Should you buy a home or build one?

Information verified correct on October 25th, 2016

Here's what you need to know when you’re deciding between buying and building a home.


For many Australians, owning a home is considered the Australian dream. Your home is one of your biggest assets, but what if you’re not sure whether you want to build a new home or purchase an established home? Read on to help make the decision easier.

Things to consider when buying or building a new home

Before you make your choice, there are a few bits of research to carry out and questions to ask.

Start by establishing a budget. Don’t go by how much you qualify to borrow; what you should do instead is find out how much you can afford to repay each month and go from there. An easy way to do this is by using an online home loan repayment calculator.

Once you know how much you can spend, narrow down to a suitable suburb. Picking one neighbourhood over another means looking at local amenities and proximity to your workplace, schools and hospitals. One great way of establishing this is by finding out the property’s walk score. Prices in some neighbourhoods are higher than others simply because they are 'up-market' or popular at the moment, so you have to decide if you wish to pay extra for this tag.

Limit your search to homes within your budget, as this saves valuable time. Getting a home loan pre-approval gives you a good indication of how much you qualify to borrow. When getting a home loan, make sure you compare multiple options and choose between fixed and variable rate loans only after you know the difference. Lastly, bear in mind that owning a home involves spending more than the price of a home or how much you spend building one; you also have to account for insurance, stamp duty, inspections and legal fees.

Pros and cons of building a home

  • Pros

Building a home comes with a number of pros. When you build a home you get the ability to customise it according to your preferences, and you can choose materials and fixtures to suit your requirements. Some lenders offer home construction loans which enable you to get funds in stages, as opposed to a lump sum amount. In addition, you do not have to worry about old plumbing, wiring and appliances breaking down for a while.

  • Cons

On the downside, building a home can take considerably longer than moving into an already-constructed home. While a number of builders offer fixed price contracts with build-time guarantees, take into account that certain council approvals can take time depending on what you have in mind. It also pays to factor in unexpected delays thanks to inclement weather.

Choosing a good contractor requires you to do some research, because a faulty or incorrectly built section can take more time and money to repair. If you plan to have a garden, it can take years before the trees mature completely. If you plan to have a pool, this could decrease its value. Most new homes are far from city centres, which can mean increased travel time to and from work. Lastly, many new homes leave little room in between each other, which can lead to a potential need for privacy.

Top tips for building a new home

When building a new home, bear in mind that the value of its fixtures and fittings depreciates. For example, if you compare the effective lifespan of carpets at 10 years, timber floorboards at 15 years and tiles at 40 years, you'll notice that depreciation benefits can vary. If you spend $2,000 on floor coverings, tiles will earn you $50 in the form of first-year depreciation benefits, timber floorboards will earn you $267 and carpets $400.

Pay attention to the insulation you opt for, because while insulation contractors should cover every spot, some may miss insulating rim joints between floors. Ripping apart walls to add insulation later can result in significant expenses. Heating, cooling and ventilation, when done right, can result in long-term savings. The opposite is true if these systems are not installed correctly, plus a faulty system can leave you chilly in the winter and hot in summer.

Pros and cons of buying a home

  • Pros

Buying a home is convenient, compared to building. All you need is loan pre-approval and look for homes that fit your budget. Once you sign on the dotted line, you can start preparing to move. Depending on where you buy, buying a home can often be cheaper than building one. Buying a home can also offer you more options in terms of locations, given that empty lots are not particularly easy to come by in neighbourhoods that have been around for a while. Many homes also come with landscaping.

  • Cons

One of the biggest downsides to buying an established home is that you may not be able to renovate or modify it in the way you desire, and it's often not easy to find a home that matches your specifications down to the last detail.

Buying a home can also require you to spend money for repairs or to fix it up. You might not account for all these expenses when taking out a home loan, resulting in an added financial burden down the line. Old homes require a thorough inspection of plumbing, wiring and fixtures before you decide to purchase them.

Top tips to buying a new home

Getting in touch with a trusted local real estate agent is a good idea, because real estate agents are the first to find out about homes for sale. Don't forget to tell your agent you have pre-approval and are serious about buying a home. Know which valuer, strata inspector and building inspector you'll turn to when you find a suitable home, because wasting time later can result in losing out on a deal. Using a buyer's agent can result in better prices, given that many real estate agents choose to deal with them. If buying your first home, also find out if you qualify for the first home owner's grant.

If you are looking at buying a home from an investment perspective, don't buy the first cheap home you find. Houses sometimes stay on the market for prolonged periods, resulting in their prices dropping significantly in the future. This can be because of various reasons, including a lack of parking, small bedrooms and too much noise in the immediate neighbourhood.

Make sure to identify what you can and cannot fix. For example, you can’t do anything about a home's location, absence of parking, aircraft noise, or proximity to electricity pylons and industrial setups. What you can fix is how a home looks, its room configuration, minor noise and unattractive landscaping. You can fix poor lighting in a home, but this might not be an option in a unit.

Getting an independent valuation of the home you wish to buy ensures you don't overspend. Stay wary of property hot spots that might or might not undergo expected massive capital growth. In addition to the risk of the suburb not living up to expectations, the area might see a peak but then go through a trough later. Don't forget to establish just how long you plan to hold on to any such home.

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at Talk to him to find out more about home loans.

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