The New Construction Home Buying Process, Explained

Step 2: Find a buyer’s agent for new construction

Although you do have the option of buying new construction without a real estate agent representing you, it’s recommended that you find a buyer’s agent; Stephen Cooley, a top-selling real estate agent in North Carolina with 35 years of experience, explains why:

“When you walk in a new construction site, that on-site agent that’s working in that model home, they’re friendly and nice — and they do not represent the buyer. They’re representing the builder, and it’s their job to get the builder top dollar and under the best conditions.”

An experienced buyer’s agent, on the other hand, will be working with your best interests in mind. Agents who are familiar with new construction homes will be aware of any quirks or oddities that may arise with contracts, too.

“Local, regional, and national builders all kind of have their own versions of a contract,” advises Beatty.

“For example, if you buy [an existing] house here in Charleston, there’s a South Carolina state-approved contract that you use, and you just fill in the details. But a builder is going to write their own contract; they’re more than likely not going to accept a boilerplate contract.”

A good buyer’s agent will be able to review these contracts with you and make sure you’re not signing off on terms that benefit only the builder and leave you — perhaps literally — out in the cold.

Step 3: Research neighborhoods

Just as if you were buying an existing home, when it comes to buying new construction, you’ll want to do your research when it comes to location. What’s considered important to keep in mind will vary with individual lifestyles, but may include:

• School districts
• Commuting time to work
• Convenience to grocery stores, restaurants, home improvement stores, and so on
• Proximity to recreational spaces like parks, fitness centers, or swimming pools
• Entertainment options (think movie theaters, bowling alleys, or anything else you may enjoy)

Property taxes may also be higher in certain counties than in others, which may be a factor worth considering and is one your real estate agent can help you figure out.

Step 4: Work with a lender that’s familiar with new construction

If you aren’t paying cash for the build of your new home, you’re going to need a home construction loan. Though many lenders can probably provide some type of suitable loan — whether through a lending network or their own means — it’s best to work with a lender who is familiar with the new construction process.

You can ask your real estate agent for a recommendation, or try searching online for “new construction home loan [city, state]” to get started.

New construction home loans are different from typical purchase mortgages because instead of doling out the entire amount of the loan at closing, they serve as a short-term loan that will allow for release advances (called “draws”) throughout the construction timeline.

Once the building is completed, the loan will either be converted into a typical mortgage, or your construction lender will require you to obtain a separate mortgage. Unfortunately, not all lenders offer this type of loan. Builders generally have a list of recommended lenders and may even entice you to use one of those lenders by reducing the price.

However, before signing with any lender, do your research! Make sure they have a good reputation, decent rates, excellent customer service, and that you understand how their construction loan product works from beginning to end.

You may also encounter something called a bridge loan. These are typically used by investors who are acting quickly to buy land for development, but they can also be used by individuals who know they will be building a home in the near future to “bridge” the gap between their previous home and their new home. A bridge loan may be helpful if, for example, you’ve found a lot you’d like to buy and will figure out the details of your new construction home later.

Finally, builders — if they aren’t working from a list of their own preferred lenders, as mentioned above — may have the capacity to offer their own financing. Builder financing may only fund the construction portion and the home will likely require refinancing after construction is complete — so, again, do your research to find out which option will be best for your finances and lifestyle.

Step 5: Research prospective builders

Naturally, you do not necessarily want to use the builder who has the cheapest rates because the saying “you get what you pay for” exists for a reason. Yes, builders are required to adhere to local building codes, but there’s more to choosing a builder than that!

Research the builder’s reputation with the Better Business Bureau or the state attorney general to see if they have any complaints filed against them. You can do this on websites like Google Business Profile, Angie’s List, Yelp, and Facebook.

When you’re looking at the builder’s reviews and social media profiles, Cooley suggests buyers pay attention to how the builder communicates with someone who bought their home after closing. A good builder who stands behind their work will reach out to buyers and remedy any problems that may arise.

Moreover, don’t be afraid to actually have a conversation with your potential builder. Ask about their previous developments, ask if there are common issues with building a home in your area (anything from weather conditions to material accessibility can be a major factor), and ask if they have any vacant or model properties you can walk through. In short, be proactive!

