With a limited supply of entry-level housing for sale, getting your foot in the door you want could be a challenge if you're looking to buy your first home soon.
Nearly a third of Americans who've never previously bought a home say they plan to in the next five years, according to a survey commissioned by NerdWallet and conducted online by The Harris Poll among 2,007 U.S. adults in January 2020.
Before you join the house hunt, decide which type of property best fits your goals. Here are the pros and cons of buying a turnkey home, building a new house or renovating a fixer-upper.
"You have to be ready to go yesterday," says Simone Plush, a real estate agent with Washington, D.C.-area Century 21 New Millennium. Especially for first-time home buyers, the process can be "an emotional roller coaster," Plush says. She encourages buyers to be strategic and swift when making an offer on a turnkey home. For example, looking at homes priced slightly below your budget lets you afford a competitive bid that's over the asking price.
When you're feeling frustrated, Plush says, remember your "why" — the reason you're house hunting in the first place. Reconnecting to your desire to have a backyard for your kids, for example, can help you maintain momentum.
New construction might sound intimidating and time-consuming, but unless you're starting from scratch with an architect and a piece of land, it can be surprisingly straightforward and speedy.
"In many of our communities, home buyers have the option to purchase a quick move-in home," one that will be ready within 30 to 90 days, commented Jessica Hansen, vice president of communications for Arlington, Texas-based homebuilders D.R. Horton, via email.
Time frames can vary by builder and demand. Jeff Mezger, president and CEO of Los Angeles-based builder KB Home, says his company averages three to four months from breaking ground to move-in day. The average home search takes about 10 weeks, according to a 2019 NAR survey, followed by several more weeks to close and get the keys.
In the same survey, the most-cited reason home buyers gave for purchasing new construction was to avoid renovations or problems with mechanical systems. Both these builders, like many others, offer home warranties, protection that buyers of existing homes may have to purchase for themselves.
"When you close on a used home, you're on your own if something goes wrong," Mezger says. "With a new home, you still have that relationship with us."
But these conveniences come at a cost: In the NAR survey, those who bought new construction paid a median price $85,000 more than those who purchased a previously owned property. Feasibility may also depend on where you live. In an urban area or well-established suburb, building new may be difficult without paying to tear down an existing structure. In rural areas, there's plenty of land, but starting from the ground up outside a development may mean extra costs for securing access to water, electricity and more.
Renovating a fixer-upper is tougher than it looks on TV, but if the house has good bones, you could snag an affordable home in your ideal neighborhood. The NAR survey shows 26% of first-time home buyers said they compromised on condition in order to buy a home. Condition issues are unsurprising as the nation's housing stock ages. According to Harvard University's Joint Center for Housing Studies, as of 2019 nearly 80% of American homes were at least 20 years old, and 40% were at least 50.
"First-time home buyers should not be shy about houses that have good mechanical and structural components that are just ugly," says David Pekel, a former contractor who's now CEO of the National Association of the Remodeling Industry. "You can fix ugly."
Whether you choose to buy, build or fix, there are various financing options. In addition to conventional mortgages and standard government-backed loans, there are construction loans and renovation loans suited for borrowers financing new construction or remodeling. A lender that offers loan products for the kind of property you want can guide you through your choices.
The article Buy, Build or Fix: What's Best for First-Time Home Buyers? originally appeared on NerdWallet.