Want a New Construction Home? Prepare to Pay About $36,000 More on Average
by Maurie Backman | Updated July 19, 2021 - First published on May 9, 2021
New construction is far from a bargain right now. Here's why.
There are plenty of benefits to buying a new construction home. For one thing, some new constructions let you design that home to suit your needs and tastes. And even if you don't have a say in the design process, at least you get to move into a home no one's lived in before. Your new home is likely to be in stellar condition; with all new fixtures and appliances, you're unlikely to have to shell out for major repairs for at least a few years.
But if there's one drawback to buying new construction, it's that you'll generally pay a premium. And a newly built home might cost even more than normal this year.
New construction prices are soaring
Many sellers have been reluctant to list their properties during the pandemic, so there's a shortage of available homes. As a potential home buyer, you may think new construction could be an alternative to buying an existing home. But be careful, because this route is likely to cost you more money this year.
Lumber prices have soared after a major shortage. Indeed, low supply coupled with high builder demand means lumber is up 340%.
Lumber is an integral part of building a house. In addition to framing, lumber is used in everything from doors to flooring to cabinets. Not surprisingly, it's costing builders more money now to construct properties from scratch. In fact, the average price of a new single-family home this year has risen by $35,872 -- not exactly pocket change.
Can you afford new construction?
A newly built home will likely cost a lot more this year. But you might still be able to afford it. How can you know for sure?
First, map out a budget of your recurring expenses. Then, use a mortgage calculator to see how much a new construction home in your area might cost each month. Keep in mind that you'll want to account for not just your actual mortgage payment, but also peripheral costs, like homeowners insurance and property taxes.
Also, while new construction homes tend to require less maintenance and fewer repairs, that doesn't mean you won't need to sink any additional money into your home. Make sure you can swing that expense, too.
If you're still eager to buy a newly built home, be sure to reach out to a few different mortgage lenders to see what they offer. You can either make those calls yourself or enlist the help of a mortgage broker to solicit offers on your behalf. Shopping around could be your ticket to a lower interest rate. And that could help offset the premium you pay for your brand-new dream home.
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