Many first-time homebuyers might presume they’re better off going used rather than new—in other words, purchasing a pre-existing property rather than pricey new construction.
While it’s true that brand-new homes often come with a heftier price tag upfront, these properties can actually end up being a good—even great—deal for first-time buyers.
“It is true that new-construction homes, on average, are 10% to 15% higher in sales price than resale homes, but that doesn’t mean that they are less affordable,” says Bob Seeman, vice president of sales for New Homes at Realtor.com. “Simply put, total homeownership costs are more than a monthly mortgage payment alone.”
Here’s why first-time homebuyers shouldn’t rule out new construction, and how these opportunities can be a better deal than many might think.
Low inventory means first-time buyers should explore all options
In a housing market that’s still dealing with extremely limited inventory, the reality is first-time homebuyers can’t afford to dismiss this option.
According to the National Association of Realtors®, the inventory of existing homes on the market in December 2022 was at an all-time low of 910,000. That was a year-over-year decrease of 18%, and marks 31 straight months of declines in available homes.
“The housing shortage will get worse over the next year—we simply don’t have enough supply,” says John Hunt, chief analyst for MarketNsight.
For example, Hunt says, to get back to “normal” and meet demand, Atlanta alone would need 66,000 additional homes on the market over the next 12 months.
Compounding the problem is that homeowners who might normally sell aren’t doing so because they’re reluctant to buy a new home—and get a new mortgage—when interest rates are so high.
Translation: Unless you want to be waiting a long time to buy your first home, you should consider new-construction homes because there just aren’t enough homes of any kind to satisfy the current demand.
Builders can help first-time buyers with better financing
Let’s face it, price matters. That’s true whether you’re buying your first home or third luxury vacation property. The difference with a new-construction purchase, however, is you might be able to save money through builder incentives.
These promotions—meant to attract buyers to a certain development project—frequently come in the form of financing help, and this is what can make a new-construction home purchase workable for a first-time buyer.
“What many first-time buyers most need are cash to close and monthly payments that they can afford,” says Seeman. “Because many builders can offer financing through their company’s mortgage arm or through a lender affiliate, they have programs to help reduce the amount of cash a buyer needs to close on a home.”
A reduction in the initial cash outlay can make all the difference for a first-time homebuyer. Many builders are also currently offering much lower mortgage rates through their lenders as well in order to attract first-time buyers who would otherwise be priced out of the market.
“We’re seeing builders get creative with financing—offering rates as low as 4.99% to 5.99% right now, which is lower than what you’ll see for existing homes,” says Alex Toth, director of homebuilder partnerships at Opendoor.
Since mortgage rates spiked in October to over 7% for a 30-year fixed-rate loan for the first time in 20 years, this could indeed determine if a first-time buyer can qualify for a home or not.
Another benefit of working with a builder’s lender is that the lender is usually well-versed in FHA and VA loan options. These low or no-down payment loans might also be a huge benefit to first-time homebuyers trying to secure a mortgage if they qualify.
Learn more on Realtor.com
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