Buying an older house in need of remodeling, vs. building new

[RadDoc6876]

My wife and I accepted new jobs out-of-state and are selling our house and moving.  It's east coast...all the homes we've looked at are around 30-40 years old and in need of $100K remodeling inside plus a new roof, after which, we would own a 40 year old home with a new roof!  So we are thinking of building a new home and there are several lots available in good school districts, which seems to be the key to maintaining value.  Our realtor is not a fan of this idea for some reason, but we have been through remodeling in our current home and it went well, so I think we'd handle it fine.  Anyone have good/bad experiences, lessons learned, etc.?  We have already identified a reputable builder who has built many homes in the area and he offered to arrange for us to see some of his prior clients' homes, so that is reassuring.  Also...how does financing work in general as far as the mortgage etc.?

[jhwkr542]

We're building a home now. A couple of my partners are also in various stages of building. Huge variety of experiences just in one locale from different builders, so that's a huge decision (picking out a builder). For financing, there's a handful of options but it basically boils down to two loans: construction loan and permanent loan. Obviously, the permanent loan/mortgage is all yours and typical rules of thumb apply there. Maybe the only unique issue to new construction would be appraisal because new homes sometimes lack good comps, especially if you're building a home with really fancy features that don't add a lot of value to the home or the surrounding homes are much cheaper.
The construction loan is a little more variable. Either the builder can finance the construction or you can (can be separate from the permanent or some banks have construction to perm all-in-one type loans). The construction loans are typically interest only loans in that they work like a credit card. You get a credit limit and you pay interest on what you've taken out as you go. I highly recommend you find a builder who will finance the construction because it gives them a monetary incentive to do the work. One partner just closed on their new home and it took their builder 1.5 years to build. Guess who was paying the interest...not the builder. You'll pay for the builder to take the risk but worth it imo. Our builder has the construction loan for the negotiated price when we signed the contract. If our selections are over budget, we have to pay out of pocket at the time those are made.

[Craigy]

We are in a similar boat.

For our budget, we could either buy an old relatively dumpy house and do a remodel, in which case we'd still be stuck with the 8ft ceilings, frumpy floor plan, etc.  Even finding a remodeled, turn-key house is still going to be an old home.  Or we could spend the same money, perhaps less, building exactly what we want, and have all the new modern amenities we want.  Trade off is that it might take a year to build, and it's a lot of stress.  But hopefully it'll be a house we can stay in indefinitely since again it should, in theory, have everything we want.

I think we are going to stay in our current house a little longer, save up enough cash to buy a 2nd home and doze it, and build.

And yeah, you get a construction loan.  Bank will want some collateral/money down just like a regular mortgage.

[willpmd]

If you think building a new home is a lot of stress, you will likely also think doing an extensive remodel is stressful.  Also extensive remodels take time so the difference between building new and remodel will likely be similar.

 

If the price is within 10-15% I would always say build new. (that is an opinion and based off of nothing more than my experience).

 

Also, always add at least 15% to whatever is initially budgeted in time and money or you will be dissapointed.

Finally in either situation be as specific as possible on finishings and have an architect detail exact construction details including materials and get as many bids as you have time for based off those details.  Often you will have huge variance in bids and it has to do with what the contractor assumed you would want not on contractors work situation.

 

Good luck!