What To Know Before Buying A New Construction Home
Sam Hawrylack8-minute read
May 20, 2022
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 it sounds amazing and easy, there’s a lot that goes on behind the scenes. Here’s what you must know before building a brand-new home.
What Is A New Construction Home?
A new construction home is a home the buyer is the first to live in, but it can come about 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 who 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.
Part of knowing how to buy a new construction home means understanding the different customization options. In some cases, you choose every little detail of the home, and in others, 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 in the house. Sometimes it may feel like too much detail or too many decisions. Prepare yourself to plan even the smallest details, like the type of light switches or which way the electrical sockets face.
- Semi-Custom Home: In a semi-custom home, some of the structure and features are set, but you can customize important features and areas to make it your own. This is common with cookie-cutter homes. The builder has a distinct structure and style, but you can choose things like the countertops, floors and lighting, as a few examples.
- 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 thinking of buying a new construction home, it’s important to know how the 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 need mortgage financing. Rocket Mortgage® does not offer construction loans. Unless you can pay cash for the home, you’ll need a bank to fund the transaction for you. While it seems backward to get the financing before you find a home, it sets the stage for you.
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 want a 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 preapproval. A mortgage preapproval is worth its weight in gold. A preapproval tells you how much loan a lender will give you if you meet their conditions. Think of it as the first step to buying your home. Without a preapproval, 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 preapproval 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 real estate agent, but you shouldn’t. When you hire a real estate agent, he/she represents you. The agent working for the builder represents the builder and likely doesn’t have your best interests in mind.
You want an 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 own 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.
Like any service, shop around for a real estate agent. Interview at least three agents and see which one you feel is the best match. Don’t be afraid to ask tough questions and to gauge the agent’s experience in new construction.
3. Choose A Location
Buying a new construction home is about more than the home. You should evaluate the area well too. When you buy a home, you invest in the neighborhood. Not only do you want a home that fits in well with the area (building a 4,000 square foot home in an area with 1,000 square foot homes won’t work), but you want it in a neighborhood that you fit in well with.
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
Before you choose 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 builders if you can for a variety of reasons:
- They can start the job sooner.
- They may have relationships with local suppliers and vendors.
- They know the local talent in the area when they need to hire subcontractors.
- They will be around after the house is built if there are problems.
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 are 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 yourself.
When designing your new home, you’ll work with the builder and his/her subcontractors and designers. When you’re 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’re capable of doing.
6. Have An Inspection Completed
Even though builders undergo specific inspections while building the home, you should hire an independent inspector yourself. The inspection ensures everything was completed up to code and that the home has a good structure.
Even though no one lived in the home yet, the inspector may find areas where the builder cut corners or missed something that needs fixing before moving 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 to ensure everything is in good shape.
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Should You Buy A New Construction Home?
Buying a new construction home isn’t for everyone. A fully custom home is expensive and requires a lot of work. A semi-custom home is usually more affordable and less work for the buyer, but they both have their pros and cons.
So, should you buy a new construction home?
Is Buying A New Construction Home A Good Investment?
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 good 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 its pros and cons.
- You can build your dream home exactly how you want it right from the start.
- New homes usually require much less maintenance.
- New homes usually don’t have surprise expenses making 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.
- Building your own home can be much more expensive than buying an existing home.
- Not all builders are created equal – 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 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 wanted to pay.
Knowing how to make an offer on a new construction home is important.
- 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 best thing about 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 his/her costs.
Other Costs To Factor Into Your Budget
When you build a brand-new home, you’ll have other expenses to consider. Factor these expenses into your budget to ensure you are prepared:
- Extra customizations and amenities
- Reserve fee for unexpected costs or problems
- HOA fees
- Homeowner’s insurance
- Furnishings and decorations
- Moving fees
The Bottom Line
Buying a new construction home can be one of the most exciting purchases you make. The ability to customize a home exactly how you want or at least choose some of the customizations to make it your own makes homeownership even more special.
If you’re thinking about building a new home, today is the perfect time. Get started today on the home buying process, and soon enough, you’ll be in your own custom home too.
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