Building vs. buying a home: the options for homeownership may be more complicated than you think. Make sure you make the right choice.

After the pipes burst in the house that Will and Tina Alston were planning to purchase, the two thought twice about buying the 10-year-old home. Worried that they would rack up repair costs for the modern, but older, homes they were considering, the Columbus, Ohio, couple ultimately decided to build their dream home.

For Will, 29, an information technology consultant, and Tina, 32, a risk management associate for a regional bank, building provided them with the right amenities--a good price, more than 2,000 square feet, and a full basement. "We had to think about it for a couple of months, but we finally just took the plunge and said 'Yeah, we think this might be the right fit,'" says Will.

The Alstons had specific desires for their home. Instead of the standard siding options the developer offered, the couple wanted stone facing. The two negotiated to forego the typical porch and fireplace and instead opted for the deluxe master bath with soaking tub, separate shower, and his-and-hers closets. In the kitchen, they added a gas line for the stove in addition to the electrical hookup to facilitate their love for cooking and increase the resale value of the home.

"If we bought a house that was 30 or 40 years old, we wouldn't have gotten those options. Then we would have had to come in and basically renovate," Will explains. Renovating an existing home can be a hefty expense; a simple procedure such as converting a room to a home office may cost thousands of dollars.

For the Alstons, builder discounts allowed them to build their house for virtually the cost of a pre-existing home. When researching developers, they found an Indianapolis-based company that was trying to cut into the Columbus market. The company was therefore offering homes of comparable size and quality for considerably less than the other major developers in the city.

In addition, features that were considered upgrades by other developers were offered standard, which also decreased costs. For example, their developer charged $3,500 for a full basement, which the other developers that the couple spoke to priced at $7,000 to $10,000. "At the end of the day we were saving about $15,000," says Will.

Building has become a popular option for homeownership. More than 1.7 million single-family homes were built in 2005, totaling $51 billion in sales. If you choose to build, the most important factor is finding the right builder. Local homer builders' associations can help you identify builders in your area. Research their reputation and previous projects, and make certain they are insured and have the appropriate licenses and permits. You can also contact the Better Business Bureau to check their building record.

Still, Americans traditionally buy pre-existing homes. In 2005, sales surpassed $1 trillion for the 6.2 million existing single-family homes sold, according to the National Association of Realtors. With the attractiveness of constructing a new home and the familiarity of shopping for an existing one, the question remains: which is better, building or buying?

Although the decision is predominantly subjective, dependent primarily on personal tastes and needs, there are pros and cons to each option. Keep the following criteria in mind when assessing which choice works best for you:

* Purchase price. Buying a home is the single largest investment most Americans make. Pre-existing homes fare better in this category, with a 2005 national median purchase price of $219,000 versus $240,900 for newly built homes. However, a changing market is opening up options for all buyers. Stephen Melman, director of economic services for the National Association of Home Builders, says the housing slowdown will ultimately result in a more balanced market, and that the increasing inventory in some markets has shifted the strong seller's market of recent years to a market more in favor of the buyer.

* Negotiating room. The advantage here goes to buying. Individual sellers are typically more flexible than a builder. "Opportunities for negotiating are limitless," says Tom Stevens, president of the National Association of Realtors. "You can certainly get more value now than six months to a year ago." Stevens highlights that buyers can negotiate items such as new carpets or appliances. Most importantly, buyers can negotiate asking prices or to have sellers pay dosing costs and/or homeowner association fees for a period of time.

* Financing options. This is a much simpler process for preexisting homes, which have the benefit of traditional financing: fixed- or adjustable-rate mortgages with 15-, 30-, or 40-year terms. If you choose to build a custom home, you have two primary financing options. You can find a lender for a construction loan--a short-term loan, usually less than 12 months--and then convert to a mortgage once the home is completed or choose a construction-to-permanent loan, which combines the steps. Builders may have their own financing available for an added premium.

* Energy efficiency. New homes win here. They are generally built with energy efficiency in mind, including better insulation and energy-conserving appliances. These selling points can save up to 30% on annual utility bills. Existing homes, however, usually do not have the benefit of new technology and frequently have higher utility bills.

* Maintenance and safety. Maintenance can be a large financial drain and a huge stress to homeowners. In this area, you can't beat a newly constructed home. New homes typically have the upper hand because they are not only in excellent condition but also commonly come with first-year homeowner's insurance/warranty. In addition, these homes are built to comply with newer, stricter safety requirements than older homes, including improved resistance to fires and earthquakes.

* Time. Time is a large factor in the decision to build or buy, and if you do not have time, building may not be for you. It takes 30 to 60 days on average to close on a pre-existing home once selected. By comparison, construction on a home takes from three months to more than a year. When the Alston's began their building experience in February 2005, they were originally told construction would begin in March. But as the months came and went, the two became anxious--the lease on their townhouse was due to expire and their home was not yet complete.

