The New Construction Home Buying Process, Explained

Step-by-step guide to the new construction home buying process

Every new construction purchase follows a series of milestones, from choosing a builder to getting the keys. Here’s a step-by-step guide to the new construction homebuying process so you know what’s coming next.

Step 1: Decide which type of new construction home is best for you

Buying a new construction home can mean anything from choosing a house that is already completed and ready to buy in a brand-new subdivision to designing a custom-built house on an empty lot you’ve already purchased. Here, we break down your options:

Tract homes

A tract home is one of many homes built by a developer in a brand-new community. They’re sometimes called “cookie-cutter” homes because many are built from the same floor plans and have a similar look throughout the neighborhood. While they may not be one-of-a-kind, they’re often more affordable because builders can keep costs down by buying materials in bulk.

“If you’re buying in a new construction neighborhood or you have one builder or a few builders that are putting up an entirely new subdivision, then they already have pre-selected floor plans and options, and you, as a buyer, get to benefit from economies of scale,” says Brian Beatty, a top agent in Charleston, South Carolina, where new construction homes are prevalent.

“If you’re building in a mature neighborhood, you’re just building new construction for yourself. That’s going to be custom, and it’s going to cost more.”

Spec homes

A spec home is a brand-new house that a builder constructs on speculation, meaning they build it before there’s a buyer, expecting someone to purchase it once it’s finished or nearly complete. Because of that, the builder has already selected the floor plan, finishes, and upgrades, so what you see is what you get. It’s a great option if you want a brand-new home but don’t want to wait several months for construction to wrap up.

Custom homes

A custom home is built specifically for you, giving you the freedom to make decisions every step of the way. From the layout and floor plan to the finishes, fixtures, and appliances, you get to create a home that fits your style and needs. While custom homes are usually the most expensive type of new construction, they’re the best choice if you want to build your dream home from the ground up.

Step 2: Find a buyer’s agent for new construction

Although you do have the option of buying new construction without a real estate agent representing you, it’s recommended that you find a buyer’s agent. Stephen Cooley, a top-selling real estate agent in North Carolina with over three decades of experience, explains why:

An experienced buyer’s agent, on the other hand, will be working with your best interests in mind. Professionals who are familiar with new construction homes will be aware of any quirks or oddities that may arise with contracts, too.

“Local, regional, and national builders all kind of have their own versions of a contract,” advises Beatty.

“For example, if you buy [an existing] house here in Charleston, there’s a South Carolina state-approved contract that you use, and you just fill in the details. But a builder is going to write their own contract. They’re more than likely not going to accept a boilerplate contract.”

A good buyer’s agent will be able to review these contracts with you and make sure you’re not signing off on terms that benefit only the builder and leave you, perhaps literally, out in the cold.

Step 3: Evaluate different neighborhoods

Location is one thing you’ll be living with long after move-in day. While you can personalize almost everything inside your home, the neighborhood stays the same. Make sure the area fits your lifestyle before signing on the dotted line. Here’s what you should consider when researching neighborhoods:

• School districts
• Commuting time to work
• Convenience to grocery stores, restaurants, home improvement stores, and so on
• Proximity to recreational spaces like parks, fitness centers, or swimming pools
• Entertainment options (think movie theaters, bowling alleys, or anything else you may enjoy)

Property taxes may also be higher in certain counties than in others, which may be a factor worth considering. Your real estate agent can help you figure this out.

Step 4: Work with a lender that’s familiar with new construction

If you aren’t paying cash for the build of your new home, you’re going to need a home construction loan. Though many lenders can probably provide some type of suitable loan, whether through a lending network or their own means, it’s best to work with a lender who is familiar with the new construction process. You can ask your real estate agent for a recommendation, or try searching online for “new construction home loan [city, state]” to get started.

New construction home loans are different from typical purchase mortgages because instead of doling out the entire amount of the loan at closing, they serve as a short-term loan that will allow for release advances (called “draws”) throughout the construction timeline.

Once the building is completed, the loan will either be converted into a typical mortgage or your construction lender will require you to obtain a separate mortgage. Unfortunately, not all lenders offer this type of loan. Builders generally have a list of recommended lenders and may even entice you to use one of those lenders by reducing the price.

However, before signing with any lender, do your research. Make sure they have a good reputation, decent rates, excellent customer service, and that you understand how their construction loan product works from beginning to end.

