Buying a New Construction Home | 15 Q & A's | Better | Better Mortgage (2023)

Buying a New Construction Home | 15 Q & A's | Better | Better Mortgage (1)


When you’re shopping for a home, there is an undeniable appeal in going the new construction route. Why move into someone else’s old space when you could work with a builder to create your dream home? You’ll get brand new everything with all the modern details and likely have fewer maintenance costs too.

New construction homes may seem like an easy option, but they do have their drawbacks. For one thing, mortgages for new construction homes tend to be a little more complicated than their resale counterparts. You’re also at risk of falling victim to predatory lending tactics from builders in the process. Here are 15 answers to some of the most common questions about new construction homes.

1. What is a new construction home?

Let’s start with the basics: A new construction home is any property that has not been occupied since it was built. If you’re buying from a builder, your new construction home most likely started out as a simple plot of land. One day, a keen-eyed developer came along, purchased the land, and divided it into buildable lots. They then sold the land to a builder who invested time and money to construct properties on each lot that could be sold to homebuyers for a profit.

(Video) 6 Questions to Ask When Buying a New Construction Home!

2. Are there different types of new construction homes?

Broadly speaking, there are 3 types of new construction homes: custom, semi-custom, and spec. 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 leave a few of the decisions to the professionals, you may opt for a semi-custom home, which is a pre-designed property that you can change to meet your preferences. Finally, 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.

3. What’s the difference between a construction loan and a loan for a new construction?

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.


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4. How does the mortgage application process differ for a new construction home?

Financing a new construction home is not unlike financing a resale home. The biggest difference is in the closing timeline. A lender cannot close on a new construction home loan until the property is ready for you to move in. That means that you must time your application with the builder’s schedule carefully and hope that they don’t run too far beyond their projected deadline. For example, let’s say that you begin your home loan application, get pre-approved, and lock your rate 30 days before construction is supposed to be complete. Then, your builder encounters permit issues and suddenly construction is delayed by 3 months. You’re now at risk of losing your rate-lock window because your lender is unable to close on your loan. Rest assured, our Loan Consultants can offer advice on the best time to begin your application. They’ll take into account a range of factors, such as the current stage of construction and the speed of construction until that point.

(Video) Questions to ask when buying a new construction home /Learn the SECRET

5. How finished does your home have to be before you can close?

You can close on your home loan as soon as construction is complete and a Certificate of Occupancy has been issued. Eager homebuyers have been known to apply for loans before the foundations are even poured. There’s nothing wrong with a little proactive planning, but keep in mind that our longest rate lock period is 75 days out from closing. If you exceed this timeframe, there’s no guarantee you’ll be able to secure the home loan and interest rate you wanted. Regardless, we’re always happy to advise you if you’d like to start the conversation ahead of time.

6. What is a Certificate of Occupancy?

A Certificate of Occupancy (CO) is a formal document stating that a home has finished construction in accordance with all the relevant building and safety codes. COs are required by most local governments before you are legally allowed to move in and for a mortgage lender to close on your new construction loan. They’re usually performed by a local inspector after a thorough walkthrough of the home. If your home doesn’t pass the inspection, you will likely have a window of time to correct the outstanding issues.

7. Do you have to use the builder's lender?

If you only take one thing away from this article, make it this: You do not have to use the builder’s preferred lender. The builder may make it seem like you have to use their preferred lender, but you always have the option to finance your home with someone else. Keep in mind that builders are often nationwide institutions and it’s possible their “preferred lender” is actually part of the same corporate family. It’s often in the builder’s best interest for you to partner with their preferred lender, but it may not be in yours. If you shop around, you’ll likely find a more competitive loan that fits your goals and needs.

Buying a New Construction Home | 15 Q & A's | Better | Better Mortgage (2)


Read how Mateo and Alejandra saved money by buying their home with Better Mortgage.

(Video) Buying New Construction: What You Need To Know

8. What if you’re offered financial incentives to use the builder's preferred lender?

It’s not uncommon for builders to lure you in with financial incentives that you’ll “lose” if you choose to finance your home with anyone other than their preferred lender. Word to the wise: These incentives are oftentimes far more attractive in theory than they are in practice. For example, the builder may offer a seller’s credit significantly higher than what you’d typically get with a traditional lender—often upwards of $10,000. However, they can also hit you with exorbitant lender fees that effectively negate the seller’s credit altogether. Then, they may tack on a high interest rate for good measure. If it seems too good to be true, it probably is.

