What to Expect When Buying a New Construction Home from a Builder

If you’re in the market for a new home, you might be wondering whether it’s better to buy a new construction home from a builder or invest in an existing home from a private seller.

In this article we’ll break down the process of buying a new construction home, from finding reputable builders and crafting your dream design to financing and unexpected costs.

So read on to discover whether buying a new construction home makes sense for you.

In this article (Skip to...)

• New construction vs existing home
• Process of buying a new construction home
• New construction design phase
• New construction landscaping
• Financing a new construction home
• Pros and cons of buying new construction
• Buying new construction FAQ

Buying a new construction home vs existing home

In an ideal world, the allure of a brand new, never lived-in home is undeniable. After all, older homes often come with their own set of quirks and challenges. Many homes on the market require additional upgrades or a full renovation, which could result in additional expenses. Consequently, an increasing number of homebuyers are opting to take a different route, one that involves purchasing a home directly from a builder, and customizing a residence exactly to their liking.

But what exactly does that entail? Read through the following sections as we delve into the specifics, covering everything from locating your ideal homesite to the final closing.

The process of buying a new construction home

Researching and choosing the builder

When embarking on the journey of buying a new construction home, one of the most important steps is selecting the right builder. This decision can significantly impact the quality and satisfaction you derive from your new home.

A good place to start is by delving into the builder’s reputation within the industry and community. Are they known for delivering on their promises, or do they have a history of delays? Take the time to visit completed homes and assess the craftsmanship and overall design.

Additionally, look up online customer reviews which can offer valuable insights into the builder’s track record. Are previous buyers satisfied with their homes or do they have reservations? Finally, consider your specific needs and preferences. Do they line up with the builder’s strengths and specialties?

Remember, finding the right builder is like laying a solid foundation of your dream home so take the time to explore all your options.

Understanding the home building process

If you’re like most people, you probably don’t know where to even begin the process. The journey of building a new construction home is a meticulous and multi-faceted process, beginning with the initial design phase and finishing with the construction completion. The process unfolds through several key stages each bearing its unique importance.

For starters, you will find and tour some new communities in your area. You’ll likely tour a few home models and speak with the representative at the sales center. They will present you several different home models the community offers, as well as any available lots. This is where the dream of building a house entirely from scratch ends for many. If you buy a home within an existing community, you’ll only be able to choose from a few pre-designed models.

Next, you will choose a home model and pick your lot. Keep in mind that depending on the community, you may need to pay a premium for your lot. For example, if it’s a bigger lot with unobstructed views, it may be more expensive than a smaller lot with no views.

Once you’ve made your home model and lot selections, you’ll enter a contract with the builder to commence the build out of your new home. At this point, they will ask you for a builder deposit, which typically ranges between 5-10% of the home’s base price. For example, if the deposit required is 5% and your future home is priced at $500,000, you’ll need to pay the builder $25,000 (plus any lot premiums) to lock it in.

Once you’ve paid the deposit to the builder, your home construction begins! Depending on the builder, you can expect completion anywhere between 12 to 24 months.

New construction home design phase

Next comes the design. During this stage, you’ll have the chance to collaborate with a designer to select the finishes for your new home. This is a very exciting phase, and it’s advisable to set aside a few days to finalize your selections. You’ll pick out items such as flooring, shower tiles, kitchen cabinets, countertops, appliances, and more, ensuring your home reflects your unique style and vision.

It’s crucial to keep in mind an important caveat when entering into a contract with a builder. While the home contract typically covers the essential materials needed to complete your home, most builders will only provide very basic finishes as part of the standard package. So, if you’re envisioning luxurious additions such as a stunning waterfall kitchen island, a spa-like-rain shower, or a wine cooler, you should be prepared to pay extra.

On average, allocating 10-15% of your home’s base price to the design phase is a reasonable estimate. So for instance, on a $500,000 base price home, this could translate to an additional investment of $50,000 to $75,000 to bring your dream home to life.

And if you want to keep your home well lit, you’ll even need to pay for additional light and outlet installation. Special-purpose lighting, such as those designed to showcase your artwork or provide reading illumination in your bedroom, typically run up additional charges.

Once you lock in your design choices, you will receive a comprehensive quote with all your chosen upgrades. This total amount will be added to your home’s base price at the closing stage but more on that later.

When the initial design phase is over, the construction phase begins. It will involve contractors who turn the house blueprints into a tangible structure. While this process may appear straightforward, it’s important to note that the timeline can vary significantly depending on factors such as the size, complexity, weather conditions, and unexpected challenges to the project.

Delays are not uncommon in construction, but if you’re a well-prepared buyer, you can navigate those effectively by staying well-informed and maintaining open communication with the builder throughout the process.

Is landscaping included in new construction?

Here’s something that most people who buy a new construction home don’t consider. When you purchase a home from a builder, the base price of the home typically excludes any landscaping or yard work. In essence, your purchase includes the lot and the house itself, but it’s important to note that most builders won’t prep your outdoor space beyond delivering it as a bare dirt lot.