Financing option worth considering: Bridge loans are typically used by investors who are acting quickly to buy land for development, but they can also be used by individuals who know they will be building a home in the near future to “bridge” the gap between their previous home and their new home. A bridge loan may be helpful if, for example, you’ve found a lot you’d like to buy and will figure out the details of your new construction home later.

Builders, if they aren’t working from a list of their own preferred lenders, as mentioned above, may have the capacity to offer their own financing. Builder financing may only fund the construction portion, and the home will likely require refinancing after construction is complete. So again, do your research to find out which option will be best for your finances and lifestyle.

Step 5: Compare prospective builders

Of course, you don’t want to automatically go with the builder offering the lowest price just because it looks like the best deal. The saying “you get what you pay for” exists for a reason, and while builders have to follow local building codes, there’s a lot more to consider when choosing the right one.

Take some time to research the builder’s reputation with the Better Business Bureau or the state attorney general to see if they have any complaints filed against them. You can do this on websites like Google Business Profile, Angi, and Yelp.

When you’re looking at the builder’s reviews and social media profiles, Cooley suggests buyers pay attention to how the builder communicates with someone who bought their home after closing. A good builder who stands behind their work will reach out to buyers and remedy any problems that may arise.

Moreover, don’t be afraid to actually have a conversation with your potential builder. Ask how they worked on previous developments, if there are common issues with building a home in your area (anything from weather conditions to material accessibility can be a major factor), and if they have any vacant or model properties you can walk through. In short, be proactive.

Your agent, too, can help you determine if there are specific questions or concerns you should address before committing to a particular builder.

Step 6: Research the builder’s developments

When deciding where to build your home, you have a couple of options. You can find a reputable builder whose designs you love and choose a lot in one of their existing developments. Or, you can pick out a piece of land in an area you like and hire a builder to bring your vision to life on that property.

Whatever you choose, when you’re driving through a developer’s neighborhood, get out and walk around. Ask the people you meet about the area and their experience with the developer.

You’ll also want to understand the situation surrounding a possible homeowners’ association (HOA). While not a guarantee, most new construction neighborhoods will have some type of HOA in place to keep common areas maintained and ensure a cohesive aesthetic.

HOA fees, which can be billed monthly, quarterly, or annually depending on how the association is set up, will have an impact on your homeownership budget, so it’s important to understand what you’re getting into. Moreover, HOAs often regulate what you can and cannot do with your home’s exterior, lawn, and driveway, so ask the developer (or your agent) for a copy of the governing documents for a full overview.

Step 7: Understand the purchase agreement

This is the part where having an agent by your side can make a big difference. While there may not be as much room to negotiate during the new construction homebuying process, you still want to understand exactly what you’re agreeing to and what happens if unexpected issues come up during the build.

For example, if prices go up because certain materials, fixtures, or appliances are no longer available, how will you be notified? What options do you have if you don’t like the builder’s suggested replacements? Getting clear on these details upfront can help you avoid surprises later.

“Go into it with patience, and you’ll have a good experience,” says Ben Neely of Riverbend Homes, a high-end homebuilder in the Austin and Texas Hill Country areas. “Every builder, big and small, is in the same boat.

Note that when mortgage rates are high, many prospective buyers may find they qualify for smaller loans because higher interest rates can increase monthly payments. With fewer buyers able to afford new homes, builders may slow down construction or adjust their plans based on market demand.

Step 8: Choose your home’s style

When choosing your home’s style and layout, think beyond what works for you right now and consider what you’ll need in the years ahead. Most builders offer a few different models or floor plans to choose from, so you can pick things like the square footage, number of floors, bedrooms, and bathrooms.

You’ll likely have a few meetings with your builder to go over upgrades and design choices, but the first one is especially important because it sets the foundation for your home’s overall layout and features.

If there’s a model home available to walk through, remember that this home is a showcase piece and will nearly always have the swankiest upgrades available. If you see something you like and you’re unsure of whether that particular material or fixture is the standard option, be sure to ask for clarification.

»Learn more: Your home’s style and layout should match the way you live, and that starts with choosing the right amount of space. Use our Square Footage Calculator to figure out your ideal square footage as you plan your new construction home.

