Buying a New Construction Home: How Does it Work?

Posted on April 9, 2022 in New Vs Used

The real estate market is tight, with more buyers than houses. Why wait for the perfect resale home when you can buy a new construction home to meet all of your needs? You can pick the neighborhoods, the style of residence, and the features you want and need. Also, there’s no question that the home is new and in excellent condition. Now, how does it work?

Choose the New Construction Type

Where will the home be?

Are you going to have a tract, spec, or custom home?

Tract Home

A tract home is a pre-planned subdivision in which the builder constructs all the houses according to a specific subdivision plan. The buyer may select some features, but the house will be within particular style parameters. Most tract homes are within suburban areas.

Spec Home

A spec home is a new house, condo, or townhome ready for you to move in or already in the building process. Many people prefer the spec home because it’s “new,” and you don’t have to wait as long for it to be complete. The downside is that you might not have as much control over the finished product as you would with a custom or “to-be-built” home.

Custom Home (AKA To-Be-Built or Pre-Sale Home)

A custom home is built to the buyer’s specifications. This can include anything from the lot size to the fixtures in the house. New Home Inc specializes in the Custom and Spec areas, and our sales team can help you find the best home for your needs. We have all the information necessary for you to decide, from schools to taxes.

Get Pre-Approval

Once you decide to go with a new construction home over a resale home, it’s time to determine how to fund the residence. Unless you’re paying in cash, you’ll need to get pre-approved for a mortgage. This step helps you know how much you can afford and shows the builder that you’re a serious buyer.

The pre-approval process for a new construction home mortgage is like the process for any other type of mortgage. You’ll need to submit financial information, including your income, debts, and assets, and undergo a credit check. The lender will then give you a letter showing how much they’re willing to lend you. We’ll need a copy of this letter before we begin construction. We can help introduce you to some fantastic lenders if you need that assistance.

The Difference Between a New Construction Loan and a Typical Mortgage?

With New Home Inc, there really are no differences in mortgage types or overall process. The biggest difference is time. With a spec home (something already built or under construction) you could move in with the same typical timing as a resale home, but if you are going the custom route, the timing of the financing will be a little different. Upfront you will go through the normal approval process just like any other home buying process, but because it could be several months before the home is completed, the lender will not send the file through “final underwriting”. They will wait until the home is 100% finished and send out someone to inspect the final product to ensure it is complete and meets all lending guidelines. Because of this longer timeline, sometimes you can’t “lock your rate in” until you are roughly 60 days out from the actual closing date. Some lenders offer “extended rate locks” to guarantee today’s rate months down the road. Check with your lender to see what fees are involved with that program.

You May Need Conditional Approval For the Builder

The loan has undergone the underwriting process, but it’s subject to thebuilder meeting certain conditions. For example, the builder may need to provide a completion date or evidence of using qualified subcontractors. The lender may give you conditional approval if the home isn’t finished or you’re only starting the building process.

The lender will also want to make sure that the home is complete. They may send an inspector to the site or ask for progress pictures. Our builders are experienced with the process and work hard to meet the lender’s conditions. Your New Home Inc home will NOT need any special approvals or conditions with any lender.

The Final Approval for a new construction home

You’ll go through a final approval process when the home is finished. This is where the lender formally approves the last payment and releases the money to the builder. Expect a thorough inspection of the house to ensure everything is in order.

Understand the Contract and Purchase Agreement

Buying a new construction home is a significant investment. We want you to understand the contract and purchase agreement before signing anything.

The purchase agreement is a contract between you and the builder that states the details of the deal – price, completion date, what’s included in the sale, etc. Make sure you read it carefully and that they answered all your questions before signing.

A real estate attorney or Realtor can also help you review the contract and purchase agreement to ensure you’re not missing anything. Although this is an additional expense, think of it as an investment. A good lawyer or Realtor can help you avoid costly mistakes and ensure that you’re getting what you paid for.

Get Warranties For Your New Construction Home

One benefit of buying a new construction house over a resale home is that the builder will likely offer warranties on the property and its appliances. The standard warranty for a new home is one year. During this time, if any problems with the construction or installation arise, the builder fixes them.

Some builders also offer longer-term warranties, such as ten years or more. These warranties usually cover significant appliances, such as the furnace and water heater. Make sure you ask about warranties before you buy – and if the builder doesn’t offer any, see if they’re willing to negotiate.

These can be significantly valuable and can be a deciding factor when choosing your home because they can provide some peace of mind that the builder will fix many problems. Similar to your standard construction contract, review warranties carefully. You want to know exactly what is and isn’t covered and the timelines associated with each. This step requires some research, such as learning about the lifetime use of the HVAC system, plumbing materials, and roofing shingles. New Home Inc includes multiple warranties on our homes, including a one-year and a 10-year structural warranty. Reach out to our sales team who will be happy to answer any questions you have about the warranties for your new construction home.

Closing on a New Construction Home

The closing process is when you finally get the keys to your new home. You’ll meet with the lender, title company/closing attorney, and builder to sign all the paperwork and pick up your keys.

You should also know the down payment is due when the home is finished. You’ll need to bring proof of insurance and have all the inspection documentation in hand.

Move in to your new construction home

The type of new home construction determines how fast you can move in. If you’re buying a spec home or one already built and available for sale, you can often move in when the closing paperwork is complete. However, there may be a wait if the contractor finishes the home’s details. These usually go up for sale before they’re 100% done.

When you buy a home that’s still in the building process, it may take longer to move in – possibly up to several months. The builder will give you an estimated move-in date, but it’s best to check with them frequently to see if there are any delays. At New Home Inc, our promise is to keep you in the know with weekly updates along the construction process to eliminate any surprises at the end.

If you’re building a home from scratch, buying a new construction home may take a little longer. The builder will give you an estimated move-in date when they expect the house to be completed. The process may take up to a year, depending on where they are in the construction date. Delays are possible because of permits, supply issues, weather, and contractor issues.

Buying a new construction home is similar to buying a resale home, with slight differences. If you’re considering purchasing your first or next house, it’s essential to be familiar with it. Check out our newconstruction homes throughout Raleigh for sale to find your next home. Still have questions? Here are some more Tips for Buying a New Construction Home.

Related Articles:

The post Buying a New Construction Home: How Does it Work? appeared first on New Home Inc.