How to Buy a New Construction Home in 9 Steps

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Contributor, Benzinga
October 10, 2023

Deciding how to buy a new construction home might be easier than you think when you have the proper tips and tools in your toolbox. A newly constructed home offers advantages that can prove useful if you prefer a higher level of creative freedom while building your home. Take the process one step at a time and research the possible opportunities at your fingertips when it comes to selecting a newly built home.

What Is a New Construction Home?

Buying a new construction home means that you will likely be the first person to live in the home. The term can apply to apartment units, townhouses and single-family homes.

3 Options for Newly Built Homes

Selecting a newly built home emphasizes personal choice and allows you to enjoy more flexibility. Newly built homes can be a custom order, a semi-custom order or a spec home. These opportunities can appeal to a range of potential homebuyers from various backgrounds and budgets.

  • Custom home: A custom home is designed by a homebuilder or architect for a specific client. A wide range of details may be selected to fit both budget and taste. Custom homes tend to have a higher price point when compared to previously constructed homes.
  • Semi-custom home: A semi-custom home allows you to select from a variety of already available house styles and floor plans. Semi-custom homes or tract homes allow you to turn your house into a home with less time and energy when compared to designing a custom home.
  • Spec home: A spec home is a type of home that is usually available for sale. Spec homes or speculation homes are built by a developer under the assumption that they will sell to a homebuyer. In general, a homebuyer does not select the details or floor plan.

9 Steps to Buy a New Construction Home

Buying a new construction home might feel overwhelming, but having the right information and team at your disposal can build your confidence. When exploring new construction opportunities, focus on finding favorable mortgage rates. Take your time planning out your budgeting and putting together your real estate and lending team.

1. Find Mortgage Financing

Prior to exploring construction companies, know your budget and have a general understanding of your homebuying needs. Shop around for the ideal lender and explore loan opportunities such as a construction loan or a one-time close loan. Consider making a larger down payment or reaching out for down payment assistance to more easily attain a new home at your price point.

2. Hire a Real Estate Agent

Hire a reputable Real Estate Agent. Speak with family and friends who recently bought or sold property to see if they recommend any agents within the area. When researching agents, review their sales records, social media handles and website details.

3. Choose the Perfect Location

Location remains a top consideration when deciding to buy a new construction home. Select a location that works for your budget as well as your intended lifestyle. Choosing a smaller new home in the city might fit your needs better than a sprawling new house in the suburbs.

4. Research Home Construction Companies

When reviewing home construction companies, consider asking the builders association in your area for a list of companies. One of the best ways to compare companies is to meet in person to ask a list of prepared questions regarding the intended price point for your construction as well as the company’s previous history. 

5. Negotiate and Review Your Options

Negotiation can place you in a more favorable position. It’s possible to negotiate better warranties, upgrades and fees such as closing costs. Work with a team of real estate and financial professionals to navigate your local market. Review your options by comparing expected price points as well as the reputations of various construction companies. When possible, place an emphasis on reputation. Avoid selecting a construction company or newly built home based on price point alone.

6. Design Your New Home

When designing your new home, keep in mind the various types of new construction ranging from a custom house to a semi-custom house or a spec house. The tradeoffs between the three options will likely come down to a combination of factors such as personal preference and time.

7. Schedule a Home Inspection

A home inspection offers a second set of eyes and looks for construction errors within key areas of the house such as the roof and foundation. According to the U.S. Bureau of Labor Statistics, construction and building inspectors review building codes and zoning requirements when analyzing new construction. If possible, hire a home inspector yourself instead of using one recommended by the builder or architect. 

8. Sign and Review the Warranty Documents

Work with professionals to review and ultimately sign the warranty documents. A warranty offers coverage for the caliber of workmanship and defects. In many states, warranties are mandatory. Read the document to understand what will likely be covered in the event of a defect.  

9. Have the Final Walkthrough

A final walkthrough offers you one last opportunity to look over the house. You are usually able to walk through the house with your real estate agent. Be sure to set aside a generous amount of time in your day for the walkthrough to avoid feeling rushed.

Tips on Making an Offer on a New Construction Home

When making an offer on a new construction home, it’s important to have a dependable team of professionals. Select a top lender with the experience to get you the funding needed to attain your new home. When it comes to new homes, knowledge is power, so take your time researching builders.

Select an Agent with New Construction Experience

Pick a real estate agent with new construction experience. A capable agent can effectively negotiate in your favor and recognize potentially lacking warranties.

Research Builders and Their Previous Work

Before buying a new construction home, review builders by researching other homes they built. Consider visiting a few model homes and comparing at least three builders in your area to have a strong understanding of potential price points and quality.

Shop Around for the Best Mortgage

Compare different lenders to receive the best mortgage. Have a rough idea of your loan needs before speaking with lenders about loan opportunities. Lenders provide useful tools such as blog posts and mortgage calculators to empower borrowers.

Advantages of Buying a New Construction

The advantages of buying a new construction might sway you away from a prebuilt home. Benefits include minimal maintenance, improved energy efficiency and new home warranty coverage.

  • Minimal maintenance: Newer homes require less maintenance because large ticket items such as the roof and foundation are just at the start of their lifespan. As a house gets older, maintenance usually becomes more costly as larger maintenance issues unfold. 
  • Improved energy efficiency: Newer homes have better energy efficiency. For example, newer homes usually have superior heating and ventilation that can save you money on utilities. 
  • New home warranty coverage: New home warranty coverage helps to safeguard against unforeseen defects. Warranties offer practical protection as well as peace of mind. 

Limitations of Buying a New Construction 

Explore the limitations surrounding new construction prior to purchasing. Consider the potentially lengthy timeline when it comes to construction, the minimal negotiation power and the potentially higher property taxes. Compare limitations and advantages before buying new construction. 

  • Potentially waiting for construction to finish: Construction timelines are not perfect. Unforeseen circumstances can occur and push back a previously anticipated deadline. If you are on a strict schedule, then building a custom or semi-custom home might not be the best fit. 
  • Limited price point negotiation power: When it comes to price, you will likely have a limited amount of negotiating power. Instead, think about negotiating warranties, closing costs and upgrades. 
  • Possibly higher property taxes: Property taxes on a new construction home are usually more than the property taxes for a previously built home. Depending on where you live, property taxes can be paid annually.

Building a New Dream

Obtaining a new construction home might be easier than you think. Before buying a home, speak with real estate and financial professionals to ensure your expectations and budget goals are aligned. Review the types of new construction and decide if the advantages outweigh the limitations. When it comes to funding a new home, mortgage lenders can help make your dream come true.

Frequently Asked Questions

Q

Is it easier to buy a new construction home?

A

In terms of cost, new construction homes are usually more expensive compared to existing homes. The cost can create a barrier to entry when combined with housing market conditions.

Q

Can you buy a new construction home with an FHA loan?

A

Yes, it is possible to buy a newly constructed home with an FHA loan.

Q

Should you buy a new construction or an existing home?

A

Depending on your situation, a new construction or an existing home might prove beneficial. When comparing the two opportunities, consider the price point and the possible benefits and limitations associated with each type of property.

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