Step 9: Select standard items

After you choose the style of the home, you’ll get to pick out the finishing touches from the builder’s selection of standard options. This means you’ll be able to select the basics, such as paint color, flooring, countertops, cabinetry, light fixtures, appliances, and tiling.

Keep in mind that the standard option typically means the cheapest option. For example, paint colors will usually be on a neutral spectrum: shades of white, beige, and gray. Flooring will usually consist of builder-grade carpeting (which is not plush) or laminate selections, and light fixtures aren’t going to be anything special.

Step 10: Decide on the upgrades

If the standard options don’t quite match your taste or you want your home to feel a little more like you, you can explore the upgrades your builder offers. Just keep in mind that every upgrade can add to the final price, so it’s worth being thoughtful about where you spend your money.

This is where your buyer’s agent can be a big help. As you walk through the design center and find upgrades you love, ask your agent whether they’re worth the extra cost and if they could help boost your home’s value when it’s time to sell.

“A lot of items that are in the design center do not offer 100% return value in a resale,” Cooley explains. “For example, builders might have an extremely high-end cabinet line and rare granite that’s more expensive, but they do not equate to resale based on what the other homes sell for in the neighborhood. If the other homes don’t have these upgrades, you’re probably not going to get that return.”

He also suggests reaching out to vendors directly because you can get these upgrades after closing for much less than what the builder would charge. It’ll be even cheaper if you’re handy and can install the updates yourself.

That being said, upgrading a kitchen (or bathroom) is not an especially easy project, and, let’s be honest, do you really want to move into a brand-new home and already feel like your kitchen needs renovating? In some cases, it may be worth the splurge to get the materials and appliances you want from the outset.

Keep in mind that value is different for everyone. Unless you’re planning to sell your new construction home shortly after it’s finished, the features you’ll enjoy living with every day may matter more than what a future buyer might want years from now.

That said, some smaller upgrades, like paint colors or light fixtures, are usually easier to tackle after you move in. Be realistic about what you’re willing to take on yourself and what’s worth paying for upfront.

Step 11: Figure out your living situation between homes

One tricky part of the new construction homebuying process is figuring out where you’ll live while your new home is being built. Construction can take six months or longer, and timelines can change, so your move-in date isn’t always set in stone.

If you wait until the last minute to sell your current home, there’s no guarantee the timing will line up with your new home’s completion. The last thing you want is to end up paying two mortgages at once.

If your current home sells before your new one is ready, you’ll likely need a temporary place to stay and somewhere to store your belongings. Your buyer’s agent can help you figure out the best time to list your home, but it’s still a good idea to start looking into short-term rentals or backup options with friends and family well ahead of time.

Step 12: Have your new home inspected

One would assume that if you’re buying brand new, it’s going to be problem-free, right? Wrong. Even if you hired the best builder in your area with the best reputation, there could still be some issues. That’s why it’s crucial to have a buyer’s agent who’s familiar with new construction homes. They’ll know a home inspector who understands the process.

“One mistake buyers make with new construction homes is that they just assume the home is going to be perfect and, because of that, they don’t get an inspection,” says Beatty. “It’s really important that buyers get inspections on new construction homes.”

Whether there are simple cosmetic oversights or significant issues with something not being built to code requirements, you’ll want to protect yourself with a home inspection.

Any problems or concerns will go on a punch list, a list of tasks that need to be addressed before the project is officially finished. Once the builder completes the punch list, it’s equally important to have an inspector come back out and revisit your home to ensure all is well.

Step 13: Sign and review the warranty documents

Warranties are a big part of the new construction homebuying process, and it’s important to know which type of warranty you will have. Builders generally offer one of two types of warranties:

• Implied warranties cover bigger workmanship problems that could affect how safe your home is, how livable, or whether it’s fit to live in. They usually last around 10 years, but the wording can be vague, so it’s not always obvious what issues are included.
• Express warranties clearly define the problems the builder is responsible for fixing. This warranty will state the length of the warranty and how the homeowner should dispute issues.

A buyer’s agent can help you understand what warranties cover, what’s excluded, and what to look out for before you sign any agreements. If issues come up after construction is complete, they can also help you navigate the process and make sure your concerns are properly addressed.

Step 14: Perform the final walkthrough

Your final walkthrough is exactly what it sounds like: It’s the last time you’ll walk through the home before officially taking the keys and signing off its completion.

