In general, a new-construction home means a home has just been built and has had no other owners. This can include homes that are commissioned as a custom build, as well as homes constructed by builder/developers at their discretion and then sold for the first time.
As a first-time homebuyer, a new-construction home brings appealing options, such as a low-maintenance home with high-quality, contemporary design, perhaps on land you chose yourself. However, the process of buying new-construction homes from builders is a bit different from the typical homeowner-to-homeowner transaction. Knowing the differences helps you prioritize what you care about most in a first-home purchase, especially if you anticipate having different housing needs within a few years.
- First-time homebuyers may choose a new-construction home because they want a low-maintenance lifestyle or a chance to customize.
- First-time homebuyers should be prepared for a new-construction home to be more expensive than resale homes in the area and for the loan closing to take longer.
- With a new-construction home, make sure you don't skip the home inspection to ensure the developer delivers what they promised.
What Is a New-Construction Home?
A new-construction home is a home that was just built and has not been owned or lived in by anyone else. These homes are sold in various ways, from being completely custom-designed on land you purchased separately to being built as part of a developer's entire neighborhood, then sold as individual parcels to each homeowner.
In a new-construction sale, you'll generally work with a builder's sales team or another developer representative. Keep in mind that you also can engage an experienced real estate agent to represent you in a new-construction purchase, even if that isn't required.
To buy new construction, you'll usually need to find financing and work with your lender to get the property appraised, and thoroughly review the contracts for purchase, so you understand what you're getting for your money.
However, unlike preexisting homes, your home may still be under construction, so you also can have the opportunity to customize or make some design decisions as part of the purchase process. Additionally, when the home is finished, you'll have the opportunity to bring a home inspector to the property before closing to ensure that the property meets the standards of sturdy and safe home construction.
Pros and Cons of New-Construction Homes
Often won't need major repairs for years
Customization options may be possible
Insight into the coming neighborhood
Sometimes carry a price premium
Possibility of problems with materials and methods
Not having an agent may put you at a disadvantage
- Often won't need major repairs for years: Low maintenance is one of the major attractions of new construction. Because many systems within a house can last for years without major repair or replacement, you may find yourself with very low maintenance costs for more than a decade, especially if your builder offers a warranty on different systems.
- Customization options may be possible: Builders selling homes that aren't yet complete may offer you a choice of countertop materials or a few standard floor plans. These options can help buyers get their ideal layout or materials into the home they are buying.
- Insight into the coming neighborhood: If a developer plans to build many homes in the same area, you may benefit from community amenities such as water features or walking paths. The developer can share these with you during the sales process.
- Sometimes carry a price premium: New homes are more expensive in many markets than older homes. You may pay substantially more for a new-build home than, say, a similar home that is a few years old.
- Possibility of problems with materials and methods: Some builders may cut corners or miss deadlines. Finding builders who focus on quality can require local referrals and reading of reviews. If concerns come up, addressing them head-on with the developer is prudent before moving forward.
- Not having an agent may put you at a disadvantage: Not having a buyer's agent when purchasing directly from a developer could allow first-time homebuyers to overpay, not thoroughly inspect the new home, or default to the preferred builder's lender rather than shopping around.
How To Shop for a Newly Constructed Home
If you're shopping based on model homes, you'll need to keep a few things in mind that a person shopping for an existing home wouldn't have to consider. However, in general, the same careful eye will benefit you in either case.
Clarify the Price You Pay vs. the Price Advertised
If your new-construction home is built and you can tour it, many aspects of the sale process will resemble an existing-home purchase, despite buying from a developer.
If you need to buy a home that isn't complete, you may be making decisions based on what you see in a model home. If so, you'll need to understand what elements come standard vs. which ones are upgrades.
"One of the most vital things that first-time buyers need to be aware of when purchasing new construction is that the advertised price is not what you will end up paying. With new construction, many of the amenities you see in a model or spec home are extras that you will need to pay for," Bill Gassett, real estate agent at RE/MAX Executive Realty, told The Balance via email.
"New construction almost always comes with a heftier price tag, not only from the upgrades that will add up but in general as well. Buyers need to recognize going in that they will likely be paying more for all the things they really want," Gassett said.
