You've probably seen this happen a lot. A house comes on the market for sale, and buyers start competing for a chance to buy it. In the end, one buyer is happy, and the rest feel their opportunity to buy a home slipping through their fingers.
Well, the help these frustrated buyers are looking for already exists, yet many buyers overlook it. The answer is to purchase a new construction home. Instead of waiting to be that one lucky buyer - you can pick what you like, have it built, and move in.
But the process of buying a new construction home is different in some significant ways. So, before you start shopping, take a moment and read this article. We've highlighted the most important differences so you can be an informed buyer with a great home buying experience.
Before actively looking for a new home, get pre-qualified. You won't know which new home development is in your price range until you see what you can afford and get your budget together.
Meeting with a mortgage loan officer early in the process will allow you to ask questions, too. There's a lot to know about purchasing a new construction home, so take this opportunity to learn all you can from your lender. Then take action on the steps they advise as soon as possible.
Pre-qualified buyers are viewed differently by builders' representatives and realtors. They see you as a serious buyer, setting you apart from buyers who couldn't move forward if they found a home they loved. But the pre-qualified buyer can potentially grab the last "best lot" in a new development.
For more information on getting pre-qualified, read "Our Answers to the Top 7 Mortgage Questions."
But getting pre-qualified is different for new home construction. The actual purchase and mortgage take place months in the future. During those months, good things - and some not-so-good things - can happen to your finances after you're pre-qualified.
Things like having time to save more for your down payment, home upgrades, and building post-closing reserves. Other life events can happen in those months, too, including job changes and family changes. Communicate early and often with your Loan Officer if things change.
Try to find a lender with experience working with new home construction. Many aspects of the mortgage process are different for new construction home purchases. Making a major purchase shouldn't be a learning experience for you and your lender.
What else can you do ahead of time to get ready for your new construction home?
FIND YOUR REAL ESTATE AGENT
Having a real estate agent of your own isn't required to buy a home, but it's a good idea. But unless a buyer finds their own agent, they won't have someone focused on their needs. The builder's agent represents the builder's best interests - not the buyers.
Interview the real estate agents to see how much new construction experience they've had in the previous two years. A bonus question will be asking if they've sold homes in the developments you've targeted. Even better if they have experience with the particular builder.
You can be confident in the care you'll receive when working with a lender and an agent experienced with new construction. And who needs extra anxiety and worries when they're making the most significant purchase they're likely to make?
Having your own agent also means you'll be shown multiple developments that check all the boxes on your list - and in your price range. Plus, your agent can provide background information on builders that's more reliable than Google.
Just remember, no one can make the best decision for you. But by working with an experienced agent, you can trust you'll have all the information you need to make those decisions.
PREPARE FOR THE PROCESS
Buying a new construction home is a much longer process than buying a resale home (one previously owned.) After you're pre-qualified, have selected your real estate agent, and choose the perfect development for you - there's more work to be done.
You'll want to pick the best location within the development. That means looking at available lots and narrowing it down to 2 or 3 you like. Next, you'll go over the builders' floor plans and front elevations. As you make your final choice, take the lot size and shapes into consideration.
Once you choose your floor plan, the next step is picking the interior finishes from the builders' standard options. These include choosing paint colors, flooring, countertops, cabinetry, light fixtures, and appliances. The builder will also offer upgrade options for some of these categories.
Upgrades cost more, but they can put your personality into the home. You'll see the standard options in most homes in the developments, but adding in some upgrades is how you can create a unique space to fit your family's needs.
One note of caution on choosing upgrades - make sure your lender will include them all in the loan. If some upgrades aren't included in the loan, you'll need to cover the cost out of your pocket. These costs are on top of your down payment and closing costs.
Once you've made every selection and signed the purchase agreement with the builder - you wait.
WHILE THEY BUILD IT
There'll be downtime between signing your purchase agreement and moving into your new home. Lots of downtimes if you purchased new construction. Remember, builders can experience several delays out of their control.
While you wait, continue saving money and managing your expenses. Stay in contact with your lender regularly, more often if anything changes that might affect your pre-qualifying. But don't worry about locking in an interest rate.
Interest rates are usually best for a 30 to 45-day lock. Some builders offer longer-term locks as an incentive to buyers for zero or little extra cost. It's more common to see this type of incentive when interest rates are rising or predicted to rise. When rates are low, builders will likely offer other incentives.
Plan on locking in the interest rate about 45 days from closing. The appraisal will also be ordered when the home is 90% complete, which should be about the same time. Both your real estate agent and the lender will help guide you with the right timing for these next steps.
The mortgage process moves forward at this time, as well. The documents used for your pre-qualifying are now months out of date. You’ll be asked for updated financial documents, including pay stubs, bank, and asset statements.
When the builder obtains the Certificate of Occupancy on the property (given by the county building department when the property is habitable), you should be about a week or so from the actual close of escrow. The appraiser will do a final check on the property at this point.
The team - the lender, real estate agent, and builder - will work to put all the final pieces of the process together. Anything you can do to assist - or stand by patiently - will help you get through the final steps with the least amount of stress.
WHAT ABOUT YOUR CURRENT RESIDENCE
If you have a home to sell, it will take some detailed planning on your and your agents' part to know when to list it for sale. Since delays are typical with new construction, don't plan on selling too early. If your home does sell, consider a leaseback option so you can stay in your home until the new one is complete.
If you're renting, don't give the move-out notice too soon. Waiting until the new loan closes is the best strategy. You won't be paying rent and a mortgage payment because the first mortgage payment isn't due for at least 30 days after the new loan funds.
IMPORTANT FINAL STEPS
As your new home is nearing completion, make sure you:
- Sign any warranty papers provided by the builder.
- Schedule and take your final walk-through, along with your agent.
- Consider hiring a home inspector to check over the final product.
- Get an explanation and demonstration of how to operate all the new systems in your home.
Once you become a new homeowner, make sure you:
- Pay attention to landscaping requirements and timelines you'll have to meet as a new homeowner.
- Order your window coverings.
- Meet your new neighbors!