* Customization. The ability to create a customized home has proven to have formidable appeal. It's infinitely easier to have a house meet your exacting specifications if you build it from the ground up. But you have to account for costs as well. You may be able to fine-tune an existing home for less than the price of building.

* Character and landscaping. Despite the advantages of customization, new homes will never be able to duplicate the character of existing homes. In addition to having unique architectural details, older structures are often constructed better and possess higher quality features such as solid doors and cinderblock foundations, Stevens says. Mature landscaping is also a bonus; buyers Hill not have to wait 20 years for their trees to grow large enough to provide shade and privacy.

* Amenities. Pre-existing homes have the benefits of established neighborhoods, including schools, shopping, and entertainment--all within reach. In the beginning phases of subdivision construction, burgeoning neighborhoods may have resources that are limited or inconveniently located.

For Joyce McGhee, buying an existing home was the best option. McGhee, an elementary school teacher, purchased her second home last June for $148,000, with 100% financing at a 7.3% fixed rate for 30 years.

McGhee, 48, who moved to Georgia in 2005 for a change in climate, decided to invest in homeownership again after a year of renting. The 23-year-old, three-bedroom home with hardwood floors and spacious rooms was exactly what she wanted. "I was lucky, I found the one that was up to my satisfaction," says McGhee.

Location was one of the deciding factors for McGhee, who wanted a home close to work but without the noise and congestion of city life that she had experienced in Boston. Her new neighborhood has the convenience of a suburb but the atmosphere of the country, and gives McGhee exactly what she desires: peace.

The major impediment during McGhee's home search was that many of the houses were in need of renovation. "Practically every home shown to me wasn't in move-in condition," she says. "They needed repairs, and I would have had to do some upgrades."

Still, McGhee wasn't interested in a new home because they don't have the "wisdom" of age, and an owner would have to wait for the foundation to settle and cracks to appear to know if there were problems. "At least with it being established, I knew it wouldn't fall apart in 10 to 15 years," says McGhee, who is thrilled with the quality of her home. "Older homes are better to me in the long run. They are sturdier, well-built."

Whichever option you decide, make sure you understand what you are getting into. Know your budget and the difference between necessities and wants, and rank items in the order of importance to get the most out of your budget. To protect your investment, insurance is absolutely necessary and, in many cases, required by the mortgage lender.

Then there's the matter of inspections. "There are no national or state requirements to have a home inspection performed prior to a building purchase or during a real estate transaction," says Joe Corsetto, president of the American Society of Home Inspectors. But an inspection can be beneficial when purchasing an older home because it "provides an evaluation of the condition, operation, or serviceability of significant building components that can have an affect on the building's value and even its habitability."

A home buyer will typically have an inspection performed on new construction also, says Corsetto. "It is becoming more popular for buyers to hire a home inspector to evaluate the installed systems to generate a 'punch-list' of repair items before move-in," he says. "This inspection is intended to minimize consumer surprises after closing."

There really is no clear-cut winner in the battle of new versus pre-owned. If you're looking to move into your home quickly, want to pay less up front, and have a full range of financing options, purchasing an existing home is for you. But if you're looking to save money on energy bills, have lower maintenance costs, and have input in the design of your home, then nothing beats new.

--Additional reporting by Stephanie Young 

THE RACE TO HOMEOWNERSHIP

A look at how home prices fared in B.E.'s Top Cities for
African Americans

                       BUY *            BUILD **

ATLANTA, GA          $167,200           $182,100
WASHINGTON, DC       $425,800           $463,700
DALLAS, TX           $147,600           $160,700
NASHVILLE, TN        $161,800           $176,200
HOUSTON, TX          $143,000           $155,700
CHARLOTTE, NC        $180,900           $197,000
BIRMINGHAM, AL       $157,000           $171,000
MEMPHIS, TN          $141,200           $153,800
COLUMBUS, OH         $152,000           $195,800
BALTIMORE, MD        $265,300           $288,900

* 2005 MEDIAN SINGLE-FAMILY HOME PRICES ACCORDING
TO THE NATIONAL ASSOCIATION OF REALTORS

** ESTIMATE BASED ON REGIONAL PERCENTAGE DIFFERENCES BETWEEN
MEDIAN PRICES OF NEW AND EXISTING SINGLE-FAMILY HOMES

Note: Table made from bar graph.

REGION BY REGION

The median price of newly built homes is 10% higher than
that of existing homes across the U.S. However, that percentage
Varies when broken down regionally.

MIDWEST      28.8%
WEST         -2.2%
NORTHEAST    22.0%
SOUTH         8.9%

SOURCE: U.S. CENSUS BUREAU; NATIONAL
ASSOCIATION OF REALTORS