Your agent, too, can help you determine if there are specific questions or concerns you should address before committing to a particular builder.

Step 6: Research the builder’s developments

There are two ways you could choose where your home will be built.

You could look for a reputable builder with designs that you like and buy a plot of land in one of their developments.

You also have the option of purchasing a piece of land in an area you like and looking for a reputable builder who could build a house on that plot.

When you’re driving through a developer’s neighborhood, get out and walk around. Ask the people you meet about the area and their experience with the developer.

You’ll also want to understand the situation surrounding a possible homeowner’s association (HOA). While not a guarantee, most new construction neighborhoods will have some type of HOA in place to keep common areas maintained and ensure a cohesive aesthetic.

HOA dues — which can be billed monthly, quarterly, or annually depending on how the association is set up — will have an impact on your homeownership budget, so it’s important to understand what you’re getting into. Moreover, HOAs often regulate what you can and cannot do with your home’s exterior, lawn, and driveway, so ask the developer (or your agent) for a copy of the governing documents for a full overview.

Step 7: Understand the purchase agreement

This is where your agent’s guidance will really come in handy!

While there may be less room for negotiation when it comes to the new construction home buying process, you can (and should!) still gain as much clarity as you can around what happens if unforeseen issues arise during building.

If price increases are possible along the way — such as when desired materials, fixtures, or appliances are unavailable — when and how will you be advised? What is your recourse if you don’t agree to the proposed replacements?

“Go into it with patience, and you’ll have a good experience,” says Ben Neely of Riverbend Homes, a high-end homebuilder in the Austin and Texas Hill Country areas. “Every builder, big and small, is in the same boat.

Unfortunately, due to still-high mortgage rates in 2024, many prospective homebuyers may find they qualify for smaller mortgages, thanks to the higher monthly payments they’d have to make. Fewer buyers means that builders have fewer people to sell to, causing them to cut back on new housing construction.

Step 8: Choose your home’s style

When you’re selecting the style of your home, we recommend planning for the future and opting for something that will fit your evolving lifestyle.

Most builders will have a few different model homes or floor plans you choose from. You’ll be able to select the square footage, how many levels the house has, and the number of bedrooms and bathrooms.

You’ll probably have more than one pre-construction meeting with your builder to discuss options and upgrades, but the initial sit-down to determine the floor plan and core elements of your home is perhaps the most important.

If there’s a model home available to walk through, remember that this home is a showcase piece and will nearly always have the swankiest upgrades available. If you see something you like and you’re unsure of whether that particular material or fixture is the standard option, be sure to ask for clarification.

Step 9: Choose standard items

After you choose the style of the home, you’ll get to pick out the finishing touches from the builder’s selection of standard options. This means you’ll be able to select the basics, such as paint color, flooring, countertops, cabinetry, light fixtures, appliances, and tiling.

Keep in mind that the standard option typically means the cheapest option. For example, paint colors will usually be on a neutral spectrum (shades of white, beige, and gray). Flooring will usually consist of builder-grade carpeting (which is not plush) or laminate selections, and light fixtures aren’t going to be anything special.

Step 10: Choose upgrades

If you aren’t fond of any of the standard options, or if you want to move into a home that shows a little bit of your personality, you can look at the various upgrades your builder offers. However, keep in mind that these upgrades are going to increase the sticker price of your home. So you have to be mindful about what you’re choosing.

This is where your buyer’s agent will become helpful. As you tour the design center and come across an upgrade you like, ask your agent if the upgrade is worth the investment and whether you’re likely to see a return when you sell the house.

“A lot of items that are in the design center do not offer 100% return value in a resale,” Cooley explains. “For example, builders might have an extreme high-end cabinet line and rare granite that’s more expensive, but they do not equate to resale based on what the other homes sell for in the neighborhood. If the other homes don’t have these upgrades, you’re probably not going to get that return.”

He also suggests reaching out to vendors directly because you can get these upgrades after closing for much less than what the builder would charge. It’ll be even cheaper if you’re handy and can install the updates yourself!

