3 Ways Buying a New Construction Home Can Save You Money

You might pay a premium for new construction, but here's how you might reap some nice savings afterward.

Years ago, my husband and I were looking to upsize from our starter home and decided to purchase a new construction home. We paid a lot more money up front than we would have for an older home. But the idea of new construction was tempting for a number of reasons. Not only did we get to design that home and incorporate the features we wanted, but we also liked the idea of being the first people to occupy that space.

If you're thinking of buying new construction, you should be prepared to pay a premium for your home. You'll likely pay more money and take on a higher mortgage up front. But here's how you might reap some savings after the fact.

1. You're protected from most repairs for a year

Home repairs can be a major budget-buster. The good thing about buying new construction is that most homes in this category come with a builder's warranty. You don't pay for a builder's warranty and it's meant to cover defects that creep up in your first 12 months. For example, if you discover after a few months that a poorly fitted pipe is leaking, it would be covered under your warranty due to improper installation.

Now, this isn't to say repairs won't pop up that aren't covered by that warranty. For example, if you overload a pantry shelf and it breaks, cracking in half, that's not a workmanship defect and therefore isn't covered. But you do at least get some protection for a year.

2. You'll face fewer major repairs for many years

A builder's warranty will give you coverage for your first year in your new construction home, and you'll generally have added protections beyond that point. For example, your air conditioning system, water heater, roof, and other features may have their own warranties. That's information your builder should convey to you.

Granted, those warranties will hinge on proper installation. But you'll generally be protected if your builder installs your water heater correctly and it somehow goes kaput within two years due to a defect. If that happens, you'll be entitled to a free replacement from the water heater manufacturer instead of having to pay for a new unit out of pocket. On the other hand, if you buy an older home, you're unlikely to have those same safeguards. This is because your roof, heater, and so forth won't be brand new.

3. You'll spend less on near-term renovations

When you buy a home someone else has already lived in, you may need to spend some money to get it to look or function the way you want it to. And it may be a lot cheaper to pay for upgrades from the start with new construction. Otherwise, you have to rip things out and redo all that work.

When my husband and I bought our home, we wanted certain appliances that weren't included in our purchase price. Specifically, we wanted a double oven in our kitchen (we were entitled to only a standard single oven from our builder). We also wanted an oversized cooktop and a higher-end fridge. We paid more to have those appliances installed from the get-go. As such, we didn't need to pay to have our kitchen rewired for a double oven after closing, nor did we have to pay to remove old appliances.

Of course, buying new construction has its disadvantages as well. You'll pay more for your home up front. You'll generally need to make at least a 20% down payment, whereas when you buy a regular home, you may be able to get away with a lower one. And you'll risk construction delays that mess up your plans. In our case, our home was delayed several months and it was a scramble to find temporary housing.

But the upside of new construction is that you'll potentially get to customize a home. Moreover, you could spend a lot less during your first few years living there. And that could make it easier to adjust from a financial standpoint.