home? We’ll look at these questions individually, so you can approach this important life milestone with your eyes wide open.
New Home or Old Home?
There is no correct answer to this question. On the one hand, a new home is sort of like a new car; it will likely function perfectly without the need for expensive maintenance, but it is also going to be fairly expensive. On the other hand, older homes can have charm, and interesting design features not present in newer homes. They may also be located in neighborhoods that would be inaccessible if you only looked at new construction.
Older homes tend to require a bit more skill, and long term investment, of their buyers. You may wish to renovate the kitchen or bathroom, modernize the appliances, or install a french drain in the basement to prevent flooding. You may find that, though easier to live in, newer homes are a bit more “generic” in their design, created to appeal to a very wide audience with no specific personality in particular.
It all comes down to what you are looking for, and what is available at your price point. You may find an older home that was so lovingly tended by a previous occupant that there are no improvements necessary. You could also find a new home that was creatively designed with all of your desired features included. Just be realistic about what you need, what skills you have as a first time homeowner, and what you can afford. We’ll talk about this last point, next.
How to Prepare for a First Home Purchase
The single most important element in buying a first home is…money. This should come as no surprise. Having a strong first down payment can help you get a loan (as putting lots of money down will mean you’re a low-risk borrower). It can also make your offer on a home more competitive. Let’s imagine that you and 3 other people all make an offer on the same property. All other things being equal, the house will likely go to the person with the most money to put down. You may get a great house without putting much money down, but it will likely be a more challenging process.
Another important way to prepare is by improving your credit and income. Mortgage lenders are unlikely to give a loan to someone with no credit, because this individual has not demonstrated that they can pay back the debt. Similarly, if you don’t have a steady income with a trustworthy employer, you likely won’t find it easy to get a mortgage loan. Your lender simply won’t have confidence that you can pay back the money for five, ten, or twenty years to come. Mortgage lenders love “boring and responsible” borrowers.
Once you’ve worked out the financials, you simply need to be diligent about finding the perfect house for you. Desirable homes tend to sell fast in most markets, so unless you are prepared to jump on a house in its first days on the market, you may miss out. Having cash to spend and pre-approval from your lender is a major plus. Thus equipped, you’ll be able to make a meaningful offer just as soon as your dream home becomes available.
If you know what you’re looking for (a new or old home), have the money saved, and are otherwise financially prepared for a big loan, you’ll find that your home buying experience is primed for success.