That being said, upgrading a kitchen (or bathroom) is not an especially easy project, and — let’s be honest — do you really want to move into a brand-new home and already feel like your kitchen needs renovating? In some cases, it may be worth the splurge to get the materials and appliances you want from the outset.

Remember that value is relative, and unless you’re planning on turning around and reselling your new construction home within a few months of completion, what you will enjoy most about your home is arguably more important than its potential resale value to a stranger years down the road.

On the other hand, minor upgrades like specialty paint colors and light fixtures can be taken care of with relative ease after move-in. Be honest with yourself about what you’re realistically able and willing to do on your own.

Step 11: Figuring out your living situation between homes

The new construction home buying process presents buyers with the unique problem of figuring out where they’ll live in between houses. It can take six months — or more — for a house to be built, and timelines aren’t set in stone.

If you wait to sell your current home until the last minute, there’s no guarantee it’ll sell by the time your new house is complete. No one wants to be stuck with a double mortgage!

If you can sell your house, you’ll probably need to arrange temporary housing and storage for your belongings. Your buyer’s agent will be able to advise you when the optimal time would be to put your house on the market to minimize the wait, but looking into short-term lease options (or talking to friends or family members who may be able to accommodate you for a few weeks between homes) is probably not something that should be left until the last minute.

Step 12: Have your new home inspected

One would assume that if you’re buying brand new, it’s going to be problem-free, right? Wrong! Even if you hired the best builder in your area with the best reputation, there could still be some issues. That’s why it’s crucial to have a buyer’s agent who’s familiar with new construction homes — because they’ll know a home inspector who understands the process.

“One mistake buyers make with new construction homes is that they just assume the home is going to be perfect and, because of that, they don’t get an inspection,” says Beatty. “It’s really important that buyers get inspections on new construction homes.”

Whether there are simple cosmetic oversights or significant issues with something not being built to code requirements, you’ll want to protect yourself with a home inspection.

Any problems or concerns will go on a punch list (a list of tasks that need to be addressed before the project is officially finished), and once the builder completes the punch list, it’s equally important to have an inspector come back out and revisit your home to ensure all is well.

Step 13: Sign and review the warranty documents

Warranties are a big part of the new construction home buying process, and it’s important to know which type of warranty you will have. Builders generally offer one of two types of warranties:

• Implied warranties will cover workmanship defects that will have a significant impact on the home’s livability, habitability, and safety. These warranties typically have a 10-year liability period, and they tend to use vague language.
• Express warranties clearly define the problems the builder is responsible for fixing. This warranty will state the length of the warranty and how the homeowner should dispute issues.

A buyer’s agent who is knowledgeable in new construction homes will play an invaluable role during this period because they will be able to answer any questions you may have.

Step 14: Final walkthrough

Your final walkthrough is exactly what it sounds like: It’s the last time you’ll walk through the home before officially taking the keys and signing off its completion.

By this point, inspections, repairs, and re-inspections should be fully completed — and it’s in your own best interest not to take possession of the house until all punch list items are resolved and you have no lingering concerns.

During the final walkthrough, be sure that there are no residual paint splatters, left-behind construction materials, or any other signs of a job not quite completed.

Do, however, be forgiving of everyday dust and other signs of recent human activity. Unless your purchase documents specify that professional cleaning will take place prior to your move-in, your builder isn’t on the hook for things like vacuuming, mopping, or polishing your countertops.

Step 15: Closing time!

At last, it’s time to close on your new construction home, and the process is complete!

Your agent and lender will guide you through any action items on your part in the lead-up to closing day. Be ready to answer your phone, respond to emails, and gather necessary paperwork to maximize efficiency.

New construction pros and cons

Now that we’ve reviewed the steps involved in the new construction homebuying process, let’s summarize with a quick review of the pros and cons.

To build or not to build?

Ultimately, the only person who can decide whether a new construction home is the best fit for your budget and lifestyle is — unsurprisingly — you. There may be a few more hoops to jump through and certainly a longer wait until you’re able to move in, but if you like that “new car” smell, imagine the scent of a new home!

With a little research, a lot of patience, and a great real estate agent in your corner — you’ve got this.

Header Image Source: (Avel Chuklanov / Unsplash)