Buying a New Construction Home

In this guide, we will cover buying a new construction home. Many homebuyers prefer buying new construction homes. As the construction industry continues to flourish, more and more individuals are seeking to venture into the world of new construction. Chad Burns of GCA Forums Mortgage Group, a dually licensed realtor and loan officer at GCA Forums Mortgage Group, advises the following:

Navigating the world of financing for new construction can be complex for the uninitiated. Knowing where to start can be challenging with many financing options available.

Fortunately, financing a new construction project can be smooth and successful with the right guidance and knowledge. In this blog post, we’ll delve into the world of financing for new construction and provide you with the information you need to make informed decisions. We will discuss the financing options for new construction and provide tips for navigating the financing world. So, if you’re a seasoned construction professional or a first-time builder, you can learn more about financing a new construction home.

Types of Financing for a New Construction Home

Several financing options for new construction, including construction, bridge, and permanent loans. Construction loans are short-term loans that cover the construction cost, while bridge loans bridge the gap between construction and permanent loans. Chad Burns, a dually licensed loan officer and real estate agent is a new construction home lending expert. Chad says the following:

We have a very popular all-in-one new construction home financing program. You can purchase the land, pay the cost of the construction, and then convert the loan to an end loan when the project is finished. Borrowers need a 700 credit score to qualify.

Permanent loans are long-term loans used to pay off the construction loan and cover the cost of the completed project.  Conventional and FHA loans are used for most residential loans, and non-QM loan products are for those that do not fit your normal financing guidelines.

Choosing the Right Financing Option For a New Construction Home

Choosing the right financing option for your new construction project depends on your financial situation and the specific needs of your project. Chad Burns of GCA Forums Mortgage Group advises about choosing the right financing options for your new construction home:

Searching for the right loan options can be time-consuming, particularly if you are unfamiliar with the lending industry. Working with a broker can save you time, as they will do the research for you and present you with the best loan options.

Before deciding, it’s essential to consider each financing option’s interest rates, fees, and terms. It’s also important to work with a reputable lender who understands the unique challenges of new construction financing.

Advantages of Financing with a Mortgage Broker

Working with a broker can provide several advantages when financing new construction projects. Brokers act as intermediaries between you and the lender, helping you navigate the complex financing world and finding the best loan options for your needs. Here are some key benefits of working with a broker:

Mortgage Brokers work with various lenders, including banks, credit unions, and alternative lenders. This enables them to provide access to a wider range of loan options than you might be able to find on your own.

Mortgage Brokers have extensive knowledge of the lending industry and can provide expert advice on the best loan options for your project. They can also help you understand the terms and conditions of each loan option, ensuring you make an informed decision. Mortgage Brokers are skilled negotiators and can help you secure the best terms and rates for your loan. They can also negotiate for you if any issues arise during the loan process. Many brokers work on commission, meaning they are only paid if you secure a loan. This can be a cost-effective option, particularly if you are on a tight budget.

Should I Use the Builder’s Lender or an Outside Lender?

Choosing a lender is one of the most important decisions when financing a new construction project. The two main options are using the builder’s preferred lender or finding an outside lender. Both have pros and cons, so weighing your options carefully and making the best decision for your specific needs is important.

Using the builder’s preferred lender is the easiest option since they are familiar with the project and may offer incentives or discounts. However, it’s important to remember that there are better choices than the builder’s lender for you. They may not offer the lowest interest rates or flexible loan terms. Plus, their primary loyalty is to the builder, not the borrower.

Finding an outside lender can be more time-consuming, but it may also offer more benefits in the long run. Shopping around for different lenders can help you find the best rates and terms, plus you’ll have more options. Additionally, an outside lender or a broker can offer more impartial advice and may be more willing to negotiate with you on terms and conditions.

Navigating the Application Process of a New Construction Home

The application process for new construction financing can be lengthy and complex. To streamline it, it is important to have all the necessary documentation and information readily available. This includes your credit score, financial statements, construction plans, and cost estimates. Working with a knowledgeable and experienced lender can help simplify the process and ensure you have all the necessary documentation.

Managing Cash Flow

Managing cash flow is crucial when financing new construction projects. Having a detailed budget and carefully monitoring expenses are important to avoid cost overruns. I would also like to point out that a contingency plan is in place if unexpected expenses arise. Working with a financial advisor can help you manage cash flow and stay on track throughout construction.

