How to Buy a New Construction Home

by | Mar 29, 2021 | Buying

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Many people have turned to buying a new construction home to get exactly what they want. The demand for new construction homes has dramatically increased in recent years. And they’ve become an easy alternative for home buyers that want to buy a new home without the stressful negotiation of a traditional or pre-built home purchase. In some sellers markets, buying a newly constructed home can be a great alternative to ever decreasing inventory or buyer competition for pre-existing homes. 

What is a new construction home?

A new construction home is a house where the buyer is the first person to live there. But it can happen in a number of ways. A buyer may purchase their own plot of land and contract with everyone needed to build a custom home, including an architect and builder. On the opposite end, the buyer may purchase a completely built home and the property it’s on from a developer. The home buying process for a new construction home can fall somewhere in between. 

A buyer might purchase empty land from a developer and then choose from a variety of home design options. And then a builder will build the home. And sometimes builders will sell a new construction home before it’s completed. As the buyer, you might be able to walk through a model home. And this will give you a feel for the building process and see what your house would look like.

Types of new construction homes

  • Pre-designed homes – You can find any type of pre-designed home (i.e. a condo, townhouse, or traditional home). These homes are typically built as a part of a greater development, so all of the houses in the neighborhood will be similar. You’ll often have the option to customize the finishings in your home. Some of this will be done when you move in. 
  • Custom homes – These homes are much more detail oriented. Everything in the house, from floor-plan to furnishings, is designed with you in mind. This could help you have your dream home, but it will sometimes be very expensive.

Construction timing

Besides cost, another factor to consider when choosing to buy a house – and whether to go with new construction at all – is timing. The timeline for building a home can be unpredictable, due to weather, vendor delays, and waiting for things like permit approvals. 

Generally, the further along the home is in the building process when you purchase it, the faster the process should go. On average, building a home can take from 3 to 7 months, depending on size. But it’s not uncommon for it to take a year or more, if any delays happen along the way.

New construction homes are increasingly popular in urban areas, especially in growing seller’s markets. Builders aren’t always able to keep up with demand

If you’re considering buying a new construction home, choose the best option that fits with your current living situation. And if it’s flexible enough to allow for an unpredictable lead time, building from the ground up as a custom home might be for you. But if not, something pre-designed might be your best option.

The right lender

A fraction or two of a percentage point can save you thousands and thousands of dollars per year.  The most important part of the home buying process is to find the right team to work with. And the first teammate you should find should be a mortgage lender. 

When thinking about mortgages, most home builders will have a preferred mortgage lender. Many builders will want you to use their lender. While others will require you to at least be pre-approved by their lender. Almost all new construction builders will offer incentives to use their preferred lender. This will include concessions at closing, free upgrades, lower interest rates, or even better appliances.

There’s a lot that goes into choosing the right mortgage and the right lender. And that’s why it’s important to shop for the right lender early on. Buyers can minimize costs working with lenders like Gemtrago that don’t charge origination, application, or appraisal fees while still offering the lowest rates and highest level of service. And Signloc has some of the lowest title and escrow rates in the country. 

The right agent

If you hire a real estate agent to represent you with a new construction home purchase, you won’t end up paying any more for the home. That’s right. The builder will pay your buyer’s agent a 2-3% commission. If you don’t have an agent, the builder will simply keep this as profit. So we recommend hiring an agent. 

Finding a top local agent that’s experienced in negotiating with builders is going to be one of the most important things you do in the home buying process. You must ensure your agent is someone that will work well with you. Don’t be afraid of a transparent agent, because they’ll tell you the truth about your questionable housing choice. 

Develop a plan

What criteria are you looking for in your next home? Are you sold on buying a brand? Your real estate agent will be able to help you figure out the differences between your needs and wants. 

Do research on the builders you’re considering. It’s a good idea to google them, read reviews, check out the Better Business Bureau, figure out how long they’ve been in business, ask to see previous homes they’ve built. Without a good builder for whom you’ve exercised due diligence, you can’t have a good house.

It’s important to understand that looking at homes online versus in person is a completely different experience. For new construction, chances are the pictures you’re looking at are of a home that hasn’t even been built yet.

Additional considerations with buying a new construction home

  • Warranties – New construction homes often come with a warranty. While this isn’t required, most builders offer a one year mechanical warranty and a ten year structural warranty. The mechanical warranty is all-encompassing, covering things from a broken garage door remote to making sure appliances work. The structural warranty only covers the structural integrity of the house.
  • Earnest money –  Earnest money deposits are usually a higher percentage with new construction. In a previously-owned home, the deposit is around 1-2% of the sale, but in a new home the amount can be over 5%.
  • Weather concerns – If you’re living in a place like Denver, for example, that has regular, harsh hail storms, ask your builder about upgrading to high-impact shingles. You will be able to save on your home insurance with this upgrade.
  • Inspection – If your new home has a one year mechanical warranty, pay for a home inspection after ten months of living in the home. The cost of the inspection will be more than worth it, if you find a defect in the home you didn’t realize when you moved in, and your warranty will still cover it. 

Working with Trelora

Buying a new construction home can be incredibly exciting. Be prepared and  know what matters to you. If you’re looking for a new construction home, Trelora can help you. Our expert real estate agents have more knowledge and experience than 99% of the real estate agents in the country.

Mike is the Market Director for Colorado at TRELORA. He is personally responsible for closing over 600 successful real estate transactions and has played a role in closing hundreds more. He started at TRELORA in August of 2016 and began his real estate career in Jacksonville, FL in February of 2011. In his tenure at TRELORA he has been a Buy Manager, Buy Agent, Listing Agent, and Field Agent before accepting his current position as Market Director in January of 2021. Mike has a Bachelor of Science in Finance and a Master of Science in Entrepreneurship both from the University of Florida. Go Gators!

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