Summer 2011 Mortgage Trends
Handing over house keys
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Buy a new or used home?

Mortgage Trends » Deciding to buy a new or used home

Some homebuyers will take nothing less than a brand-new home with an untouched bathtub. Others want a home with character in an established neighborhood. Personal preferences aside, there are pros and cons to each option -- buying a newly built home or buying a resale -- as well as financial implications to the choice.

New home advantages

Rochelle Fitzgerald, a sales associate with Coldwell Banker Residential Brokerage's Rockwall office near Dallas, says, "There's no question that some people prefer that 'new-home smell' and the idea that no one else's feet have been on the carpet. On top of that, many people like to personalize their home by picking out everything from the beginning."

Some buyers focus on the more practical aspect of buying a new home because it will typically require less maintenance.

"It's very important to some buyers to have everything new, plus they have the peace of mind that comes along with the builder's warranty," says Dan Kruse, broker/owner of Century 21 Affiliated in Madison, Wis.

On the financial side, builders, particularly in a slow real estate market, offer plenty of incentives to buyers.

"In a seller's market, new homebuyers will often spend as much as 10 percent or more above the purchase price for optional features," says Jeff Ristine, broker/owner of Weichert, Realtors: Kingsland Properties near Chicago. "Now many builders are offering free options as an incentive to buyers such as a finished basement and an upgraded kitchen. Builders are tailoring their incentives to specific buyers, so some will throw in things like initiation fees for a country club membership."

New homes disadvantages

In spite of the added builder incentives, real estate experts say new homes are typically more expensive than existing homes.

"Traditionally, new homes are more expensive because they are being built from the ground up," Kruse says. "In recent years, some new homes have come down somewhat in cost because the builders have been hurt so badly by the downturn in the housing market. For the most part, though, builders try to keep price integrity and will offer closing cost assistance or upgrades rather than lower the base price."

Upgrades and closing cost funds are typically tied to the buyer using a builder-designated lender and title company.

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"I would caution buyers, at least in our market in the Chicago area, to be careful buying a new home because builders are competing against foreclosures and it could be long time before a new home will increase in value," Ristine says. "Even with builder incentives, you are usually paying a premium for buying a new home, so you need to hold onto it for five years or more to build any equity."

Fitzgerald says buyers of new homes should expect to own longer than buyers of existing homes because of differences in the rate of price appreciation.

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