First-Time Homebuyers Guide To Buying A New Construction House
updated on August 18, 202217 min Read
As a first-time homebuyer, it’s common to have many questions about the purchasing process, including when, how, and where to buy. In this guide, you’ll learn about the types of new home construction, the pros and cons of buying a new construction home, how to choose the right home for your needs, and what the steps from start to finish will look like.
The good news is, you don’t have to go through this process alone. Freshbuilds is committed to helping homebuyers find their dream home by removing the stress and taking care of the hard part. Unlike other listing marketplaces and websites, Freshbuilds compiles an accurate list of available lots and reputable builders based on your specific interests and needs, becoming an invaluable tool in your purchasing process.
- There are many different types of new construction homes, and the prices will vary based on the home type and location.
- It’s important to avoid common mistakes like not getting a home inspection, not vetting the builder, and not researching your available financing options when buying a new construction home.
- Many home loans are available to homebuyers based on specific qualifications, and it’s important to shop around before choosing a mortgage lender.
- New homes may cost more upfront, but they’re a smart investment and often leave you with immediate home equity and lower maintenance.
- Although buying a new home seems difficult, it’s quite simple with the help of an experienced real estate agent and companies like Freshbuilds that take care of the hard parts for you.
What Are The Types Of New Construction Homes?
Before buying your first home, it’s important to consider the various options available to you. As a first-time buyer, it’s important to make a list of what’s most important to you and find a new construction home that meets your needs.
Whether you’re looking for a customizable forever home, an affordable home on a large lot, or an easy upkeep home in a complex with other first-time homebuyers, there’s a new construction option for you.
A custom home will allow you to determine exactly what you want in your house and how you want it to look. You make the decisions for everything from the baseboards to the height of your ceilings.
In addition to creating a house custom-built for your needs, you also choose the land, making this a completely customizable home from top to bottom. They typically take longer to build from start to finish, but if you’re willing to wait and eager to put your personal stamp on a new home, this is a fantastic option.
Semi-custom homes give you the freedom to make decisions on your finishes and appliances, but you won’t have to start from scratch. This is a great option for first-time homebuyers because the builder already has beautiful floor plans and allows you to make cosmetic changes as you see fit.
It’s not as expensive as fully custom homes, but you can still make changes to suit your needs. The structural elements will likely have to stay the same, but the builder will use your input for decisions like the light fixtures, countertops, and appliances.
Spec homes are designed by the builder and usually available to purchase as move-in ready. If you don’t feel the need to be involved in the building process or you're short on time, this could be a fantastic option.
These homes are typically more affordable than custom or semi-custom homes making them a good option for first-time homebuyers. Although you won’t have a say in the design or finishes, you can always make updates or changes down the line as your needs change.
Tract homes are similar to spec homes and built on large tracts of land, allowing the builders to buy materials in bulk. The houses will look very similar and typically have the same two or three floorplans throughout the neighborhood.
This is an affordable option but won’t allow you to make specific decisions or change aspects of the house plan. You’ll likely be much closer to your neighbors in a tract home, but you’ll save a good bit of money.
Townhome or Condo
Townhomes and condos are a great option for first-time homebuyers because they’re typically less expensive and have less upkeep which is great for young or active homeowners. While the two are very similar, townhomes are generally larger and offer more privacy than condos which are much closer to apartment-style living.
One of the downfalls of a townhome or condo is being so close to your neighbors, although many young homeowners enjoy meeting new friends and taking advantage of common amenities like a pool and gym.
How Long Can It Take To Build A New Home?
The time it takes to build new construction homes will vary depending on the type of new construction. Fully custom and semi-custom homes typically take 9-18 months to be built since the builder will likely have to make changes and order specific materials.
Spec homes and tract homes don’t take as long since the builder can complete these in bulk. Many spec and tract homes are already built or nearing completion when you’re under contract, meaning you can move in within a couple of months, sometimes even immediately.
Townhomes and condos are also quick turnarounds. If you sign a contract during the construction process, it may set you back a few months because you won’t be able to move into your home until the building is complete. If you sign a contract for a home in a completed building, you can move in as soon as your financing is squared away.