By this point, inspections, repairs, and re-inspections should be fully completed. It’s in your own best interest not to take possession of the house until all punch list items are resolved and you have no lingering concerns.

During the final walkthrough, be sure that there are no residual paint splatters, left-behind construction materials, or any other signs of a job not quite completed.

Do, however, be forgiving of everyday dust and other signs of recent human activity. Unless your purchase documents specify that professional cleaning will take place prior to your move-in, your builder isn’t on the hook for things like vacuuming, mopping, or polishing your countertops.

Step 15: Prepare for closing

At last, it’s time to close on your new construction home, and the process is complete.

Your agent and lender will guide you through any action items on your part in the lead-up to closing day. Be ready to answer your phone, respond to emails, and gather necessary paperwork to maximize efficiency.

New construction pros and cons

Now that we’ve reviewed the steps involved in the new construction homebuying process, let’s summarize with a quick review of the pros and cons.

Pros of new construction

1. Brand-new space and features

A big perk of buying new construction is that no one has touched a single thing in the house, aside from the contractors, of course. The house is built with modern materials, new appliances and fixtures are installed, and the surfaces are in pristine condition. Because everything is brand new, you’re less likely to be burdened with surprise repairs.

“New homes come with the latest trends, and they are typically maintenance-free for the first 10 years,” says Cooley. “If there’s a problem in the first year, most builders offer a toll-free number where you get someone who represents the builder to fix the home.”

New construction also means the house and everything in it will be more energy-efficient. There will be modern windows installed in the home, better insulation, more efficient heating and cooling, and even appliances that use less electricity and water.

2. Modern building standards

People marvel at the craftsmanship and detail of older homes … but remove the sheetrock to inspect the electrical work or crawl under the house to inspect the plumbing, and you’re likely to find some issues. Sadly, the problems you find are going to be pretty costly, at least a few thousand dollars per repair.

Even if there aren’t any significant problems, before you can buy the house, a home inspector will require the sellers to bring the house up to code. Worse yet, you could be purchasing a renovated house with unpermitted work, which can open up a whole new can of worms.

New construction eliminates that possibility because builders are required to follow today’s energy and code requirements.

3. Personalized space

When you buy an existing home, you should expect a hefty price tag to renovate the kitchen. Homeowners spend an average of about $28,458 for a minor kitchen remodel and around $82,793 for a major renovation.

Maybe you want to replace the flooring throughout the house because you wish for mahogany bamboo instead of carpeting and laminate. Any work you do to turn an existing home into your home is going to cost you.

On the flip side, new construction allows you to choose the finishes that you want, therefore eliminating the added cost you’d have to pay to renovate.

Cons of new construction

1. Extensive builder research

As with everything else in this world, if you want to be sure that you’re hiring someone who is going to do their job and do it well, you need to vet the people that you’ll be working with.

If you don’t do your research, you could wind up with a newly constructed house that is riddled with problems, code violations, and more, so do your research on any builders you interview. Better yet, work with an experienced agent who can help guide you through the process.

2. Expensive customization options

As you’re looking through a model home, you have to keep in mind that it’s going to have the best features, fixtures, and appliances the builder has to offer.

“Buyers have to remember that the design center is a profit center for the vendors. Builders and buyers can get very carried away when visiting the center because they’re adding things to the base price,” explains Cooley.

So while upgrades can help you create a home that feels more personalized, those costs can add up quickly. It’s easy to get caught up in the excitement of choosing your finishes and features, but it’s important to keep your budget in mind. Before adding every upgrade you love, consider which ones are truly worth the extra expense and which ones you can tackle later.

3. Unpredictable completion dates

Building a home from start to finish takes seven to 12 months on average, but many variables can hold up production, such as material shortages, bad weather, or issues with the crew. All of these can stall your move-in date, which is problematic if you’re counting on moving within a particular timeframe.

To build or not to build?

Ultimately, the only person who can decide whether a new construction home is the best fit for your budget and lifestyle is, unsurprisingly, you. There may be a few more hoops to jump through and certainly a longer wait until you’re able to move in, but if you like that “new car” smell, imagine the scent of a new home.

With a little research, patience, and a great real estate agent by your side, you’ll be better prepared to make smart decisions, overcome challenges, and enjoy the exciting journey of building a home that’s truly yours.