New Construction Home Versus Already Built Home

Financing a new construction project requires careful planning and consideration. You can ensure the success of your project by understanding the various financing options, choosing the right option, navigating the application process, and managing cash flow.

Working with a reputable lender and financial advisor can help simplify the process and ensure you have the support you need at every step. Before you begin the new construction process, during the process, and at closing, we have vast experience working with many new construction financing buyers.

We can take you through the entire process of acquiring financing for your next purchase. We can also connect you to title companies/attorneys and top real estate agents in your area who can help as needed. Call or text Alex Carlucci at 800-900-8569 or email at  gcho@gustancho.com for more information and further assistance on financing questions, comparing rates, and different loan options.  Alex is an experienced, dually licensed real estate agent and mortgage originator. She has successfully guided many homeowners through new construction purchases, building, and financing. He does not represent buyers or sellers but offers a free consultation at GCA Forums Mortgage Group by connecting homeowners, buyers, and sellers to the needed sources.

Most Common Questions Regarding Purchasing a Newly Built House

What is a Newly Constructed Home?

But, a newly constructed home is a house that has recently been completed and never occupied. Usually, the construction company or the real-estate developer sells these homes.

What Are the Advantages of Purchasing a Property That Has Just Been Built?

• Construction Requests: You have the scope to select from various finishes, layouts, and modifications.
• Reduced Energy Costs Over Time: These homes come with energy-saving equipment, fittings, and insulation, which lowers utility bills.
• Traditional Improvements: New houses have modern upgrades and features like the latest in-home technology systems.
• Reduced Maintenance Relatively: With everything being newly completed, there is less chance for repairs and replacements.
• Structural Damage Warranties: Most builders offer warranties to cover structural, system, and appliance loss.

What Are Some Disadvantages of Purchasing a Property Recently Built From the Ground Up?

• Expenditure: New homes can cost significantly more than residences in a particular locality.
• Distance: Compared to older houses, newly built properties may be farther from their center point or developed territories.
• Extensions: The building may take longer than planned due to insufficient labor or materials.
• Foliage Growth: Newly built societies may have yet to mature trees and foliage fully.
• Contracts Used For Competitiveness: Sellers of private houses are usually laxer on the price of the house than builders.

How Do I Select an Ideal Builder for My House?

• Research Reputation: Check what past clients have said through reviews, testimonials, and ratings.
• Visit Model Homes: Examine his constructed homes and check quality and craftsmanship.
• Check Credentials: Verify that the builder is licensed and insured in your locality.
• Ask About Warranties: Get information regarding what would be covered and the duration of the warranty coverage.

When Buying a New Construction Home, Would You Recommend That a Real Estate Agent Be Involved?

• It is very advisable to engage the services of a real estate agent when purchasing a new house and even a new construction house.
• Representation: A builder’s sales representative is an employee of the builder and not you, the client.
• Negotiation: A real estate agent can negotiate the terms and conditions, costs, upgrades, or closing cost credits.
• Guidance: Agents ensure that the contract and the buying process are clear for you.

What is The Residence Included in the Base Price of a New Construction Home?

The base price generally includes the standard floor plan.

Basic Finishes and Fixtures, Though Their Level Varies.

The lot or land if not otherwise stated.

Note: Upgrades and premium features, such as granite countertops or hardwood floors, often come at a cost.

What Can I Upgrade in My New Construction Home to Enhance It?

Focus on upgrades that provide a return on investment in the home and improve your living experience.

• Structural Upgrades: Extending rooms, placing more bathrooms, or finishing a basement.
• Kitchens and bathrooms: Quality kitchens and bathrooms with unique countertops, cabinets, and hardware offer the best returns on investment.
• Energy expenses include everything from adequate insulation to solar panels or high-end HVAC systems and equipment.
• Floors: In the economist’s view, installing hardwood or luxury vinyl planks may be worthwhile.

How Do I Purchase a New Construction Home?

