Buying a new construction home: What to know

Buying a new-construction home can be one of the largest investments of your life. 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 you buy – from the types of new construction available to your financing options. It can be different from buying an existing house, so 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, which can happen a few different ways. You may buy a home designed and built by a builder, 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 a competitive offer, since brand-new, move-in ready houses are often popular among home buyers.

New-build customization options

Part of knowing how to buy a new-construction home is understanding what type of new-construction home is right for you. 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 fully custom home, you pick the features of the house. Plan to decide the smallest of 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 certain features and areas. 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.

Spec home

A spec home is a new-construction home sold to you by the builder as is. If you want to make changes, you’ll do so after you own the home and at your own expense. 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 throughout the process.

1. Start the new-construction home loan process

Before making an offer on a new-construction home, you’ll likely need mortgage financing. Unless you can pay cash for the home, that means you’ll need a mortgage lender to fund the transaction.

You’ll want a mortgage lender who’ll walk you through the process, give you loan options and help you choose the one that suits your financial needs.

2. Hire a real estate agent

The agent working for the builder represents the builder and may not always have your best interests in mind. Instead, you’ll want a real estate agent who’ll 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.

3. Choose a location

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 real estate agent, you can ask about potential future developments in the area or any news/issues the agent knows about the area.

4. Research home construction companies

Rather than choosing just anyone to build your home, do your research.

It’s best to stick with local home builders if you can, for several reasons:

• They can usually start the job sooner.
• They may have closer relationships with local suppliers and vendors.
• They know local talent when they need to hire subcontractors.
• They could be easier to contact after the house is built if problems arise.

No matter which route you choose, it’s always a good idea to get two or three quotes. Also, look at the quotes side by side, comparing services, costs and timelines.

5. Design your new home

Before you design your new home, you must decide what type of custom home you’re interested in – fully custom or semi-custom.

When designing a fully custom or semi-custom 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 each builder/designer whether it’s something they can do.

6. Get a home inspection

Once you take possession of the house, any issues are your responsibility. It’s to your benefit to pay for a professional inspection before you close. This will ensure everything is in good shape. Even though no one has lived in the home, the inspector may find areas where the builder cut corners or missed something that needs fixing before you move in.

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 age. Its value may appreciate faster compared with an older home that’s had multiple owners. 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, so you can build your dream home exactly how you want it from the start. But there are plenty of other advantages as well:

• Greater customization: Besides building your dream home to your specifications, you may also be able to choose where to build your property – a cookie-cutter neighborhood may be only one option.
• Lower maintenance costs: New homes usually require much less maintenance. Also, they usually don’t have surprise expenses that make homeownership unaffordable. If there are problems, many new-construction homes come with a builder’s warranty.
• More energy-efficient: Most builders use the latest technology, making your home more energy-efficient and accessible. You may even be able to request more energy-efficient appliances or add solar panels to your home.

Cons of new-construction homes

Before calling a contractor, make sure you understand the disadvantages that come with building a new home:

• Higher initial costs: While a new home may save money in the long run, building your home can be much more expensive upfront compared with buying an existing home.
• Less certainty: Even when you do your due diligence, not all builders are created equal – and you could end up with one that doesn’t meet expectations. If there are a limited number of builders in your area, there’s less room to negotiate the deal.
• Longer wait time: If you’re building a custom home, you’ll need to wait until construction is completed before you can move in. After that, the character and landscaping of the area could take a long time to mature, especially the grass and trees.

What costs do you need to consider with a new-build home?

When building a brand-new home, you’ll have other expenses to consider. Factor these into your budget to ensure you’re prepared:

• Building costs: Building a home with extra customizations and amenities can lead to extra costs. You may also need to pay a reserve fee for unexpected costs or problems.
• Moving in costs: When building a new home, you’ll need to consider costs for new furnishings and decorations to match your new home. You may also need to invest more in landscaping expenses and moving fees if your home is off the beaten path or harder for movers to access.
• Ongoing costs: Some costs may also stay with you for the life of your new home, including homeowners association fees and homeowners insurance.

New-construction home buying process FAQs

Looking to buy a new-construction home? Here are answers to some common questions.

Do I need a construction loan?

If you’re building a fully custom home, you’ll need to cover building materials and labor costs with a construction loan. Please note, Rocket Mortgage^® doesn’t offer construction loans.

What size down payment do I need for a new-construction home?

Down payments for new-construction homes tend to be on the high end, so expect to pay at least 20%, although you may be able to put as little as 3.5% down with a Federal Housing Administration (FHA) construction loan. Either way, your mortgage approval should tell you how much money you must put down on the home.

Who pays my real estate agent when I buy a new-construction home?

The builder includes your real estate agent’s commission in their regular building costs. So, although the builder covers these costs, your real estate agent represents your best interests and negotiates for you.

How do I make an offer on a new-construction home?

If you’re planning to buy a new-construction home, like a spec home directly from a builder, knowing how to make an offer is important. In most cases, your agent can write up the offer before sending it to the builder.

You can additionally use this opportunity to ask about which upgrades, incentives or discounts the builder offers. It’s also a good idea to ask if a home warranty or other guarantee is included and if not, how much it would cost to add one.

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 can make 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 you may be in your own custom home, too.