Buying vs building your first home

Whether it’s a two-bedroom apartment or a townhouse with a yard, chances are we’ve all dreamt of the ‘perfect’ first home. But the reality is, hitting that milestone takes a lot of time and effort. House hunting involves a whole bunch of considerations, from the cost and location, to the floor plan and the condition of the property. At times, it’s a balancing act between ticking things off your wish list and keeping to your budget.

One of the first crossroads you’ll encounter as a home buyer is whether to shop for an existing home or to build one from scratch. Both paths have roses and thorns, so the key is to weigh up your priorities and figure out which features you’re willing to compromise on. To help you out, here’s a snapshot of each option’s pros and cons:

Buying an existing home

Pros:

• What you see is what you get: Whether you do the house inspection yourself or get a professional to take a look, defects like leaks or cracks are easier to spot with an existing home, helping you to identify any deal breakers early on.

• Location, location, location: A school, a shopping centre and public transport all within a 10 minute stroll? You’re more likely to find an existing house for sale in suburbs where handy facilities are just a short commute away, rather than with vacant land. Just bear in mind convenience comes at a price - properties in established areas generally cost more, which means you may need a larger home deposit and a bigger home loan.

• Faster turnover: On a tight schedule? From shopping around to negotiating the house price, there are fewer decisions you’ll have to make from the get-go, and you can move in right after you’ve sealed the deal.

Cons:

• Reno costs: Unless you find an existing home in top condition, you may need to allocate time and money to renovations - from small things like paint jobs to larger-scale revamps like making your home more sustainable. This could add up to tens of thousands of dollars, so be sure to factor the cost of potential renovations into your budget. On the bright side, that old carpet or unsavoury wallpaper could help you negotiate a better deal.

Building a home from scratch

Pros:

• You can design your dream home: Searching everywhere for your first home but not in love with the small backyard or the cramped bathroom? Building a house means you have free rein on customisation, as long as you stay within budget. What’s more, new homes tend to be more energy-efficient (think better insulation and appliances with higher star ratings), which means big bucks saved on your energy bills.

• Grants could cover some costs: Depending on the state or territory you live in, some of your building costs could be offset by First Home Owners Grants, which are available for the construction of new property.

• Fewer stamp duty worries: Stamp duty is no small cost, with Mozo data on the extra costs when buying property revealing it sets homebuyers back around $30,000 on average in Sydney and Melbourne. But an advantage of building your home is you don’t have to pay stamp duty on the house - only on the land. The result? Lower charges!

Cons:

• A longer wait: Building a house can take several months, if not longer, to wrap up - and that’s not counting any complications or speed bumps you may hit along the way. Many lenders also require borrowers to complete or at least begin construction within a specific time frame of settlement, so they may not be happy with any major delays.

Which is cheaper: building or buying?

At the end of the day, there’s no one-size-fits-all answer because construction costs, property prices and stamp duty can vary from suburb to suburb, and from property to property.

In the end, it comes down to your situation - so remember to do your homework with the above considerations in mind! That way, you can be a step closer to the home of your dreams, all while staying within your financial means.

Katherine O’Chee is a personal finance writer at financial comparison site mozo.com.au.