2024's Step-by-Step Guide to Buying a New Construction Home
Have you been cruising real estate listings online and been disappointed by what you find? It can be hard to settle on an older home when you have to settle for another person’s choices: floors, kitchen, carpets, bathrooms, and colors. Making a previously owned home feel like “yours” may feel daunting. You don’t have to settle for anything less than your dream home. You have options for buying a new construction home at every price point. There is truly something for everyone nowadays when building a new home.
We’ll break down the options and process for buying a new home, and you can determine if this is the right choice for you. At Felix, we help people find the right new construction home (or existing home) for their budget, lifestyle, and location. Read on to understand the home buying process when it comes to new construction homes.
What Are The Types Of New Construction Homes?
Your first step in the new construction home purchase process is deciding on the type of home that is right for you. The type of new construction will dictate your budget, timeline, and level of selections in constructing a new home. Here are the types of new construction homes.
A fully custom home is the most expensive option and the option that will provide the most customized house. You choose the land, the builder, and the architect. So while it can be a lot of work to assemble the perfect team, you will get a new construction home that truly fits your needs. If you want to pick every detail down to the doorknob, molding, and finish, this is the option to choose. If that sounds tedious, then a custom home may not be for you.
This amount of customization comes with a price. Building a custom home can cost $300- $500 per square foot in some markets. Build time usually ranges between 9 to 18 months.
Semi-custom homes are an excellent option for the person who can feel overwhelmed by making too many decisions but still wants a home that feels personalized. You typically will find a real estate development that you like and then meet with the builder who is building in this community. They will have different house plans to choose from. You select a floor plan and then customize many of the finishing touches. Though your home may be the same as others in the neighborhood, it will look different based on your design choices. People often think they want a custom home, only to feel bogged down by the numerous choices they have to make. Semi-custom homes are the best of both worlds.
Semi-custom homes vary in price. Some semi-custom homes can be equal in luxury to a custom home, so you'll see this reflected in the price. The price depends on the location of the semi-custom home. You can expect to pay $100-$500 per square foot when constructing a semi-custom home. You can also expect the timeline for the build to be 6-18 months.
A spec home is brand new, but you did not make any design decisions before purchasing the home. Spec homes are a great option for those who want a new home fast. The home is already built because it may have been used as a model home or a potential buyer backed out. Spec homes are similarly priced as semi-custom homes nearby ($100-$500 per square foot), and you get the benefit of buying a brand new home ASAP.
Like a spec home, tract homes are brand-new homes that the buyer typically does not customize. Tract homes get their names because builders buy large tracts of land and then put large subdivisions on this land. You benefit from the builder buying supplies and building in bulk. The process lowers your home’s final price. The biggest complaint about tract homes is that they can feel like cookie-cutter subdivisions. You will also likely be a part of an HOA (homeowners association). But if you need to move into a new home fast, a tract home can be a great option. And in many parts of the country, you can find a home for $60-$115 per square foot. So it can be a great affordable new home option.
Townhome or Condo
A townhome or condo may be the right choice if you’re looking for a new build with lower upkeep and sales price. A townhome is a home that is attached to other homes, and it is bigger than a condo which is an apartment that is typically owned. Townhomes and condos vary widely in cost. The location usually dictates cost. You can buy a townhome or condo as soon as you need one, and in many cities, numerous developments are built each month. One of the biggest cons of buying a new townhome or condo is the lack of outdoor space, which can also be a perk for some. With a busy lifestyle, a townhome or condo may be the perfect choice for you.
Fully Renovated Existing Home
Fully renovating an existing home can cost between $15,000 and $200,000 on top of the cost of the house. Renovating a home can bring unexpected expenses because you can never fully predict what you will find when you tear down walls. You can also buy an already renovated house. It will feel like a brand new home, and often you can move into a nice established neighborhood. But do a careful inspection because house-flippers are known to cut corners to earn a better margin.
What Are The Steps To Buying A New Construction Home?
It can be a big undertaking when you purchase a new construction home. The key is to take it one step at a time. Here are the steps to get started.
- Obtain financing or pre-approval letter from a lender. Shop around for the right rate. Most realtors and builders require some form of pre-approval before accepting an offer.
