Purchasing a New Home from a Builder

Purchasing a brand-new home can be appealing. You won't have to deal with someone else's scuffed carpeting, or some kid's initials scrawled into once-wet cement. You'll get a home that follows the latest design and construction trends and is ready to move into. However, buying new home construction directly from the builder has some drawbacks and pitfalls. Take steps to protect yourself and make the process a more pleasant experience with a happy ending by being forewarned.

Important Points to Remember

You are not required to use an agent when purchasing new construction, but you may want to do so anyway.
Before making a decision, get quotes from three to five different lenders, not just the builder's preferred lender.
If you're considering upgrading any of the materials or features in a home you're building or buying, get the details in writing.
Always hire a home inspector; you'd be surprised how many problems they uncover, even in brand-new homes.

Consider hiring a representative

You are not required to use a real estate agent when purchasing new construction, but you may do so. When you visit a model home or meet with a home builder, you'll almost certainly come across a sales agent who the builder has hired to sell properties in that community. If you don't have any personal experience with real estate and aren't working with an agent, you don't want to be outmatched. Keep in mind that the builder pays the agent's salary, and the agent is likely paid a commission on each property sold. As a result, they might not be looking out for your best interests. When you hire an agent, you can rest assured that you'll have a knowledgeable professional on your side. They can help you protect your interests and get the best deal possible. Because the seller—in this case, the builder—usually pays the buyer's agent's commission, taking this step shouldn't cost you anything.

Select the Correct Lender

For a variety of reasons, builders frequently recommend their preferred mortgage lenders. It lowers their costs and allows them to keep the business and its profits in-house. It also aids in keeping both parties up to date on the transaction's status. In fact, if you use their preferred lender, builders may offer special deals and discounts. They may even offer a discount on the sale price of your home. But hold off on jumping in with both feet for the time being. First, look into the lender's reputation, ratings, and level of customer service. If you're looking for a lender, look into other options. Based on your banking history with that institution, your bank or credit union may offer you very attractive rates and terms. Your agent may also be able to recommend lenders who can assist you. Obtain several quotes. Getting quotes from at least three to five different lenders is a good idea. According to Freddie Mac, obtaining five quotes can save you an average of $3,000. Your lender should be researched and interviewed. Find a banker or mortgage broker you can trust and feel at ease doing business with. Look into their history and reviews as well. Consider factors other than interest rates. They aren't all-inclusive, and they don't tell the entire story. It would be best if you also thought about the fees that each lender is offering, as well as the terms, prepayment penalties, and other aspects of their loan estimates. When you consider the other offers on the table, the savings that your builder's lender nets you might not be the best deal. Use our mortgage loan calculator to estimate your monthly payment based on the interest rate and terms you've been offered.

Seek legal counsel

Before you sign a purchase contract, you should consult with a real estate attorney. Standard purchase agreements may or may not include language that protects the buyer. It would help if you inquired about the following aspects of your contract: Contingencies and your right to cancel: Is a home inspection permitted? What circumstances allow you to terminate the contract? Make sure you're aware of your obligations and liabilities. Risks to your health: Find out if the builder's materials contain chemicals that are harmful to your health. If your contract contains a warning about health issues, this is a legitimate concern, and other buyers may have taken you to court over it. Timing: When will construction begin, and when do you expect it to be completed? In what circumstances might a delay occur? What happens if and when a delay occurs? In case your construction takes longer than expected, inquire about including a per diem payment. Warranties: The majority of builders will offer a warranty on their work. Make sure you understand the scope of your builder's warranty and how long it lasts. Note that some states require the involvement of a real estate attorney.

Check Prices for Upgrades and Options

For many builders, the profit margin on upgrades is the highest. If you're thinking about upgrading any of the materials or features in a home you're building or buying, get the details in writing: Cost: Make sure you know how much each upgrade will cost per unit, as well as your total upgrade costs and how they'll affect your final sales price. Liability: Find out the builder's cancellation policy in detail. How long do you have to decide whether or not to upgrade? Will you be held liable if you change your mind and the builder is unable to return items to a vendor? Timing: What is your timetable for deciding on upgrades and materials? If you don't submit your request within a certain amount of time, some contracts give the builder the right to choose your upgrades. Consult your mortgage lender to see if they'll finance all of the upgrades or options you've chosen. If your lender doesn't finance 100% of your choices, you'll have to pay for the extras yourself. After your sale ends, think about which upgrades you could buy and install yourself. Tip: Keep in mind that some upgrades, such as CAT-V ethernet, DSS satellite, or security wiring inside the walls are easier to complete prior to the start of construction.

Look into the reputation of the contractor

When a buyer has a poor experience with a builder, word gets around quickly. Check online reviews and public records to see if the builder has been sued before or is currently being sued, and then talk to the neighbors. If they bought from the same builder, did they have any issues? It would be best if you also looked at the surrounding homes' construction quality. Is the builder consistently constructing similar or larger homes in the area, or are the homes shrinking in size? Finally, inquire about the builder's willingness to sell to investors. Some builders insist that their owners occupy all of their homes, while others eagerly sell as much inventory to investors as their profit margins allow.

Inquire about incentives

As a way to sell homes or entire communities, most builders offer a variety of incentives. Inquire about any incentives you might be able to take advantage of when purchasing a home. These could help you save a lot of money or get you free upgrades on your home. The following are some of the most common incentives:

Upgrades are available for free or at a reduced price.
Contributions to the closing costs
Price reductions
Features that are environmentally friendly or energy-efficient
Assistance with the sale of your current home
Interest rate buy-downs or free points
Invest in a home inspection.

It's all too easy to assume that new construction will be flawless, but this is far from the case. When buying a home, whether it's brand new or centuries old, you should always get a home inspection. A home inspection provides:

A third-party assessment of your home's systems and structure.
Ensuring that it is safe and hazard-free.
A good investment.

As of 2021, an inspection will cost anywhere from $300 to $1,000, depending on the home's size and the inspection scope, which includes everything from the basics to every bell and whistle. Important: Most inspectors find a laundry list of issues even with brand new properties. If the inspection reveals any issues or problems, contact your builder and request that they make repairs before you close the house. If they refuse, they might be willing to lower the sales price instead.

Most Commonly Asked Questions (FAQs)

Is it possible to haggle with a builder on price?

Yes, you can attempt to bargain with a builder, though in a seller's market this may be challenging. You might be able to bargain for a price reduction if the house is already constructed and the builder is trying to sell it. If the builder refuses to lower the price, you might be able to negotiate for upgrades or extras on the home.

What isn't included in the price of a new home from a builder?

When buying a new house, consider the extras you'll have to pay for, like backyard landscaping, window treatments, storm doors, gutters, and other smaller things.

Is it possible to include the cost of upgrades in your mortgage when purchasing a new home from a builder?

You might be able to roll the cost of upgrades into your mortgage if you don't exceed the limit set by your lender. Some builders require buyers to pay a deposit for upgrades, which can be up to 50% of the total cost of the upgrades.