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New Construction Home Buying Process: The Step-By-Step Guide

Buying a new construction home is a very exciting prospect. You’re purchasing a brand-new home that no one else has lived in — one where everything is new and you can customize many options to your needs and preferences.

That said, the buying process can be daunting for first-time buyers, and even if you’ve bought real estate before, the process moves a bit differently with new construction homes.

At Lowder New Homes, we believe the home buying process should be as enjoyable and stress-free as possible, which is why we have put together the following step-by-step guide to make the process easier. If you are planning to buy a new construction home, please bookmark this page so you can refer to these steps again and again throughout your journey.

Table of Contents

  1. Research builders
  2. Hire an Agent
  3. Arrange financing
  4. Sign a Purchase Agreement
  5. Choose a Lot
  6. Choose a Floorplan
  7. Customize your options
  8. Choose your upgrades
  9. Negotiate
  10. Living arrangements
  11. Final inspection
  12. Sign off
  13. Moving in

Research Builders and Their Developments

When considering new construction properties, your very first step should be to do some homework on builders in your area and the developments in which they build. This step is critical because there is a high demand for new home construction and not all builders have the same standards of quality, integrity, or customer service. You’re about to embark on a months-long relationship with this builder, and you want to know you’re working with someone you can trust. For that reason, vetting the builder should take precedence even before deciding what kind of home you’re interested in. (You’ll take home styles into consideration once you’ve determined the builder is trustworthy.)

When researching builders, take a look at the following considerations:

  • What reputation does the builder have in the community? Are they known for their quality of work? How long have they been building in the area? Are there customer reviews you can look at?
  • What developments are they building in? Look at the new subdivisions where the builder has available homes and plots. Is the location desirable and/or convenient to your work? Are there good schools for the kids? What are the neighborhood amenities? What are the HOA fees?
  • What type of homes is the builder known for? Here’s where you start considering home styles. You’ll look at specific floor plans later, but for now, do you like the overall aesthetic of the homes this builder builds? Are they known for their craftsmanship and thoughtful details?

Hire an Agent

Most builders have agents or “builder representatives” on staff. These effectively act as seller’s agents for new homes, and they can provide a wealth of information about what properties and lots are available, floor plans, pricing, and more.

However, many homebuyers still choose to hire their own buyer’s agent to help them get the best deal. When choosing a real estate agent, look for someone with specific experience in new construction homes. It’s not mandatory to hire an agent for yourself, but if you’ve never bought a home before, it can definitely help to have someone on your team who knows the ropes.

Arrange Financing

Yes, you should take this step early and get pre-approved for a mortgage loan before diving into the buying process in earnest. You’re about to enter a process requiring hundreds or even thousands of choices, all of which will affect the cost of your home. Knowing how much you can afford will greatly simplify this process so that you don’t overspend, the builder doesn’t attempt to oversell, and you have less likelihood of getting denied financing on something you can’t really afford.

Helpful tip: To simplify the approval process, ask the builder about any preferred lenders they work with. Not only will these lenders specialize in new construction mortgage loans, but the builders often negotiate special terms with these lenders to give you a better deal and make approval much easier.

Sign a Purchase Agreement

If you were looking for a pre-existing home to buy, your next steps would typically be to go house hunting, find something you like, then make an offer and sign a contract with the seller. When purchasing a new construction home, these steps are reversed because the house doesn’t exist yet unless it’s a spec home.

Once you’ve decided on a builder and gotten preapproved for financing, you will first sign a contract with the builder (known as a purchase agreement), then start making decisions about the kind of home you want. The purchase agreement is usually a long document describing in detail the buyer’s and seller’s responsibilities during the build. Be sure to read it in detail to make sure you understand its terms.

You don’t have to come up with your downpayment (yet), but you will likely be asked to put down a deposit as earnest money.

Choose a Lot

You will soon be making decisions about the style of home you want and how it should look – but first, you have to decide where the home will be built. You will now select a lot among the new home developments where your builder is building.

Remember, you’re actually selecting a neighborhood, not just a build site, so be sure to ask about current and planned amenities for the neighborhood, school systems, HOA fees, etc. Also, be sure to ask for a copy of the HOA covenant so you know what’s expected of you as a resident.

If you have already chosen a floor plan, make sure you choose a lot that is large enough to accommodate it. (Your builder can provide insight here.) Ask as many questions as necessary to be comfortable with your choice of a home site.

Choose a Floorplan

Your next step is to select a floor plan for your new home. Your builder will have a selection of available floorplans from which to choose, and many floorplans will have customizable options (e.g., reversing the layout, adding a bedroom, etc.).