- Hire a certified new home specialist who will represent you as your real estate agent throughout the buying process. They will have your best interest at heart while representing you in the process. They can help you negotiate with the builder and make sure the builder’s not cutting any corners.
- Determine the area where you would like to buy a home. The local real estate agent will be able to recommend areas or neighborhoods that meet your lifestyle. Take the time to experience your prospective neighborhood to get a feel for the area.
- Review the interior selections, exterior selections (also known as elevations), and lot selections with the builder and your new home specialist. Determine if you’d like to include any builder upgrades. Remember to keep resale value in mind when choosing which aspects to upgrade.
- Negotiate the terms of the sale with the builder and sign the builder’s purchase contract. Your real estate agent should review the builder’s contract before you sign.
- Deposit your earnest money or builder deposit and work with your lender to complete your financing application.
- Check-in with the builder to see how the construction process is going. Ask the right questions. Has there been progress as far as prepping the land for a foundation? Has the foundation been laid? Is the home being framed? Are the windows and siding installed? Has the roof been installed? Has the drywall, cabinets, and flooring been installed? You can truly see each part of the construction process. Don’t be afraid to ask questions!
- When the home is almost finished, you will schedule a home inspection as well as a blue-tape walkthrough (also known as a punch-list inspection) with the builder. The builder will then make any last-minute adjustments or changes to ensure the home is delivered to your specifications. The builder’s goal should be to get the home as close to perfect as possible.
- Review your closing costs, closing documents, settlement statement, and officially close on your new home. Congratulations, you’re a homeowner!
- Work with your builder during the home warranty period to fix any covered items. It is normal for new homes to settle during the first few years so the builder should be able to address any small issues caused by settling.
What Are The Pros Of Buying A New Construction Home?
There are so many advantages to buying new construction. Here are just a few:
- If you’re building a custom or semi-custom home, you can design the home to your specifications. It is truly a customizable experience inside and out.
- Access to the latest design and architectural styles: open floor plans, tall ceilings, premium countertops, modern colors, energy efficiency, and cool finishes.
- Everything is brand new. So you never have to worry about replacing the roof, water heater, HVAC, or any other major systems for some time.
- Getting the ability to make sure the home is nearly perfect before closing on the sale. You achieve this by doing a general inspection, a blue-tape inspection, and having assurance in the quality of construction by way of the builder’s warranty.
- You do not have to get into bidding wars with other buyers to purchase a home.
What Are The Cons Of Buying A New Construction Home?
New construction homes aren’t for everyone. Here are some things to consider before jumping on the new construction wagon:
- Building a new home isn’t typically fast. If you’re building a custom, semi-custom, or even a spec home, most will take at least 6-9 months from when you sign the builder’s purchase contract and deposit your earnest money.
- You pay a premium on a price-per-square-foot basis to purchase a brand new home.
- You will likely be surrounded by construction noise and traffic since other homes in the new neighborhood may not be completed at the same time. This could go on for the first few years in your new house.
- The builder is typically not willing to negotiate on the price or some of the terms of the purchase agreement. In many cases, builders will require you to use their builder purchase contract written in a way that favors the builder.
Buying A New Construction Home vs An Existing Home
Once you weigh the pros and cons of owning a new home, it may be worth it. Typically a person who likes turnkey service favors new home construction. But others prefer history and the thrill of a deal by buying an existing home. You will also have to consider location. More established neighborhoods tend to be closer to city centers.
How Much Does It Cost To Buy A New Construction Home?
The answer to this question will depend on many factors. Every city and market has different pricing. But here are some factors that affect cost:
- What type of new home are you interested in a custom, semi-custom, spec, or tract house?
- Did you choose a lot of upgrades such as premium countertops, hardwood flooring, or other non-standard features?
- Is the builder charging a premium on the land or lot?
- Are you buying at the beginning or end of a new development? Typically if you get in early, you can buy a home for less than buyers who purchase a home in the final phase of a new community.
- Are you interested in a specific location? Acquiring land is one of the most significant costs when building a new home.
- How large is the home you are buying?
- What level of finishes does the builder include as standard? For example, some builders will advertise a low base price, but the final sales price is significantly higher once all of the upgrades are included.
- What is the builder’s reputation? Builders with a good track record can command a premium for their homes.
What Are The Financing Options When Building A New Construction Home?