New Construction Homes Vs. Existing Homes
Buying a new construction home gives you the freedom to make your house exactly how you want it. Even if you don’t choose a full or semi-custom home, you’ll still be the first to paint the walls or change the light fixtures.
Existing homes may save you money upfront, but you’ll likely have to make many changes immediately after purchasing. From replacing old carpet to painting the bedroom walls, you’ll have to spend money on upgrades as soon as you get the keys. You also have to consider the inspection report because an existing home could have issues with the AC unit, foundation, roof, or plumbing.
New Construction Homes Vs. Fully Renovated Existing Homes
Fully renovated existing homes come with character and often have elegant upgrades that increase the home value. However, as first-time homebuyers, it’s important to remember that cosmetic upgrades are less expensive and stressful than fixing foundation or structural issues.
The key benefit of purchasing a new construction home over a fully renovated home is having peace of mind that your foundation is in proper working order. Even with an inspection of an existing home, it’s hard to tell what stress and damage the house has endured over the years.
While the new construction home may cost more upfront and may not have the upgrades you’re looking for, it could save you money down the road with your home warranty and assurance that the home has adequate materials and structural supports.
What Are The Pros Of Buying A New Construction Home?
There are many benefits to buying a new home, especially as a first-time homebuyer. Whether you’re looking for a fully custom home or a townhome, you can expect to enjoy many perks that you can’t find in an existing home.
- Buying a new construction home allows you to open up rooms and tight spaces. You can create an open floor plan, giving you plenty of room to entertain and stay connected with your guests.
- You can incorporate the latest design trends while the home is being built instead of having to make renovations after the fact. This saves you time and money down the road since the builder can incorporate the current trends during the building process.
- Purchasing a new home means you’ll have the new home smell that you can’t get with an existing home. The smell lets you know that you’re in a place that was made specifically for you and your needs, and once it wears off, you can fill the home with your favorite candles and scents.
- If you take care of your new construction home and keep up with the landscaping, you can get more money out of the home than you put in. They have a great resale value, especially if you’re in a high-demand city or neighborhood.
- You’ll have peace of mind that only comes with purchasing a new home. The builder warranty covers most materials and systems for the first year and structural elements for the first ten years. If something happens to your structure or foundation, this could save you time and thousands of dollars.
- With new construction, you know you’re getting quality materials in important areas like the bathrooms and kitchen. You can often upgrade your materials to add high-quality countertops and appliances. If you’re purchasing a full or semi-custom home, you may even have the option to choose between a soaking tub or an extra shower in the master bathroom.
- New technology makes it easy to integrate smart home systems that keep your new construction house safe and energy-efficient. You can install smart thermostats, automated light systems, and camera security systems. Installing these items while the home is being built can save you time and money and allow you to start enjoying them instantly.
What Are The Cons Of Buying A New Construction Home?
While buying a new construction home offers multiple benefits, it might not be the best option for everyone. Here are a few cons to consider if you’re looking at a new construction home.
- New construction homes typically don’t have mature landscaping like existing homes. If you’re looking for a yard with shade and privacy, you might have to spend some money to plant large shrubs or trees to achieve this.
- Since they're typically in neighborhoods, you might not have a large yard with new construction homes. This could be a deterrent if you have pets or young children that need space to run and play.
- Although most builders have a system to keep their projects on track, you could be working with an uncertain timeline. Unforeseen circumstances like natural disasters or economic hardships could hold up or increase the price of materials, pushing back the timeline.
- Your new construction home will likely be in an HOA, meaning you’ll have to pay monthly fees for living in the neighborhood. The HOA can also dictate what you can and can’t do to your home, like building a fence, changing the color of your front door, or adding shutters.
What Mistakes Should You Avoid When Buying A New Construction Home?
Buying a new construction home is exciting, especially as a first-time homebuyer. It’s important to go into the process with a clear mind and some base knowledge to ensure you’re getting a quality home at a fair price. Here are a few common mistakes you should avoid when buying a new construction home.