This means getting clear estimates on what your own build will cost, rather than referring to a base model that doesn't include upgrades or may have more than you need. Beyond this part of the process, try to talk to owners of homes by this developer as well as seek out a sense of the developer's reputation.
Define Your Purchasing Timeline
Be aware that even if you like a currently available home in a builder's community, it could go under contract before you can purchase it. At that point, you'll need to decide how long you can wait for a property to be finished.
Another way to think about this step is to start looking into new construction as early as possible to ensure there is or will be inventory available when you'd like to move.
Gain an Understanding of the Developer's Vision
Developers have a vision of whether they want to build sprawling, large homes on ample acreage in a small community or perhaps a walkable community of affordable "starter homes" on small, easily maintained lots.
While you may be able to assess based on existing homes, talk to people in the community to get an idea of the neighborhood you're moving into. Developers may have a vision, but they also have commercial interests and aren't living in the community. Existing or nearby residents will be able to tell you more about what the neighborhood culture is really like, both positives and negatives. Consider attending community board meetings and exploring online neighborhood groups for some perspective.
Conduct a New-Construction Home Inspection
On its surface, you might expect that a newly built home would not need a home inspection because it hasn't had time for aging to set in, but shoddy workmanship is occasionally possible.
One of the ways that builders ensure you accept the state of a new-construction home is a walk-through before closing. But be aware that the closer this occurs to closing, the more pressure you may feel to finalize the deal, even if you have concerns.
When you hire a home inspector for your new-construction home, try to find an experienced one. Also, make sure there is a way for them to see the home thoroughly once construction is complete, although you might ask for the opportunity to inspect mid-construction as well.
Your home inspector will have an eye for any issues with new homes, but there are some basic items to cover when you are doing your walk-through:
- Open all windows, doors, and cabinets to check the fit.
- Make sure there aren't cracks or missing weatherstrips.
- Look for missing spots in the paint and other finishes.
- Check that faucets and appliances are working.
- Look for the landscape around the house to slope away from the foundation.
- If any special requests or upgrades were promised, make sure that they are present.
These are all things you can add to a list of requested repairs or modifications before closing, as they are part of the price you're paying. It's worth your time and diligence to get these fixes made without charge before moving in.
How To Finance New Construction
While many aspects of the construction loan process will be similar to an existing home's mortgage application, one of the big differences is that many developers of new-construction homes will have a preferred lender with whom they work. You don't have to choose them, but there may be valuable incentives for doing so.
For instance, using a preferred lender may trigger a developer incentive such as an upgrade to the home, or the lender may be easier to work with if there are construction delays because they may offer you a longer interest-rate lock.
One of the easiest ways to find financing for new construction is to check with your bank. It might have loan programs or assistance for first-time buyers or new homes that can lower down payment requirements or help you find better rates.
You could also look through other types of assistance for home loans:
- Down payment assistance programs
- Federal housing category-specific loan programs
- State first-time homebuyer programs
- Lenders with construction-specific loans
- Federal Housing Administration loans
You should also be aware that there may be delays in securing your mortgage because the home you're buying may not be finished on the expected date. Additionally, you'll need to make sure you time your current living situation correctly.
"Buyers need to understand that closing dates are less firm when compared to resale homes," Gassett said. "Your closing date can easily get extended, and often does. First-timers need to be truly cognizant of this when planning the termination of their living arrangements when renting."
Should Your First Home Be Brand-New?
As the home buying process is very personal, you might appreciate builder incentives that allow you to have custom upgrades instead of renovating an older home. You also might prefer a low-maintenance lifestyle and some protection from major repairs.
However, assessing both new-construction homes and ones that are only a few years old will give you the most well-rounded options.
Frequently Asked Questions (FAQs)
What credit score do you need to build a new house?
Credit scores for a new construction home loan are much like those for a loan on a preexisting home. In general, you'll need above a 500 to qualify for an FHA construction loan; but the better your score, the better your terms, rates, and options will be.
How hard is it to get a loan to build a house?
The difficulty in securing a loan for a new construction home depends upon your income and debt levels, the estimated price of the house and lot, your credit score, and the lender you choose. The difficulty could range from very easy to very hard.
How much money do you need to build a house?
It can take a substantial amount of money to build a house depending on your financial situation and circumstances. It's best to talk with a lender or financial advisor to find out how much home you can afford to have built.