Tuesday, May 4, 2021 / by Adam Donaldson
Tips for Buying a New Construction Home
Many things have changed since the pandemic started. The way we shop, see friends and family, and work have all been impacted. However, ensuring that we remain optimistic and continue with our life goals and ambitions is the best way to continue with our lives.
One life objective that many people are still working towards is owning a home. And this year looks promising. Through February, housing starts were 6.4% higher year-over-year, and new construction homes made up 14% of all single-family sales.
But know that buying a brand new home is anything but straightforward. From home financing to home warranties, here are key questions to get started.
What to choose: a spec home or a custom home?
A custom home affords you the most creative control over the design of your new home. In fact, you can work with an architect to have your say over every single detail—right down to the way your doors swing. If you’d prefer to just not think about it at all, you may decide to move into a spec home, which is a move-in ready home, built out with the kinds of features designed to appeal to just about anyone.
How much does a new home cost?
In February, the median price of a newly built single-family home was $349,400, according to the U.S. Census Bureau. And according to NAHB’s 2020 Cost of Constructing a Home report, the average construction cost of a new single-family home is $296,652 not counting the cost of land) or about $114 per square foot.
Costs will vary by region, with higher costs in urban areas than suburban or rural areas. It’s also easy to get carried away by upgrades that can significantly add to the price of the home.
Options for financing a newly built home
It’s tricky, but there is a distinct difference between a construction loan and a loan for a new construction. A construction loan is used to literally finance the building of a property. For example, if you wanted to buy the raw materials to build your own house, you might take out a construction loan to help support your purchases. A home loan for a new construction is when you borrow money for the purpose of buying a home from a builder.
If you’re a veteran, you can explore the option of a VA loan as well. The VA construction loan option is an important one for those who would rather not purchase an existing construction home. One of the acceptable uses of VA loans is that they can be used to build a home on a piece of land. Qualified military borrowers can use VA entitlement toward a new construction mortgage.
Waiting time to build a home
The average amount of time to build a new construction house is about 7.7 months, according to data from the U.S. Census Bureau’s 2018 Survey of Construction. That includes about one month for building authorization and permits, followed by 6.7 months of actual construction, ending with the final walk-through.
Am I hiring a reputable builder?
Whether it be a spec, semi-custom, or custom-built home, you want to ensure you’re using a quality builder. Look for online reviews and ratings from organizations like the Better Business Bureau or your local homebuilder’s association.
Ask family and friends who may have recently built a home about their experience. You can also check with local real estate agents to get information about new developments that may be under construction.
Do I need a builder warranty?
Most builders will offer different warranty terms for different components of a new home. Typically, you’ll get a warranty on materials, labor, plumbing, heating, electrical, A/C, and a warranty on structural elements, including load-bearing walls and foundations.
Just review all the warranty documents before signing them to make sure you understand what is and isn’t covered and for how long.
If you’re just starting your new home buying journey, check Money.com’s guide for beginners on How to Buy a New Construction Home.