9. What is the “builder’s lender trap”?

Builders have also been known to employ predatory lending tactics that essentially force you to work with their preferred lender. For example, some builders will require you to present a "commitment letter" from your lender that promises financing up to a year in advance of closing. The builder is well aware that no lender (aside from their own) will agree to these terms, leaving the homebuyer with no option but to go with their recommendation. If you’re ever presented with a situation like this, we can help you work around it. However, it should probably be taken as a red flag that your builder is trying to scam you.

10. Can you negotiate with a builder on the purchase price?

It can be near impossible to get a builder to budge on the listed price of a new construction home. However, that doesn’t mean that you shouldn’t try—and it definitely doesn’t mean that you have to leave the negotiation table empty handed. The next best place to start is on upgrades. A builder may be unwilling to knock as little as $1,000 off your home’s purchase price, but that same builder may be happy to throw in $10,000 worth of upgrades from their showroom. If you are afforded upgrades in the negotiation process, the experts recommend choosing the kinds of features that will add real value to your home, such as hardwood floors or marble countertops.

11. Should you work with a real estate agent?

You may instinctively think that a real estate agent is an unnecessary middle person in a new construction purchase—especially if you’ve already done the legwork and found the home that you plan to buy. However, it may be a good idea to have the experience that a qualified agent can bring to a real estate transaction. Especially considering it’s the builder who’ll end up paying the agents commission. A real estate agent will help you decode the fine print of the builder-friendly purchase agreement as well as navigate the mortgage process. They can also help you negotiate upgrades, add-ons, and the all-important warranty. Better Real Estate can match you with a trusted agent who can help you find your new home. Plus, by working with a Better Real Estate agent and choosing to finance with Better Mortgage you could save $2,000 on closing costs.*

12. Do you need a lawyer for a new construction home?

Technically, no. But heads up: There can be a lot of red tape involved with buying a new construction home. And unless you feel like navigating the intricacies of “cancellation rights” on your own, an experienced real estate lawyer by your side could add a lot of value. Find the right person and they will negotiate all the specific terms of the contract—such as your liability, commitments, and how you’ll be compensated if the construction runs beyond its projected deadline. A real estate lawyer can also review the warranty that comes with your new home to ensure that you’re protected in the event that any defects arise after you move in.

(Video) FIRST TIME HOME BUYERS 2020│NEW BUILD│OUR ENTIRE PROCESS AND STEPS!! **VERY INFORMATIVE**

13. Should you get a home inspector to examine the property before you close?

A thousand times yes. Just because you’re buying a new home, doesn’t mean there won’t be anything wrong with it when you move in. You can hire a home inspector at any stage of the construction process, and it’s often recommended that you enlist their services at least twice: once before the foundation is poured and a second or even third time after the walls go up. At the very least, a home inspector can ensure that everything is built to code, i.e. it meets the health and safety standards set by your local government. They will also uncover any potential issues with the home before you finalize your purchase.

14. Do you need to get an appraisal for a new construction home?

Here’s where the mortgage process for a new construction home is exactly like the mortgage process for a resale home: in both instances, your lender requires an appraisal to ensure that the loan amount does not exceed the value of the home. A new construction appraisal typically uses the builder’s plans and spec sheets to determine the fair market value of the property. Note: If we send an appraiser out and the CO hasn’t yet been issued, the appraiser could require a follow up inspection prior to closing in the event of any unfinished features of the home that present safety issues.

15. Does Better Mortgage offer home loans for new construction homes?

Yes! While there are definitely a few watchouts with buying a new construction home, they can also be a wonderful fresh start that affords you many years of happiness. Better Mortgage offers home loans for all types of new construction homes, and we don’t have the origination fees or commissions that you’ll likely encounter with a builder’s preferred lender. That means more money in your pocket to furnish your dream home just the way you envisioned it.

Ready to get started? Getting pre-approved is free and only takes a few minutes.


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(Video) 8 Questions to Ask Before Buying a New Construction Home

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FAQs

Can you negotiate mortgage rates on new build homes? ›

You should always shop around with a few different lenders to find the best rates on your home loan. However, using the preferred lender of the builder could help you in negotiating a good deal on the house. The preferred lender often offers buyer incentives to help sweeten the deal.

Is it harder to get a construction mortgage? ›

This means they're harder to qualify for, and the interest rate will likely be higher than a traditional loan. In addition, if you decide to go this route, you'll have to pay a second set of loan fees when you apply for a traditional mortgage.

