If the prospect of purchasing a new construction home appeals to you, you’ll be glad to know you’ve got plenty of options. According to Realtor.com, new construction homes constitute about one-third of the U.S. housing inventory today — and with good reason.
Opting for new construction versus an existing home has a host of benefits, including less maintenance, increased energy efficiency, more control over design selections, and, of course, the fact that everything is modern and in pristine condition.
However, buying a brand-new home also comes with its own unique process that can differ significantly from buying an existing property. Let’s break down the steps involved in new residential construction transactions, so you’ll know what to expect at each phase.
1. The Pre-Purchase Phase
Before you shop for new construction, you should research home builders to ensure they have proven experience and a good reputation. Check out their online reviews and take time to interview them to avoid costly problems like code violations. You’ll also want to visit the builders’ developments and tour model homes.
Next, it’s time to consider your finances. Setting a budget and determining how much you can afford to spend on a house is a key step. Make sure you understand your income versus spending situation and all the costs involved. Set some guidelines, if necessary, but don’t forget to budget for extras like upgraded cabinets or countertops.
While you’re vetting builders, it’s a good idea to find out what they offer in a new home warranty, plus any buyer incentives, such as special financing deals, assistance with closing costs, or free upgrades.
Securing a mortgage pre-approval is also of utmost importance, since it helps determine your purchasing power and lets builders know you’re a serious homebuyer. The loan amount you qualify for is based on your current income and debt. Keep in mind that you can shop around and compare pre-approval offers from multiple lenders to make sure you’re getting the best terms and deal.
With your financing figured out, you can dive into selecting a property in the ideal neighborhood for you. Choosing the right location and community starts with making a list of your top priorities, which may include:
- Type of homes offered
- Quality of school districts
- Commuting time to work
- Distance to family and friends
- Convenience to grocery stores, restaurants, retail centers, entertainment, etc.
- Proximity to parks and recreational spaces
- Estimated property taxes
- Nearby medical facilities
- Availability of neighborhood pool, fitness center and amenities
- Pet friendliness
Understanding homeowner associations (HOA) and their rules should be included in your research, so there are no surprises after you move in. Find out the amount for HOA dues, what they cover, and whether they’re billed monthly, quarterly, or annually. You will want to obtain a copy of the governing documents from the developer or your real estate agent and review them carefully.
With your preliminary research completed, you can move on to evaluating floor plans and customization options. Be sure to choose a floor plan that will suit your growing needs well into the future. Among the core elements to consider before your initial pre-construction meeting with your builder are the home’s square footage and number of levels, bedrooms, and bathrooms.
2. The Purchase Agreement Phase
The next step in the process is signing a purchase agreement, a legal document that spells out the terms of your home’s construction and protects both builder and buyer. You can expect your purchase agreement to contain information such as the terms of the contract, who is responsible for which expenses, materials and construction specifications, and the project’s estimated completion timeline.
Before you sign, clarify what happens if unforeseen issues like supply chain delays arise during building. Make sure you know how any changes will be communicated to you, along with the recourse you’d have. For example, if your desired materials, fixtures, or appliances are unavailable, how will you be advised? What are your options when presented with proposed replacements and price increases?
The purchase agreement is one of the most important documents in new construction, so it’s wise to have a real estate agent and/or attorney review it with you.
3. The Construction Phase
Following pre-construction planning, one of the most exciting phases for any homebuyer begins — the building of your new home. Monitoring the build process through regular site visits and staying in communication with the builder can keep you updated and ensure a smoother process from site preparation and foundation work, all the way to the installation of interior and exterior finishes.
Along the way, you may need to request a change to your property’s plans. This will likely come in the form of a change order, or an amendment to your purchase agreement drafted when any alteration to the original scope of work is made. Before asking for any changes, you’ll need to understand the impact on your overall costs and timeline.
Sometimes, a change is unavoidable and initiated by the builder. In that case, the builder must inform you of the change, any additional costs, and any adjustments to the completion date. However, if you request a change to your property’s plans, the builder may charge a fee, as well as alter the construction dates.
4. The Pre-Closing Phase
A series of inspections and your final walkthrough will take place before your shiny new home is ready for occupancy. The inspections, which cover everything from plumbing and electrical to structural components and heating and cooling, ensure that all work complies with local building codes and safety regulations. A Certificate of Occupancy must be obtained from the local municipality before closing.
Once the inspections are complete and any necessary adjustments are made, you’ll conduct a final walkthrough, where you’ll identify and address any issues and verify that all agreed-upon work is completed. This is your chance to ask questions and make sure that everything meets your expectations, so carefully inspect every aspect of your new home. That way, any concerns can be addressed before you move in.
At this stage, you’ll also finalize your financing, confirm mortgage details and interest rates, and prepare for your closing costs and down payment.
5. The Closing Process
When construction is completed, congratulations are in order as you get closer to life in your new construction home. Now you’ll prepare for closing day by scheduling the closing date and time and gathering all necessary documents and payments. These usually include:
- A government-issued photo ID
- A cashier’s check or proof of wire transfer
- Proof of homeowner’s insurance to submit to lender
On the big day, you’ll sign the closing documents, transfer ownership and funds, and enjoy the best part — receiving the keys and taking possession of your brand-new home! After the closing, the new deed will be registered with the appropriate government office.
6. Other Considerations
Before you close on your new home, take some time to understand your homeowner responsibilities, including scheduling utility connections for electricity, gas, heating, water, Internet, and other essential services. Make sure you have everything you need to maintain your property and keep all your home’s systems running smoothly.
Besides regular maintenance and upkeep, you’ll also want to get to know the builder’s warranty, which comes with most newly built homes. Unlike a home warranty that covers household appliances and systems, a builder’s warranty is a written contract provided by the builder that covers material and workmanship issues and offers protection against latent damages for a specified amount of time.
Vanguard Title Is Well Versed in New Construction
While the advantages of putting your stamp on a newly built home are numerous, the new construction home-buying process can be overwhelming. And, when it comes time to close on your just-built home, you’re sure to want seasoned title professionals at the closing table with you.
At Vanguard Title Co., our educated title and closing staff have the specialized knowledge and sophistication that are essential when closing a new construction project. We’ve successfully closed thousands of real estate transactions a year throughout Michigan and Florida, and we’re ready to help you at every phase of purchasing a newly built home that’s perfect for you.