Financing a new construction home is essentially the same as buying any house. But you may want to explore different options based on your financial situation. You’re not required to use the builder’s lender also known as a preferred lender. Shop around to different mortgage lenders for the best interest rates. Here are some options:
- Conventional loan: This is the typical home loan that most people with good credit use. You have the option of a fixed or variable mortgage rate.
- Construction loan: Loan that is more open-ended used for constructing a house due to unexpected expenses.
- VA / FHA / USDA loan: Government loans are best for those with less than stellar credit and/or a small down payment.
- Jumbo loan: Used for expensive homes for those with exceptional credit.
- Land loan: Great for purchasing land and then building later.
How To Ensure You Work With A Reputable Builder?
Working with a reputable builder starts with choosing the right real estate agent (that's where Felix comes in!). Realtors are experts at determining if a builder is respected because they (or a colleague) have likely worked with that builder before.
Read a builder’s online reviews on google, the better business bureau, and other online platforms. Online reputation can tell you a lot about a builder.
Ask potential neighbors how they like their new home. Talk about the building process, issues that have come up, the home warranty, and their opinion of quality.
Look for builders who belong to the National Association of Home Builders. These memberships indicate that your potential builder is up on all trends and best practices.
Tips When Buying A New Construction Home
It always pays to understand ways to save money when buying a new construction home. Here are some tips to consider before heading into new homeownership. The more you can save now, the smaller your mortgage will be in the future.
- Work with a reputable real estate agent who is experienced with new construction. They will be able to guide you through the process from start to finish.
- Try not to go for builder upgrades that won’t increase resale value. Builders are known for charging top dollar for home upgrades such as blinds and other cosmetic upgrades that may be cheaper to implement once you own the home.
- Research builders or work with a certified new home specialist that can tell you if a particular builder is reputable. Buying a new home is a significant investment, and you want to ensure the house is quality.
- Get a home inspection – even on a brand new home. When building a house, there are many moving pieces, and even the best builders can miss something now and then. In addition to the general home inspection, do a blue-tape walkthrough with the builder, also known as a punch list walkthrough. Be as picky as possible. This is your time to point out minor imperfections to the builder before you close on the home.
- Ask the builder if there are any preferred lender incentives or title company incentives they can take advantage of while negotiating. In many cases, builders will have preferred companies that will give you money towards your closing costs if you choose to work with them.
What To Avoid When Buying A New Construction Home?
It can be easy to blow your budget when building a new construction house. That’s because it’s easy to want every upgrade. But not all upgrades increase the value of the home. Even if you think you are building your dream home, you must consider resale value. Your home is one of the most important investments. Pick essential upgrades, and consider the financial implications of optional ones. You do not want to have the most expensive home in the neighborhood. This will cost you when you sell your home in the future.
One of the best ways to navigate the customization and upgrade process is to use a real estate agent who has experience with new construction homes. Avoid working with the builder directly. You’ll want to work with a real estate agent looking out for your best interest and negotiating on your behalf. Don’t worry, you will not have to compensate the real estate agent directly. Like buying an existing home, the agent will be compensated by a commission offered by the builder.
How To Negotiate With The Builder When Buying A New Construction Home?
Many homebuyers think you can’t negotiate with the builder when buying a new construction home. This misconception comes from a builder's unwillingness to budge on the final sales price of the house. The final sales price becomes public knowledge once a home closes. If a builder has plans to sell other homes in the community, this will impact their ability to get top dollar from future buyers. Other people will base their negotiations on this price.
But you can negotiate in other areas. It doesn’t hurt to try to negotiate different aspects of the contract, such as builder incentives towards your closing costs, asking the builder to pay for your title insurance, home upgrades at a reduced cost, and asking the builder to waive their lot premium. This is one reason why it’s wise to use a real estate agent who is a certified new home specialist, as they will be able to negotiate the best terms with the builder on your behalf.
How To Find New Construction Homes For Sale?
The best way to find new construction homes for sale is to sign up on Felix. You'll be matched with one of our experienced agents who will alert you whenever a new home that matches your criteria is being built. At Felix, we’ll learn a little about what you are looking for in a home, then we’ll guide you throughout the entire process from choosing the best area to picking a reputable builder and managing the sale. Plus, with our Buyer Savings Program, you can receive up to 1% off the sales price of any home in Middle Tennessee.