What questions to ask when buying a new home new construction? ›

20 Questions to Ask When Buying a New Construction Home
  • How long has your builder been in the industry? ...
  • Have they built similar homes? ...
  • Can I visit other finished homes? ...
  • Who's in charge of the construction? ...
  • What's my ideal lot? ...
  • What's considered an extra? ...
  • When are extras paid? ...
  • Can I roll in additional features?
Apr 30, 2019

Can I lock in interest rate on new construction? ›

Most new construction mortgage lenders will allow you to lock today's mortgage rates for periods of 180 days, 270 days, 360 days, or longer.

Do you have to pay full asking price on a new build? ›

Just because a new-build property is new, it doesn't mean the asking price is non-negotiable. You can make an offer in the same way you would if you were buying an older property. Of course, it's up to the developer if they wish to accept a lower offer or politely decline it.

What upgrades to avoid in new construction? ›

New Construction Upgrades to Avoid
  • Appliances. If appliances aren't included with the house, you may be better off buying them yourself. ...
  • Lighting. Another new construction upgrade to avoid is lighting. ...
  • Cabinet hardware. ...
  • Kitchen backsplash. ...
  • Outdoor space. ...
  • Crown molding.
Mar 16, 2022

How much less should you offer on a new build? ›

Latest analysis shows that buyers of new build homes are currently negotiating a typical discount of around 14% from the asking price.

What are some of the most common mistakes buyers make when buying new construction? ›

Here are five of the most common mistakes individuals make when purchasing a new construction home.
  • Not Researching The Community Ahead Of Time.
  • Not Vetting Your Builder or Developer.
  • Not Protecting Yourself Throughout The Buying Process.
  • Not Properly Prioritizing Costs.
  • Not Getting A Home Inspection.

What is the most common source of major problems in new home construction? ›

One of the most common new construction Home defects is overlooked paint. You may find that some areas of a newly-built home have not been properly painted, such as basement areas, utility closets, and other out-of-the-way areas.

What happens if you lock in an interest rate and it goes down? ›

When you lock your interest rate, you're protected from rate increases due to market conditions. If rates go down prior to your loan closing and you want to take advantage of a lower rate, you may be able to pay a fee and relock at the lower interest rate. This is called "repricing" your loan.

Will interest rates go down in 2022? ›

Mortgage rates may continue to rise in 2023. High inflation, a strong housing market, and policy changes by the Federal Reserve have all pushed rates higher in 2022. However, if the U.S. does indeed enter a recession, mortgage rates could come down.

How much is a rate lock fee? ›

The charge for a rate lock could range from 0.25% to 0.5% of the amount of your mortgage. For example, on a mortgage loan of $450,000, a 0.25% rate lock deposit would be $1,125.

Why do lenders not like new builds? ›

Mortgage lender criteria is stricter for new builds

This is because lenders see these mortgages as riskier, due to the possibility that the value of the property may fall in its early years.

What deposit do you need for a new build? ›

Generally, you'll be required to have a 15% deposit for a new-build house and a 25% deposit for a new-build flat.

What is the credit score for a construction loan? ›

Additionally, don't make any large purchases in the months before you're going to apply for a construction loan. Most lenders typically want a minimal credit score of 680 for the loan to be considered, some want the score to be 720 or better.

How to negotiate a new build house price in 2022? ›

The first thing you should do is research similar properties nearby that are a few years old. If they're selling on the open market for significantly less than the developer is asking for the new build, you're in a good position to make a lower offer in that same ballpark.

Do you always lose money on a new build? ›

Just like a new car, a new build house or flat will depreciate in price the minute you turn the key in the door. Even in a rising property market, you may not get your money back when you buy a new build home if you have to sell within a year or two.

What is the process when buying a new build house? ›

Before you buy
  • Step 1: Find a house that's right for you. ...
  • Step 2: Speak to a mortgage adviser and agree a mortgage in principle. ...
  • Step 3: Reserve your property. ...
  • Step 4: Appoint a conveyancing solicitor. ...
  • Step 5: Secure your mortgage. ...
  • Step 6: Pay the deposit. ...
  • Step 7: Exchange contracts. ...
  • Step 8: Make a snagging list.
Jan 11, 2021

Do you regret buying new construction? ›

Sixty-six percent of buyers of new-construction homes say they feel some form of regret about the process. Twenty-six percent wish they had purchased an existing home instead, according to a new survey conducted by Clever Real Estate.