- Assuming you can’t negotiate with the builder could be a costly mistake that you can easily avoid. Your Realtor can typically negotiate aspects like contingencies, premium features and finishes, and reduced closing costs.
- Not getting a home inspection on your new construction home could prevent you from finding damage or issues with the foundation and structure. Even with new construction homes, things can go wrong. Having an inspection done on your new home can save you time and stress down the road. If the inspection report shows damage, the new home warranty will cover the cost of the repairs.
- Not vetting the builder is a common mistake that could lead to issues down the road. Some builders construct their homes as fast as possible without putting integrity and craftsmanship in the homes. Vetting your builder before buying by reading online reviews, taking tours of the floor plans, and speaking to them in person can help you make the best decision for your specific needs. A local Realtor’s input can help determine if a builder is reputable.
- Forgetting to ask what the new home warranty covers is a serious mistake to avoid. Remember to always ask for specifics when it comes to the home warranty. Ask the builder or the representative to provide a detailed coverage list. This will prevent discrepancies or disagreements if something breaks within the covered period.
- Splurging on builder upgrades might save you some time upfront, but it’s a common mistake that will likely cost more money. Saving your money and making changes to your countertops and fixtures down the road would be a better option than choosing builder upgrades during the construction process.
- Not researching the available financing options when purchasing a new construction home could lead to spending more money at the closing table. Most builders will have a preferred lender, but it’s still smart to shop around to find the best option and save on closing costs and get the lowest interest rate.
How To Choose The Right Location?
As a first-time homebuyer, it’s important to consider what’s most important to you. Make a list of your needs, including how close you want to be to work, how large of a yard you need, and if you want to live in a neighborhood or subdivision.
Once you prioritize your wants and needs, you can better determine where you want to buy. If you have multiple kids or pets and you’re looking for a large yard, you may have to sacrifice living in the city for a neighborhood that offers large lots.
If you want to reduce your commute and spend less time driving to and from work, you might have to live in a close-built neighborhood with an HOA.
How To Determine If A Builder Is Reputable?
As a first-time homebuyer, finding a reputable builder is an important part of the home buying process. Working with an experienced real estate agent can reduce the time it takes to vet different builders in your area. Trusted companies like Freshbuilds have experts who rank top builders based on their incentives and quality by interviewing builders and their past clients to ensure you’re working with a reputable builder.
Visiting builder websites, reading past client reviews, and taking a tour of their existing homes is a great way to get a feel for the builder before signing a contract. Some red flags to look for when considering a builder are seeing multiple bad reviews or noticing poor quality materials in their model homes.
How To Determine What Builder Upgrades To Choose?
When you’re working with a builder for a new construction home, they’ll likely offer upgrades that could save you time and money. Choosing builder upgrades in major areas of the new house can save you time after you move in and increase your home value.
Changing out the carpet for hardwood floors and upgrading the light fixtures in the primary bedroom are smart choices for builder upgrades. These upgrades may increase your initial purchase price, but start you out with additional equity in your home.
Can You Negotiate With The Builder?
Buying new construction doesn’t always mean sacrificing on price. You can negotiate with your builder on warranties, contingencies, and sometimes even upgrades in the home.
Working with an experienced real estate agent can eliminate your need to negotiate directly with the builder and get you the best bang for your buck. Although you can’t always talk down the sticker price when buying new construction, there are still many ways to save money and make smart decisions.
Learning tips and tricks on negotiating for things like appliance upgrades, fixture upgrades, and home warranties could save you money and increase your home value.
How Much Do New Construction Homes Cost?
The price of new construction homes varies depending on the size of the house, region, customization, and builder upgrades. Homes built in the Northeast and the West are typically more expensive than those built in the South and Midwest.
Working with mortgage lenders can help you have an affordable down payment and a lower interest rate on your dream home regardless of geographical region.
The purchase price for fully custom homes ranges from $300 to $500 per square foot, whereas tract homes typically range from $60 to $120 per square foot. Your new home purchase price will continue to vary if you add builder upgrades or use a real estate agent to negotiate on your behalf.
What’s the typical mortgage payment on a $400,000 home?