• You can purchase a house or re-pay for a newly constructed house with the following aspects:
• Conventional Mortgage: A common type of loan solely used for buying houses already built.
• Construction to Permanent: This combines the financing for building the house and the mortgage into one loan.
• Preferred Builder Lender: Builders often select lenders they want to work with, and the lender offers incentives, such as credits against closing costs or rate reductions.
• What is a construction schedule, and how long does it take to construct an additional house?
• The range of topics covered varies according to the size and population density of the dwelling; however, it usually lasts six to twelve months.
• Start includes:
• Pre-construction stage – Obtaining the permits for building and development and setting up the site.
• Foundation: Lay down, pour the concrete, and install the plumbing items.
• Framing: Panels up to the walls, rooftop, and windows are being constructed.
• Interior finished structure – Dry walls, all fixtures, floors, and equipment are being mounted.
• Last Walk Through—Before settling, these punch list items must be verified to ensure that all items are addressed.

What is a Punch List?

A punch list is among the documents the builder/she must address before the buyer closes on the home. Common items include:

• Scuff Marks on walls and floor.
• Need to include hardware or fixtures.
• Misplaced appliances.

What Do You Look For During the Final Walkthrough?

• In the final walkthrough, always check the house for cosmetic damages like paint or scratches on the wall.
• Test the appliances, faucets, and switches.
• Check if the doors and windows are functional.
• See if the upgrades as per the agreement have all been adhered to.
• Always include your contract and punch list so that the two documents can be cross-referenced.

Are There Any Warranties That Come With New Construction Homes?

Yes, most builders give warranties such as:

• Year Warranty: Encompasses all artistry and materials used.
• 2-Year Warranty: Encompasses all major systems, plumbing, electrical systems, and HVAC.
• 10-Year Structural Warranty: Further covers the foundation and all load-bearing elements.

Do Builders Agree to a Reduced Price For New Construction Homes?

Base price reductions are not common, though you can try. Builders are often reluctant to lower the base price, but you may negotiate for:

• Discounts or no-cost upgrades.
• A contribution towards the closing costs.
• Lot premiums for extensive and possibly even optimal locations.

Do I Need a Home Inspection for New Construction?

Construction defects are present in almost every new building. They either put lives at risk or threaten the structural integrity of the building. This is where inspections come into play, as these guarantee that the requisite safety standards are met. Two types of inspections can be done:

• Pre-drywall Inspection involves checking the plumbing, framing, and electrical lines before sealing the walls.
• Final Inspection — this assessment confirms whether the house is fit for occupancy.

Are Newly Constructed Homes Profitable?

As far as the allocation of resources is concerned, certain indicators point towards new construction homes being an excellent investment. Some include:

• Where it’s located – homes in highly desirable locations will likely increase in value faster.
• Quality of construction: Properties built to last will require comparatively less Maintenance, which results in significant cost savings.
• Finally, community enhancements like future schools and shopping complexes may greatly increase a house’s resale value.

What’s a HOA fee, and Does it Come With a New Build?

All new builds intending to sell will have an HOA fee attached, with no exceptions. The fee amount will greatly vary. However, they are usually enough to cover:

• Maintenance costs associated with common amenities
• Enhanced security for the community
• Management functions

Is it Feasible to Purchase a House That’s Still Being Built?

Spec homes are fully or partially completed houses that can be purchased while under construction. The main reasons behind buying a spec home are its cost and convenience. Expect the following advantages and disadvantages.

Advantages

• Move-in time is significantly shorter
• Cost remains the same

Disadvantages

• Designed to be universally accepted, customization options are limited or absent altogether.

How Much Does Closing Costs For a New Construction Home?

Essentially, closing costs add 2%- 5% to the total home price, including title insurance, builder, and prepaid taxes and insurance.

Do I Get Anything if I Buy a New Construction Home?

Yes, in almost every conceivable way. This can be through lower closing costs, free upgrades, or design credits, which is uncommon in most construction homes.

I’m Considering Purchasing a House in a Different Community. Do You Have Any Tips You Should Know in Advance?

If the community is new, expect a degree of dependent construction. Check the community’s plans for education and infrastructure. Be advised that home prices for housing communities are more overpriced when fully developed.

Closing Words

You will likely have a better acquisition with time, so could you hire a strong professional to help you purchase a construction home you’ve built with your expectations in mind?

If you’d like to negotiate with builders, we suggest proofreading more on how to avoid common setbacks.