What should I look for in a walk through of new construction? ›

During the walkthrough, the homeowner and construction representative inspect every surface, from floors to mirrors to walls. At that time, it's important to check the windows as well.
...
You also want to inspect home systems like:
  • Air conditioning.
  • Heating.
  • Plumbing.
  • Electricity.

How much does it cost to reserve a new build? ›

Reservation fees

This fee can range anywhere from £500 to £2,000. The fee will be deducted from the balance due when the sale completes, but it is non-refundable if you don't complete the purchase in the timescale required by the developer.

Do new builds depreciate in value? ›

Despite new build homes being newly constructed and built with highly regulated and energy-efficient materials, they can depreciate in value very quickly and also be very difficult to resell. This is important to a lender as if they have to repossess, they need to be able to make their money back from the loan.

Is buying a new build a good investment? ›

Low Maintenance Costs

As new builds are brand-new properties, fewer maintenance costs are needed for the first few years of ownership. This is a significant benefit for property investors, who won't need to spend money on ensuring that the property is in a good state for renters.

What is an appropriate lowball offer? ›

Some agents define a low-ball offer as 25% or more below list. In areas where there's a shortage of available homes, that figure may drop to 20%. "What defines lowball varies from market to market and even submarket to submarket, but certainly from price range to price range," says Steve McLinden of Bankrate.com.

What are the two largest obstacles for first time home buyers? ›

A poor credit history, rising home prices, and limited savings are also obstacles that could make it difficult to buy a first home.

What are 5 things you should do before buying a home? ›

On This Page
  • Understand why you want to buy.
  • Check your credit score.
  • Create a housing budget.
  • Save for a down payment.
  • Shop for a mortgage.
  • Hire a real estate agent.
  • See multiple homes.
  • Make an offer.
Nov 22, 2022

What not to do after buying a house? ›

7 things not to do after closing on a house
  1. Don't do anything to compromise your credit score.
  2. Don't change jobs.
  3. Don't charge any big purchases.
  4. Don't forget to change the locks.
  5. Don't get carried away with renovations.
  6. Don't forget to tie up loose ends.
  7. Don't refinance (at least right away)
Aug 12, 2022

How do you tell if a new house is well built? ›

Look for signs of quality with kitchen cabinets (soft close drawers for example!), quality woodwork including oversized baseboards and window sills, floating bathroom vanities, quality appliance packages, and top of the line plumbing fixtures.

What three points should we keep in mind during the construction of a house? ›

08.
  • All floor- plans with a layout of plot/land, terrace floor, basement if any etc.
  • All Elevations including 3D views.
  • Location of columns or load bearing walls as may be applicable.
  • Location and size of doors and windows.
  • Furniture layout in all rooms.
  • Electrical point layout with respect to furniture layout.
Feb 28, 2022

What is the best day to lock in a mortgage rate? ›

According to data compiled from MBSQuoteline, a provider of real-time mortgage market pricing, mortgage rates are most stable on Mondays, making that day the easiest on which to lock a low rate.

Will interest rates go down in 2023? ›

“Inflation continues to ease while the Federal Reserve has switched to smaller interest rate hikes. 2022's higher federal funds rate has started to tame inflation. Thus, mortgage rates will likely stabilize below 6 percent across 2023.”

How far in advance can you lock an interest rate? ›

When can I lock in a mortgage interest rate? You can choose to lock in your mortgage rate from the moment you select a mortgage, up to five days before closing. Locking in early can help you get what you were budgeting for from the start.

What will mortgage rates end in 2022? ›

Freddie Mac, a government-sponsored enterprise that fuels the mortgage market, also predicts a drop in rates, though not as low as the MBA's forecast. Freddie is projecting rates to drop from an average of 6.8% in the fourth quarter of 2022 to 6.2% by the fourth quarter of 2023.

How high will 30 year mortgage rates go in 2022? ›

Mortgage Interest Rate Weekly Trends 2022

For November 2022, McBride forecasts rates to reach 7 percent to 7.25 percent for a 30-year mortgage and between 6.2 percent and 6.4 percent for a 15-year loan.

What will 30 year mortgage rates be at the end of 2022? ›

Current Refinance Rates for December 2022

30-year fixed: 6.63% 15-year fixed: 6.01% 30-year jumbo: 6.65%

What is worst case pricing mortgage? ›

Worst Case Pricing is calculated by comparing the base price from the original lock date to the current market base price, applying the lower price of the two.