An important part of the home buying process, especially as a first-time homebuyer, is finding a lender that you can trust. Using the following method, you can calculate the mortgage payment on a $400,000 home.
$400,000 (purchase price) - $20,000 (5% down payment) X 5.5% interest rate over 30 years = $2,145 monthly payment.
You can also use online calculators to determine your payment if you changed your down payment or interest rate based on your mortgage loan.
What Kind Of Loans Are Available For First-Time Homebuyers?
As a first-time homebuyer, deciding on the best home loan can be stressful. When buying a brand new home, you want your mortgage rate to be one less thing you have to worry about.
Before signing with the first mortgage lender you find, make sure you know your options and find the right type of home loan for you. As a first-time buyer, it’s a good idea to look into an FHA loan program.
Here’s a look at loan programs that could help you purchase your dream home.
Conventional loans are loans commonly used by homebuyers. You typically have a lower down payment (as little as 3% down), and depending on your mortgage lender, you may be able to lock in your interest rate which is a huge benefit in times of rising interest rates.
Many lenders who provide conventional loans have strict guidelines and require a specific minimum credit score, which means not every homebuyer will qualify for a conventional loan.
Federal Housing Administration loans (FHA loans) are government-backed programs with fewer guidelines for getting approved, making this a great option for homebuyers with a low credit score or a lower debt-to-income ratio. These loans typically provide competitive interest rates and don’t require a large down payment (as little as 3.5% down).
Although they have lenient requirements, you’ll likely have to pay for private mortgage insurance (PMI), which could cost you quite a bit over the life of your loan. The FHA also caps the borrowing rate, meaning you may not get a loan for as much as you’d like.
VA loans and available for military personnel and their spouses, and often provide flexibility to homebuyers. There’s no down payment required which is a huge benefit and they typically have low-interest rates and fees.
These loans don’t work for everyone because you can’t use them on second homes, and you have to pay for a home inspector and appraisal for every purchase, including new home construction.
USDA loans are backed by the U.S. Department of Agriculture and help homeowners in rural areas. They offer affordable interest rates and don’t require a down payment, making this a good option for first-time home buyers that are short on cash.
As a requirement of USDA loans, your property has to fall within specific locations (typically rural or suburban areas), which means not all homes qualify for this loan program. You’ll need to check your geographical location to ensure your new construction home qualifies for this home loan.
Construction loans are quite different than other loan programs because you’ll start paying on the loan immediately and have a much shorter term for the life of the loan. A benefit of construction loans is while the home is being built, you only pay interest instead of paying interest and the principal.
While this is a great option for homebuyers with cash on hand, it does require a higher down payment and requires higher interest rates during construction which isn’t the best option for buyers who don’t have cash saved up during the time of purchase.
How Much Is The Downpayment And When Is It Due?
The down payment for a new construction home is due at the closing and varies depending on the type of home loan you qualify for. Conventional and FHA loans will have much lower down payments, whereas construction loans require a higher down payment, typically at least 20%. USDA and VA loans on the other hand do not require a downpayment.
How Much Are Closing Costs On A New Home?
Average closing costs on new construction homes vary from two to five percent of the purchase price.
Having a dependable and experienced real estate agent can help you negotiate these terms and lower the closing costs, saving you money as you enter homeownership. If you’re buying a $400,000 home, you could expect to pay anywhere from $8,000 - $16,000, depending on additional fees and negotiations.
Are New Homes A Good Investment?
As a first-time homebuyer, a new build could be a fantastic investment. Every upgrade you make adds to your home equity, which means you’ll build wealth over time as a homeowner. While you may pay more for a new construction home than a fixer-upper, your equity starts high and continues to grow over the years.
Whether you own the home for one year or 15 years, the changes you make over time can quickly add up and increase your home value, which puts more money in your pocket when you decide to sell. Not only that, new homes have lower maintenance and are more energy efficient than older homes.
What’s The Process For Buying A New Home?
- The first step you’ll need to take is deciding where you want to live. Consider factors like the safety of the area, proximity to your place of work, how good the school district is, and how much land (yard) you’ll need.
