Buying A New Construction Home: What To Know
January 29, 2024 8-minute read
Author: Sam Hawrylack
Buying a new construction home can be one of the largest investments you make in your lifetime. With the ability to choose your home’s features, layout and design, you can create the perfect home for you and your family.
While buying a new construction home is worth the effort for many people, there’s a lot to learn before getting started – from the types of new construction available to your financing options. Here’s what you should know before buying a new construction home.
What Is A New Construction Home?
A new construction home is a home the buyer is the first to live in, but that can happen in a few different ways. You may buy a home designed and built by a builder who builds an entire development, or you may do all the work, hiring all contractors and subcontractors to build your home from the blueprints you helped create.
Before buying a new construction home, think about your goals for the home, the desired layout, important features and the cost of building a new home.
If you're buying a completed new construction home, you'll want to make sure you make a competitive offer, since brand-new, move-in ready houses are often popular among home buyers.
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New Build Customization Options
Part of knowing how to buy a new construction home is understanding the customization options. In some cases, you choose every little detail of the home, and in other cases, you only have a say on a few features or designs.
Here are the different options:
- Custom home: In a full custom home, you have a say in every detail of the house. Sometimes it may feel like too much detail or too many decisions. Prepare to plan even the smallest details, like the type of light switches or the direction the electrical sockets face.
- Semi-custom home: In a semi-custom home, some of the structures and features are set, but you can customize important features and areas to your liking. This is common with cookie-cutter homes. The builder has a distinct structure and style, but you can choose items like the countertops, floors and lighting, for example.
- Spec home: A spec home is built for you and sold as-is. If you want to make any changes to it, you’ll do so after you own the home, and it’ll be on your dime. Spec homes usually happen because a buyer who customized the house backs out or someone buys the model home for the builder.
How To Buy A New Construction Home
If you’re in the market, it’s important to know how the new construction home buying process works. From start to finish, you’re in charge of the project but should have the support of several professionals walking you through the process.
1. Find Mortgage Financing
Before making an offer on a new construction home, you’ll likely need mortgage financing. Rocket Mortgage® doesn’t offer construction loans. Unless you can pay cash for the home, you’ll need a bank to fund the transaction.
When you know how much you can afford to borrow, you’ll know how much home you can afford – so how do you find mortgage financing? Here are the important steps:
- Choose a mortgage lender. You’ll want a mortgage lender who will walk you through the process, give you loan options and help you choose the one that suits your financial needs.
- Get a mortgage approval. A mortgage approval is worth its weight in gold. An approval tells you how much of a loan a lender will give you if you meet their conditions. Think of it as the first step to buying your home. Without an approval, you don’t know what you can afford and may bite off more than you can chew, putting yourself in a financial bind.
- Save for a down payment. Your mortgage approval should tell you how much money you must put down on the home. Your down payment should be in a liquid account that you can access easily when it’s time to close on the home.
- Decide if you need a construction loan. Construction loans help you finance the building of the house but aren’t a permanent mortgage. If you’re building a fully custom home, you’ll need a construction loan to cover the materials and labor to build the home before you can occupy it.
- Estimate your closing costs. Closing costs are in addition to your down payment, so make sure you have enough money to cover the entire transaction. Getting a solid estimate before you look at homes will help you understand where you stand financially.
2. Hire A Real Estate Agent
If you're buying a new construction home, you may feel like you can buy without a REALTOR®, but you shouldn’t. When you hire a real estate agent, that agent represents you. The agent working for the builder represents the builder and may not always have your best interests in mind.
You’ll want a real estate agent who will watch out for your needs and ensure you’re getting the best possible deal. While you won’t use a real estate agent the traditional way to build your house, you’ll need their expertise when talking with the builder and contractors.
The right real estate agent can also counsel you on upgrades and even certain designs. Agents have an eye for detail, and they know value. They can quickly tell you if an upgrade is worth it or if you should skip it because it won’t increase the home’s value.
As you would for any service, shop around for a real estate agent. It’s best to interview at least three agents and see which one you believe is the best match. Don’t be afraid to ask tough questions and gauge the agent’s experience in new construction.
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3. Choose A Location
Buying a new construction home is about more than the home. You should carefully evaluate the area, too. When you’re deciding where to live, look at different neighborhoods. Evaluate important factors such as the crime rate, schools, accessibility and the distance to your favorite and necessary amenities.