What that means is that you will need to set aside a separate budget for hiring a landscaping contractor to design and deliver your new yard after closing. Landscaping costs vary widely depending on your specific needs. Whether you’re simply looking to plant a basic grassy area or transform your backyard into an entertainment haven with features like a BBQ deck and a spa, the costs can vary considerably. So how much does it cost to do landscaping? Read our cost breakdown to learn more.

Another important consideration to mention relates to communities managed by associations. Those may even impose specific deadlines for completing your yard. For example, there may be a rule for all new homeowners to finish landscaping their front yards within 60 days of closing on the home; otherwise, penalties may apply. Such regulations are typically in place to ensure new homeowners don’t lag on getting their yard up to par and maintain a sense of uniformity throughout the community.

Inspections, final walkthrough, and warranty

The builder is required to secure approvals from the city at various stages of the construction process. These approvals encompass a range of elements including excavation, foundation, framing, HVAC, plumbing, and more. Once all inspections have successfully passed at every stage, a final inspection takes place, granting a Certificate of Occupancy. This certificate signifies that the house is ready for habitation. Naturally, as the client, you will also have the opportunity for a final walkthrough before closing. This allows you to assess the work’s quality and potentially request any refinements for items that may not align with your pre-established design specifications or may be lacking in quality craftsmanship-wise.

Additionally, when you invest in a new construction home from a builder, you’re not just getting a beautiful, brand new home; you’re also receiving the peace of mind that comes with a comprehensive home warranty. This warranty ensures that your new home is covered against unexpected issues, such as structural, HVAC, plumbing, etc.

Financing your new construction home

After signing the builder contract, finalizing your design choices, and addressing any future landscaping details, the next important step is to explore your mortgage options. Typically, a few months before your new home is finalized, you will speak with a mortgage lender and discuss any requirements to secure a home loan. They’ll crunch some numbers and present you with a few loan scenarios that will depend on your down payment, credit profile, and other factors.

Many builders today provide the convenience of in-house financing options through their lending divisions. For instance, communities developed by Toll Brothers may connect you with Toll Brothers Mortgage. While you are certainly welcome to utilize the builder’s preferred lender, you’re under no obligation to do so. However, it’s worth nothing that opting for a builder’s lender may come with certain advantages, such as special incentives like closing credits or even a mortgage rate buydown.

Nevertheless, it’s crucial to consult with multiple lenders to ensure you make the most informed choice to meet your specific financing needs.

Do I need a construction loan to build my new home?

If you’re buying a home within an existing community (as opposed to purchasing land and building the home entirely on your own), you will typically follow the same lender procedure as buying a resale house.

This involves securing a home loan, which can either be a standard conventional mortgage or a government-backed loan such as FHA, USDA, or VA, depending on your needs and qualifications. You do not need to secure a construction loan in this situation.

Once you and your mortgage loan officer determine the most suitable loan option, you’ll work together to coordinate your closing dates with the builder. Maintaining open lines of communication is crucial, as closing dates in new construction projects can shift. It’s not uncommon for construction delays, especially given any material or labor shortages we have seen post-COVID.

When do I lock my interest rate with a new construction?

In a rising interest rate environment, it is advisable to proactively secure your mortgage rate well in advance of your closing. The only potential hiccup you might run into are any unforeseen construction delays. On the other hand, if interest rates have been consistently falling, it may be wise to delay locking in your rate until just before closing. Regardless of the prevailing market conditions, it’s best to speak with your lender several months prior to your scheduled closing and discuss your options to secure the most favorable interest rate possible.

Pros and Cons of Buying New Construction

Purchasing a new construction home has its own set of advantages and drawbacks, each of which can significantly impact your overall homeownership experience. Here are the pros and cons associated with buying a newly constructed home from a builder:

New Construction Pros

• You get to move into a never-lived-in home
• You can tailor the home to suit your style and needs (within the builder’s design parameters)
• Securing a pre-construction home price increases the likelihood that your home will appreciate in value by the time you finalize the purchase
• You enjoy peace of mind with a warranty provided by the builder

New Construction Cons

• You may have to wait 12-24 months for the completion of your new home
• Committing to a long-term construction project may result in higher rates by the time of closing
• You will most likely incur additional costs beyond the home’s base price, including design upgrades, electrical work, and landscaping
• You may find yourself living at a construction site for several months or even years, if you’re one of the early buyers in the community
• While customization is possible, it is within defined limits. You’ll typically choose from a selection of options rather than having limitless design freedom

Congrats, you’ve closed on your new home!

It’s now official – your down payment funds have been received by the title agency, and the county has officially recorded the property deed in your name. You are now the proud owner of a new construction home. In the days ahead, ensure that all your utilities are activated and reach out to your HOA to familiarize yourself with due dates and payment procedures. With these logistics sorted, it’s time to relax and turn your attention to landscaping and yard development.

Buying a new construction home FAQ

The bottom line

Buying a new construction home involves carefully weighing all the pros and cons. Ultimately, the decision comes down to your individual needs and priorities. Are you willing to wait for the completion of your new home and navigate the intricacies of the new construction process? Or do you prefer the convenience and history of an existing home? No matter your choice, ensure it’s a place that brings you joy and where you can truly feel at home.