- Once you know where you want to plant your roots, you’ll need to contact a lender and receive a pre-approval letter which gives you a practical price range that you can afford.
- After receiving your pre-approval letter, vet local builders to ensure you use a reputable company. Make sure you see good online reviews, and if you can, try to speak with the builder or their representatives in person.
- If you find a builder you like, tour a model home to get a feel of the floor plan and check the quality of materials used. You may want to look elsewhere if the model home does not seem to have quality materials or structural integrity.
- Once you’ve settled on a builder, choose the lot that works best for your needs (if you can select your lot) and consider the possible builder upgrades. Remember that you can always make cosmetic changes to your new build over time to save money upfront.
- After you’ve agreed upon a plan with the home builder, make sure your real estate agent negotiates with the sales agent. You can negotiate the closing costs, builder upgrades, contingencies, and home warranty.
- Now that you’ve agreed on a plan and price, it’s time to sign the builder’s purchase agreement which means you’re getting close to owning your first home.
- Soon after you sign the agreement, you’ll deposit the agreed-upon earnest money (which acts as a good faith deposit) or the builder deposit. This deposit is typically 1% - 5% of the purchase price and protects the builder in case the homebuyers back out.
- Once you’ve signed the contract and made your deposit, you’ll work with the lender to apply for the mortgage. Most lenders will work diligently on your loan to keep the process moving as quickly as possible.
- If you’re not purchasing a completely customizable new home, you can schedule a selections appointment at this stage. These appointments allow you to pick out various finishes like the flooring, cabinet color, and countertop material.
- During construction, you can work with your real estate agent and the builder’s agent to monitor the progression. Many builders will let you walk through the house during construction so you can see the progress and make changes if needed.
- Once the house is complete, you should get a home inspector to issue a report and make a note of any areas of concern. The report could shed light on any areas that need to be fixed by the builder before you settle into your new home.
- Shortly before the closing day (sometimes the morning of the closing day), you’ll walk through the home with the builder to ensure everything in the house is correct. This is your chance to address any last-minute issues (mainly cosmetic) that need to be fixed before moving in.
- You finally made it to closing day! You’ll wire your down payment, sign all required paperwork, pay the closing costs, and receive the keys to your first home.
Should A New Construction Home Be Your First?
Choosing a new construction home as a first-time homebuyer could be a fantastic opportunity. You can customize your home to meet your specific needs, and you’ll have less maintenance since all of the major systems of the home are brand new.
Ideally, you’ll start with home equity, and you won’t have to spend time on renovations when you move in. Purchasing a new home allows you to enjoy life and save money for date night or traveling instead of paying for costly home repairs.
Navigating The New Construction Process Just Got Easier!
Buying your first home can be intimidating and requires a lot of planning and researching. The best way to navigate the home buying process is by using a reputable company that does all the heavy lifting for you.
Sign up for Freshbuilds to search for new homes in your area. This prevents you from spending hours looking for available lots or a reputable builder that can work in your desired location. Freshbuilds does the hard work for you by using proprietary data to generate updated lists of available lots and quality builders.
FAQs When Considering Buying A New Construction Home
What credit score do you need to get pre-approved to buy a new construction home?
The required credit score depends on the mortgage lender and the type of home loan you qualify for. While most lenders require at least a 600 credit score, you may need a much higher score (closer to 700 - 720) for conventional or construction loans.
How much is the earnest money or builder deposit when purchasing a new home?
The earnest money or builder deposit typically ranges from 1% to 5% of the purchase price for a new construction home. This is roughly the same for older homes. Earnest money for a $400,000 new construction home with a one percent earnest money deposit comes to $4,000.
Do new homes come with a warranty?
New construction homes come with a builder warranty which covers specific areas of the house for a specified amount of time. Typically, the warranty covers materials, finishes, and major systems within the first year, while structural elements are protected for five to ten years, depending on the specific builder.
- Fred Economic Data, "Quarterly New One-Family Home Sales by Price and Financing"
- Bankrate, "Mortgage Calculator"
- Homebridge, "New Construction Closing Costs"
- Harlem World, "6 Important Tips On How To Choose The Perfect Place To Live In"