Does it sometimes feel like you’ve been searching for the perfect home to buy forever? The market is moving quickly these days and sometimes you can’t even put an offer in before the home is already sold! Maybe you’ve been thinking about new construction but are not quite sure if it’s for you. Let’s take a more in-depth look at what it’s like buying new construction.
Making the decision to build new seems easy, but there’s more involved than initially meets the eye. When buying new construction, you must be deliberate about asking the right questions. That’s why it’s important to have a buyer’s agent helping you along the way. The more you can understand about what to expect before getting started, the better prepared you’ll be to get through the process with your sanity intact.
One of the biggest advantages of buying a new construction home is that they are designed and built for today’s lifestyle. They come with open floor plans and features that meet modern-day demands, including eat-in kitchens, walk-in closets, large master baths, more access to outdoor entertaining areas, and even additional storage. Many older existing homes often lack one or more of those features as part of their original home design.
Today, more than ever, home builders are offering buyers the ability to customize their homes with a vast number of options. Lighting, flooring, cabinetry, countertops, wall coverings, paint colors, and even landscaping can often be selected from a wide variety of choices. Some of the choices are considered upgrades and will add to your base price, but now builders are adding options that are still considered part of the original price package. You’ll be moving into a home that’s customized for your needs.
Utilizing new construction materials, just-built homes are usually more energy efficient — and that means potentially lower utility bills. Not only are these newly built homes rated higher for insulation, but many new homes also are incorporating renewable sources of clean energy like solar. All of this new home tech could save you thousands over the course of the years you live in the home.
New construction homes are often equipped with the latest technology built right in. Think cable, alarm systems, speaker systems, high-speed wired internet, and digital thermostats and detectors. When they’re just the flip of a switch or a voice command away, you save lots of time and money - not to mention holes in the walls.
You’ll also have fewer repairs and maintenance in a new home compared to a previously built one, as everything is brand new just for your use. And, building things new is always less expensive than retrofitting them later. New homes are built with the latest building plans, designs, and materials. Their systems (electrical, plumbing, sewage lines, central heating, and air) already meet today’s codes and standards. It is always much more efficient and practical to have these systems built into a new home, rather than have to upgrade and retrofit existing older systems, which can sometimes mean ripping into the walls, floors, and ceilings to gain access to the key home systems.
Working with a buyer’s agent is the best way to make sure that you’re being advocated for and the builders are held accountable for everything you’ve requested and paid for.
As with buying a previously-owned home, you have to figure out your budget and secure financing before you even begin house hunting. Get pre-approved by a bank or mortgage lender who is familiar with new construction. Decide how much money you want to invest in a new home. And don't overlook the extras like property taxes, insurance, furniture, landscaping costs, and maintenance that can drain your bank account.
Next, find the area you’d like to live and research builders. The agent you work with will be able to help you find one that hasn’t had any complaints and has a good reputation in the community.
Another important step is knowing what is standard in the cost and what is extra. If you don't understand exactly what the builder is offering, ask and take notes. There are no dumb questions. Not knowing can cost you real money.
Once you decide to buy a new home, make your sales contract contingent on a final home inspection by a professional you hire. Never assume that because a home is newly constructed, it won't have defects. Municipal inspections for code violations are nowhere near as thorough as an independent professional inspection. If possible, have the home checked during each phase of building, when potential problems are easier to spot. If the builder objects to this, consider it a red flag.
Protect yourself with warranties. All new homes come with an implied warranty from the builder stipulating that any major defect of the structural integrity of the home must be repaired. Ask for a builder's warranty for a period of time following move-in (a year, for example) that covers any defects in craftsmanship. Preferably, this warranty should be backed by insurance.
To figure out if it’s the right choice for you, gather all the facts, do your research, and think clearly about what you want in a home, both now and in the future. Bringing an agent with you to meet with the builder’s salesperson is important so that you have someone helping you advocate for your interests. The more you know going into the process, the better you’ll be able to navigate the sometimes tricky process of building a new home.
There are a lot of different options for financing. As of this writing, the max conventional conforming limit is $484,350, including the land and the build. Anything over this is Jumbo. You can even have an FHA loan, but with new construction you must put at least 5% down.
Exactly what it states, this program allows for the full construction of a new home with a one-time close. There is only 1 set of closing costs, rather than 2 with construction and end financing.
• One closing, one set of closing costs.
• Peace of mind as interest rate is locked in prior to construction beginning and float down option is available when project is at least 90% complete.
• Closing occurs before construction begins (all the financing craziness is done!).
• Up to a 9 or 12 month construction process allowed.
• Conventional financing only.
• Minimum 10% down.
• Minimum credit score of 680.
• Primary residence only (no 2nd homes or investment properties)
• If the lot is already owned, we will pay off that lien at closing.
• Monthly payments during construction phase are interest only. Full PITI payments begin after construction and loan is modified to permanent financing.
This option is a two time close. The home buyer will secure construction financing through a bank, complete the build, and then refinance that loan into an end loan. This type of loan is typically for people who are goi ng to be more “hands-on” during the building process. You have two loans and two closings, one for the land and one for the home.
• End financing can be conventional, VA or FHA as long as the bank approves the construction financing, the end financing can be structured any way.
• The end loan is a refinance and can have lower closing costs compared to a construction to perm loan as there are not construction fees associated with it.
• Must be approved twice… once for construction loan and once for end refinance.
• Two sets of closing costs, two closings.
• 10% down is required with the construction loan.
• Bank handles all draws to the builder.
• If the lot is already owned, the bank will pay off that lien prior to construction.
• Monthly payments during the construction phase are interest only.
• End financing is a refinance and can be structured as VA, FHA or conventional.
If you’re buying a home and it needs some rehab, you can also take a rehab loan out with your mortgage for the home. There’s a bit higher requirements for credit score, but you can take up to 40% of the purchase price as a higher loan amount to put back into the house. For instance, if you buy a home for $200,000, you can take a loan amount up to $280,000 and use the extra $80,000 to renovate the home.
There can also be a big difference in the interest rates for a one and two time close. Speaking with a lender will be the best way to decide what is best for you!
Reach out to Grey Duck for expert real estate services. Buy, sell, or rent properties with confidence. Contact us today!