If you work with a reputable real estate agent, you can ask about potential future developments in the area or any news/issues the agent knows about the area. The more you know about the demographics, zoning and crime rates, the better decision you can make for you and your family.
4. Research Home Construction Companies
Rather than choosing just anyone to build your home, do your research. Look at builders and construction companies in the area and nationally. Use the internet to your advantage, read online reviews and check a builder’s ratings with the Better Business Bureau.
It’s best to stick with local home builders if you can, for a variety of reasons:
- They can usually start the job sooner.
- They may have closer relationships with local suppliers and vendors.
- They know the local talent in the area when they need to hire subcontractors.
- They could be easier to get in contact with after the house is built if problems arise.
No matter which route you decide to go, it’s always a good idea to get two or three quotes. Look at the quotes side by side, comparing services, costs and timelines.
5. Design Your New Home
Once you have financing, choose your builder and have proper representation, it’s time to design your new home. This is why it’s important to choose companies you can build a good rapport with, as this step is important and costly.
Before you design your new home, you must decide what type of custom home you’re interested in – fully custom or semi-custom. If you choose a spec home, you’re stuck with the home’s current design until you own it and can make changes.
When designing your new home, you’ll work with the builder and their subcontractors and designers. When choosing your builder, ask detailed questions about the design process so you know what to expect.
If you have specific designs or features in mind, ask about them before choosing a builder/designer to make sure it’s something they can do.
6. Get A Home Inspection
Even though builders follow specific inspections while building the home, it’s best to hire an independent inspector. The inspection ensures everything is completed up to code and that the home has a good structure.
Even though no one has lived in the home yet, the inspector may find areas where the builder cut corners or missed something that needs fixing before you move in. Once you take possession of the house, the problems are on your shoulders. It’s to your benefit to get a professional inspection on your dime before you close. This will ensure everything is in good shape.
The Pros And Cons Of Buying New Construction
Real estate, in general, is usually a good investment. Real estate often appreciates, and you can help its value by fixing it up through the years.
A new construction home can be a solid investment because of its new age. With no one living in it yet, the value may appreciate faster than a home with multiple owners through the years. But like any investment, a new construction home has pros and cons.
Pros Of New Construction Homes
It’s hard not to think of all the advantages that come with building a new home. You’re essentially the designer, but there are plenty of other advantages as well:
- You can build your dream home exactly how you want it from the start.
- New homes usually require much less maintenance.
- New homes usually don’t have surprise expenses that make homeownership unaffordable.
- Most builders use the latest technology, making your home more energy-efficient and accessible.
- You can choose where to build your property – you aren’t stuck with a cookie-cutter neighborhood.
- Many new construction homes come with a builder’s warranty.
Cons Of New Construction Homes
Before calling a contractor, make sure you understand the disadvantages that come with building a new home:
- Building your home can be much more expensive than buying an existing home.
- Not all builders are created equal – and you could end up with a bad one.
- There’s less room to negotiate the deal.
- The area could take a long time to mature, especially the grass and trees.
- If you buy a semi-custom home, the homes nearby may all look the same.
Making An Offer On A New Construction Home
Making an offer on any home is difficult, but it’s even harder when buying a new construction home. Since there’s less room for negotiation, you could feel stuck at a price higher than you wish to pay.
Knowing how to make an offer on a new construction home is important. Here are a few tips:
- Use a real estate agent to help you navigate the process.
- Ask about upgrades or discounts the builder can include.
- Ask if a home warranty is included and, if not, how much it would cost.
- Ask the builder about the guarantee they provide.
- Know the average cost of the new construction homes in the area.
Who Pays The Real Estate Agent?
The biggest advantage of using a real estate agent when buying a new construction home is you don’t pay for their services – the builder pays. Builders pay the real estate agent commission as a part of their regular costs of building homes.
Builders look at real estate agents as sales agents for them. Even though the agent represents you, the builder may have fewer clients if agents didn’t bring them business. The real estate agent represents your interests and negotiates on your behalf, but the builder covers their costs.
Other Costs To Factor Into Your Budget
When building a brand-new home, you’ll have other expenses to consider. Factor these into your budget to ensure you’re prepared:
The Bottom Line
Buying a new construction home can be one of the most exciting purchases you will ever make. The ability to customize a home exactly how you want or at least choose some of the customizations makes homeownership even more special.
If you’re thinking about building a new home, now is the perfect time. Start your mortgage application today with Rocket Mortgage and soon enough maybe you’ll be in your own custom home, too.
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