Does a rate lock mean you are approved? ›

You can lock your rate once your lender has received your loan application, pulled your credit report and issued a loan estimate. If you're buying a home, lenders typically can't lock your loan rate until you have an accepted purchase contract.

How much discount can you ask on a new build? ›

Latest analysis shows that buyers of new build homes are currently negotiating a typical discount of around 14% from the asking price.

Are new build mortgages more expensive? ›

New build properties can be more expensive than older similar properties. This is often referred to as the 'new build premium' and means that if you're considering purchasing a new build, you should aim to stay put for a few years.

Can I negotiate my mortgage interest rate? ›

Can you negotiate mortgage rates? Yes, you can and should negotiate mortgage rates when you're getting a home loan. Research confirms that those who get multiple quotes get lower rates. But surprisingly, many home buyers and refinancers skip negotiations and go with the first lender they talk to.

Can you ask your mortgage company to lower your interest rate? ›

The short answer is yes, though your options are very limited. You may qualify for a mortgage rate reduction, if you're facing financial turmoil. But in most cases, you'll either need to take another route to cut your mortgage costs or work toward getting a refinance approval.

How do you talk a builder down in price? ›

How to Negotiate the Best Deal with a Builder
  1. Know the Builder's Incentives‍ ...
  2. Shop Around for Financing. ...
  3. Ask About Upgrades‍ ...
  4. Request Your HOA Dues to be Paid ‍ ...
  5. Select a Premium Lot‍ ...
  6. See if They'll Offer a Discount. ...
  7. Request Help with Your Closing Costs.
Apr 5, 2019

How do you get a builders quote down? ›

Here are our top 5 tips on negotiating the right way with a builder to get the best result possible:
  1. Plan Everything.
  2. Do Your Own Research.
  3. Always Be Fair.
  4. Haggle With Your Builder.
  5. Don't Forget Contracts.
Apr 15, 2021

What are the disadvantages of buying a new build home? ›

The cons of buying a new build

Premium price – Developers price new build properties at a premium, you will pay for the fact that everything is brand new. This means that new builds can lose their value more quickly than old houses, so when you come to sell, you may find that your house has depreciated in value.

How much deposit do I need for a new build mortgage? ›

When it comes to new build mortgages, many lenders will require you to have at least a 15% deposit. But it can vary and mortgage lenders change their lending criteria over time so it's a good idea to speak to a fee-free mortgage broker to get the latest advice.

Will home loan interest rates go down in 2022? ›

The policy repo rate hike by the Reserve Bank of India (RBI) in Sept. 2022 to 5.9% has led many banks to increase their interest rate on loans.
...
Home Loan Interest Rates in 2022.
CompanyHDFC Bank
Regular Borrowers (%)8.65% to 9.50%
Women Borrowers (%)8.60% to 9.45%
Top-Up Loan (%)As applicable
Processing Fee0.50%
29 more columns
Nov 21, 2022

What questions should I ask a home lender? ›

Mortgage Questions To Ask Your Lender
  • What Types Of Home Loans Do You Offer? ...
  • Which Type Of Mortgage Is Best For Me? ...
  • What Will My Interest And Annual Percentage Rate Be? ...
  • What Is The Loan Estimate? ...
  • Do You Handle Underwriting In-House? ...
  • What Is Your Average Loan Processing Time?
Apr 26, 2022

What is a good interest rate on a house? ›

Mortgage rates change all the time. So a good mortgage rate could look drastically different from one day to the next. Right now, good mortgage rates for a 15-year fixed loan generally start in the 5% range, while good rates for a 30-year mortgage generally start in the 6% range.

How can I avoid paying so much interest on my mortgage? ›

5 Ways to Save Thousands in Mortgage Interest
  1. Bi-weekly mortgage payments. Making a payment every two weeks adds one all-principal payment to your mortgage each year. ...
  2. Extra mortgage payments. ...
  3. Drop Private Mortgage Insurance (PMI) ...
  4. Recast your mortgage. ...
  5. Streamline refinance. ...
  6. Key takeaways.

Can I get a lower interest rate without refinancing? ›

According to The Mortgage Reports, modification changes the terms on your mortgage without a refinance. “To achieve the lower payments, the lender may reduce your interest rate, forgive a portion of the balance, extend the term of the loan or some combination of the three,” stated SmartAsset.

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