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  • new construction

    Early career physician, salary currently $350k with potential to make significantly more 3 years. Looking at buying with a physician mortgage at 2.625% at zero down (I actually plan to put 5% down anyway). With the current market, homes in the area are selling over asking and getting multiple offers. Putting 5% down puts us at a disadvantage, and our realtor is suggesting we look at new construction. This results in us paying a little more than we originally intended, and places us in a range of $700-750k.

    I think this seems doable, but would like opinion from the group since it is deviating from my original plan. A couple pros I see of buying new is that it lets us stay on our timeline with moving as our lease runs out, we avoid the ups and downs of not having an offer accepted, there should be lower maintenance/renovation costs in the short term, and I think as my salary increases it is even more likely we stay in a slightly more expensive newer home (although my intention is to try and not move either way). I've also heard that in my state a home is protected from malpractice lawsuits, so if this is true (haven't verified) then having a little more in the home is a small safety net. For reference, I was looking at homes in the $600-650k range previously.

    Thanks,
    Henny

  • #2
    5% down isnt different than 20% down re: competitiveness. they are different than a 100% cash offer.....

    sounds like your realtor wants you to spend more.....funny how that works.

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    • #3
      We looked at houses which would have sold for close to 650 before Covid , now they were listed close to 750-800, then we thought about construction , found land , even negotiated the price , found a Builder , got estimate

      Estimate was going up weekly due to lumber prices

      Finally , we agreed to neither buy a house nor construct in this market . Just my personal opinion that this price craziness cannot continue for ever . We would wait 2 years and then reevaluate . We have a smaller paid house .

      I can be completely wrong , but I and spouse agree that we will live with our decision and not regret even if prices go up

      it’s your decision , but I didn’t want to stress about finances . I hear construction always costs more than you plan for .

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      • #4
        Originally posted by Peds View Post
        5% down isnt different than 20% down re: competitiveness. they are different than a 100% cash offer.....

        sounds like your realtor wants you to spend more.....funny how that works.
        haha, that is a fair point. I had the same thought, but it still got in my head.

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        • #5
          I’ll give your realtor the benefit of the doubt. I think his or her goal is to figure out how to get you a home in this market. It’s not longer about just getting you a more expensive home. He’s worried that he won’t be making anything and all of you will be wasting your time because the market is too crazy for rational offers to succeed.

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          • #6
            Originally posted by uksho View Post
            We looked at houses which would have sold for close to 650 before Covid , now they were listed close to 750-800, then we thought about construction , found land , even negotiated the price , found a Builder , got estimate

            Estimate was going up weekly due to lumber prices

            Finally , we agreed to neither buy a house nor construct in this market . Just my personal opinion that this price craziness cannot continue for ever . We would wait 2 years and then reevaluate . We have a smaller paid house .

            I can be completely wrong , but I and spouse agree that we will live with our decision and not regret even if prices go up

            it’s your decision , but I didn’t want to stress about finances . I hear construction always costs more than you plan for .
            The market does seem in a bubble. Waiting is definitely still on the table, although maybe less so for my significant other. One reservation I have about waiting is that interest rates seem like they can only go up from here. It is also hard to predict when the current housing supply will meet demand, and I think this is probably the greatest factor in when the market will correct. Your mention of construction costs always being more than anticipated is at the heart of why I didn't want to go with new construction in the first place. I've thought about considering a spec home, where the new construction is almost complete as a way to limit some of this risk.

            Comment


            • #7
              Originally posted by Henny View Post

              The market does seem in a bubble. Waiting is definitely still on the table, although maybe less so for my significant other. One reservation I have about waiting is that interest rates seem like they can only go up from here. It is also hard to predict when the current housing supply will meet demand, and I think this is probably the greatest factor in when the market will correct. Your mention of construction costs always being more than anticipated is at the heart of why I didn't want to go with new construction in the first place. I've thought about considering a spec home, where the new construction is almost complete as a way to limit some of this risk.
              If you truly think it’s in a bubble, you’ll likely save more on lower houses than if interests go up. I saw something that says houses are at a 10% premium. If you buy a 750 house that’s 75k. How much would interests rates have to go up to make up for that

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              • #8
                Bleah, fire the realtor and find a new one. He/she probably has some deal where he/she gets an even higher commission by teaming up with some builder. New constructions usually cost 10% over market value and are almost never a good financial deal. I have built a new construction because my wife wanted one as our first house and will tell you that it is never a good idea for a first house. You don't know what you want in a first house, and your wife ends up resenting having to sell it when you end up having to move because she customized it and made it exactly how she wanted it. New constructions should always be 2nd or 3rd houses, built when you have too much money to spend and are confident that you will remain in the area. They definitely should not be something you are looking for a doctor loan for. If the builder could build the house and put it on the market more then you would pay for it, he/she would. The only reason that they are willing to build the house for you is because you are paying more for it.

