First-time homebuyers: How to buy a new construction home

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Purchasing a new construction home as a first-time homebuyer can be exciting and beneficial. Learn more about the process. (Shutterstock)

Buying your first house can be both exciting and overwhelming. After all, a home is one of the biggest purchases you’ll ever make, so choosing the right one for you and your family is important.

Depending on your local home inventory, housing prices where you live, and your individual preferences, you might find yourself considering a newly built property. Here’s what you should keep in mind before deciding on one.

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What is a new construction home?
How to buy a new construction home
Pros and cons of new construction homes

What is a new construction home?

A new construction home is one that has been recently built and never been lived in by another homeowner. On the flip side, an existing home is one that someone else has owned and lived in before coming onto the market.

Types of new construction homes

When it comes to new construction homes, you have three basic types to consider:

Spec home — This is a pre-built property where the builder chooses the details of the home without any input from the future buyer.
Tract home — This is a home in a development of comparable or identical properties, connected by a tract of land designated for this purpose. These are sometimes referred to as cookie-cutter homes.
Custom home — With this new construction home, the buyer chooses everything from the floor plans to the layout, fixtures, colors, and landscaping of the property.

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How to buy a new construction home

If you’re interested in buying a new construction house (especially as a first-time homebuyer), here are the steps you can take to find the one that’s right for you:

Find a buyer’s agent that specializes in new construction. If you’re looking at tract or spec homes, you should find a real estate agent that understands the complexities of the process. They can help you find the right home builder or new home community that fits your preferred criteria. They can also advocate for you as well as help negotiate pricing and purchase terms.
Get pre-approved for your loan. Unless you plan to pay cash for your property, you’ll need to seek out funding for the purchase. This means finding a construction loan for a custom home, or a mortgage for a spec or tract home. Getting pre-approved not only provides you with a solid budget and peace of mind but also helps speed up the buying process.
Decide what type of new construction you want. Deciding between custom, spec, or tract builds can be difficult. Custom homes cost more, but give you the ability to truly customize your property. Spec homes cost less and may have many unique or custom touches, but they don’t allow you to have any input on the construction. And tract houses are often the most affordable option, but don’t offer much in the way of personalization. Spend some time considering your priorities and needs so that you make the right choice.
Explore neighborhoods. Choosing a new construction home can limit your neighborhood options. You’ll need to explore different areas to see where you’re able to build or where new homes are going up, and how that plays into your commute, school district preferences, and access to your favorite places. Tour model homes and ask about financial incentives. You should also research different new home builders, seeing what sort of reviews homeowners are giving them and if the builder has any complaints or pending lawsuits against them.
Select upgrades. If you’re building a custom home, you’ll be able to choose the upgrades you want for your property. Depending on the community and your specific builder, these upgrades could relate to the floor plan, fixtures, or home systems.
Review your purchase agreement carefully. You’ve picked a home; now it’s time to look over your purchase agreement with the builder. As with any home purchase, it’s very important to go through this document carefully, noting any fees, disclosures, exclusions, cancelation policies, warranties, and other details. It’s a good idea to hire a real estate attorney to help with this step.
Have the home inspected. Once your home is finished, you’ll want to have it inspected by a professional. Depending on your mortgage lender, this step may even be required. A home inspector will carefully look over all key structures and systems in the home, ensuring that they’re working properly and in good condition. If the inspector finds any issues, your builder will need to correct the problem prior to closing on the house.
Do a final walk-through. Before you close on your new property, be sure to do a final walk-through. This allows you to point out any issues with the builder before accepting the property. Be sure to look through the house with a fine-tooth comb, marking and notating every area of damage or concern, such as chipped paint, wall dings, misaligned tiles, and raised flooring panels.
Close on the home. You’ve walked the property, had it professionally inspected, and your builder has corrected every issue you found. Now it’s time to close on the home. This involves signing any necessary title and purchase documents for the property, paying your down payment and other required closing costs, and finalizing your home loan.

Pros and cons of new construction homes

Building a home can sometimes be cheaper (or easier) than buying an existing house. However, consider the disadvantages as well.

Pros of new construction homes

Some of the most noteworthy advantages of new construction homes include:

Closer to your preferences — Some luck is required if you’re trying to find the right existing home at the right price. With a new construction home, you can get something that’s more closely aligned to your wants and needs.
Lower maintenance and repair costs — Since a new build won’t have years of wear and tear or neglect, maintenance and repair costs may initially be lower. Most home builders offer warranties on new homes, too, so you aren’t stuck footing the bill if something does fail in the first few years.
Can be cheaper — While building a new home often costs more than purchasing an existing home, depending on your local real estate market, existing inventory, and the features that are most important to you, you might be able to build one that costs less than the average existing home in your area. This is especially true if you already own a lot and can build your new home there, saving you the added cost of land.

Cons of new construction homes

Before you purchase a new construction home, consider these drawbacks:

Financing can be complicated — Buying a new construction home can be tricky when it comes to taking out a home mortgage. Depending on your situation, you may need a property loan, short-term construction loan, traditional mortgage loan, or a combination of these.
Cost overruns — If you’ve ever taken on a home renovation or repair project, you know that project budgets are more of a suggestion than anything. Running over cost is a real possibility for any new construction home. Depending on your contract, these added expenses often wind up in your lap, unexpectedly increasing your home purchase price.
Unreliable timelines — Supply chain delays, inclement weather, labor shortages, construction issues — any number of things can delay your home-building schedule. If you want (or need) to move into your new home by a certain date, understand that timelines in construction are never guaranteed.

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