Your choice of floorplans may be narrowed by a number of factors, including the development you’re building in (some floorplans are designated only to certain subdivisions), the size of your lot, and your budget. The builder’s agent will talk you through the options to help you select the floor plan that works best for you.

Customize Your Options

At this point in the process, you’re about to make a huge number of decisions about what you want your new home to look like.

You’re going to have to choose flooring options, paint colors, appliances, countertops, light fixtures, plumbing fixtures, cabinetry, and possibly even different types of knobs for the cabinets.

The builder will have a set of “standard options” for you to choose from, meaning these choices all fall within the agreed-upon base price of the home.

Choose Upgrades

If you’re not satisfied with all the standard options available, the builder typically offers a selection of upgrades – premium feature options that come at an additional cost.

Examples of upgrades might include premium paint or an expanded color palette, higher-end fixtures and appliances, higher-grade wood flooring, additional landscaping, upgraded driveway, sound system pre-wiring, etc.

Your builder may also offer certain upgrade packages, a selection of upgraded options that make sense together (for example, a “smart home” package or an energy-efficiency package). Your choice of upgrades will depend on your personal preferences as well as your preapproved budget from the lender.

When deciding among upgrades, it might be helpful to have a conversation with your buyer’s agent if you have one. There are a couple of reasons for this. First, not all upgrades add to the appraisal value of the home – they just add to your cost, essentially giving you less home for the money. A good agent will be able to advise you on whether a certain set of upgrades will improve your ability to sell the home later. In addition, an agent can sometimes work with the builder to “throw in” a few upgrades for you at no additional cost.

Negotiate for the Best Deal

When making choices for your new construction home, you actually have quite a bit of control over the price, especially when it comes to standard options and upgrades. However, there are also ways for you (or your agent) to negotiate with the builder for a better deal.

In most cases, a “better deal” will have more to do with adding value than with lower prices (for instance, free upgrades). The example might be if you’re purchasing a “spec home,” a new home that is already built and has been standing vacant for a time, in which case the builder may have some “wiggle room” to discount the price. Also, be sure to ask the builder about current incentives and promotions. These often include free upgrades or cashback that can either lower the price or give you more value for the dollar.

Make Living Arrangements During the Building Process

Another huge difference between buying a new construction home and a pre-existing one is the amount of time between signing the contract and closing. New homes typically take a few months to build, and you can’t move in until construction is complete. So you’ll need to have temporary living arrangements in place while the home is being built.

If you’re renting somewhere, you may need to go on a month-to-month agreement, for example. If you are selling a home and you need to close before your new home is ready, you might need to spend a few weeks with family or move into an extended-stay hotel.

Final Inspection

Once your new construction home is complete, you’ll need to schedule a professional inspection to make sure everything has been built to specifications and is in compliance with local codes, as well as to make sure everything has been installed correctly.

Even though your home is new and technically should be free of problems, many lenders won’t give final approval to the loan until the house goes through inspection and any problem areas are corrected. During this step, the builder may also take you through the home for your own inspection, going over all your design choices and reviewing all that has been done on the home.

Sign Off on Warranty Documents

All reputable builders offer a new home warranty on their work, and you may also have the option of purchasing additional coverage in some cases.

A good warranty should offer full coverage of all materials and workmanship for at least the first year, plus additional coverage on delivery systems like electrical and plumbing, as well as a structural warranty to cover the foundation, roof, and load-bearing systems. (Your appliances and other fixtures are usually covered by a manufacturer’s warranty.)

Be sure to review all warranty information with the builder so you understand what is covered, what is not covered, and what to do if any problems occur during the warranty period.

Closing

Once construction is complete and your new home has passed inspection, it’s time for the final processing of your mortgage loan and closing.

Since it has likely been months since you first applied for a loan, the lender may have a few additional questions for you. They may ask for additional verification or documentation of your finances, and they may run another credit check to make sure no major changes have occurred in your financial situation.

Once the loan reaches final approval, they will send over the closing documents. You’ll sign the final paperwork with the builder and the title company, and you can officially move in!

That’s it!

As you can see, the new construction home buying process is fairly involved. However, by taking these steps one at a time and knowing what to expect, not only will the process become easier to navigate, but you’ll also ensure you’re getting the very best home for the money – something that will give you and your family joy and peace of mind for years to come. If you’re looking for a new construction home in Montgomery, AL and the surrounding areas, Lowder New Homes wants to be your builder. Contact us today to get started.

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