                Comment


                • #9
                  Originally posted by nephron View Post
                  New constructions usually cost 10% over market value and are almost never a good financial deal.
                  Not true in all cases. In some places it makes more sense to build something than to get something you don't truly like and the costs are not much more . But this current market of crazy lumber prices makes building much more expensive and correspondingly, the used home prices have also shot up. To keep the finances of new construction in line, you have to put in sweat equity. We chose all things interior, bought it with cash down, hired many subcontractors ourselves using referrals from word of mouth and drove some hard bargains, all pre covid. But that is something not many can do or are willing to do.

                  I will tell you that it is never a good idea for a first house. You don't know what you want in a first house, and your wife ends up resenting having to sell it when you end up having to move because she customized it and made it exactly how she wanted it. New constructions should always be 2nd or 3rd houses, built when you have too much money to spend and are confident that you will remain in the area.
                  I am 1000% in agreement with it. You don't know what you truly want in a house till you lived in a previously built house for a few years to know what you like, what you dislike, what you must have, what you don't care about and so on. New construction is exhausting, leads to strains in relationship and cannot withstand it being done more than once. So build one and build right, as a 2nd or 3rd home. Not your first, if you can avoid it.

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                  • #10
                    If you have enough assets to actually put down 10, 15, or 20% then I believe it’s ok to put that on the offer, and then choose to close the deal with only 5% down. Talk to your realtor about whether that’s an option.

                    you could also consider if there’s other ways to sweeten your offer - not contingent on selling current home, short/long closing date, only permit pulling out after inspection if urgent necessary repairs cost more than $20k etc.

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                    • #11
                      Reassuring to see this isn't unique to just my area in the SE. We've been renting this year but are finally closing on a place. Managed to keep it less than 1x of our combined salaries, but we've followed the market here for 2 years. I've never seen the inventory this low. We briefly discussed building, but I talked my wife out of it when I said we can barely come to a quick decision on dinner some nights; just amplify that to every single thing. The increasing building price helped make that idea disappear.

                      OP, the down payment doesn't matter unless it's cash as was said above. Just don't rush into anything.

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                      • #12
                        Same issue in my market. I refused to participate in the insane over asking multiple offer nonsense where homes were going for 30% more than 3 years ago on same property.

                        We were going to go with new construction like you with a quote and getting a easy to pull the trigger in a few weeks but I found a stale listing noone was looking at that was overpriced, came in without a buyer's agent, and negotiated it down over 10% and am actually getting a deal. Don't totally give up there may be overlooked properties even in red hot markets (houses pend in my market in 12-24 hours even in a mid-week listing) since nobody is looking at anything more than a week old.

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                        • #13
                          don't go look at houses outside your price range.

                          it starts as a fun little side trip ("well let's just go look") and ends up screwing up your search badly.

                          my home price was 1X (this is just a marker for sales price). "just for fun" i went and looked at some places that were like 1.6X. they were amazing in every way.

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                          • #14
                            Just remember. Land (usually) appreciates. Houses depreciate. Like with all things, depreciation is steepest with a brand new house. That may be worth it to you to get a home custom made for you. But know that’s spending on a consumption item, not investment, and as others have said it’s important to really know what you want/are paying for. Personally If you’re looking for a lower maintenance option and planning not to remodel look for houses in the 5-10 year old range. It’s the equivalent of buying the 2 year old car with 20k miles. It’s still pretty new but the worst of the depreciation has past.

                            Also know with the crazy and rising costs of materials, expect cost overruns. I agree that I would be looking more at spec homes if you want new, but of course you lose ability to customize the floor plan.

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                            • #15
                              https://awealthofcommonsense.com/202...ousing-market/

                              Shop until you drop. You will reach a decision point. House A or house B. Either will workout just fine. Even if you built custom, 5 years later you would have done some things differently.
                              No right answer. Good luck. Timing the housing market is difficult. Stay within your budget.

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