A Beginner’s Guide to Purchasing a New Construction Home
If you’ve been unable to find your dream home owing to a pandemic-related housing shortage, new construction might be the answer. This is something that many customers have done in the past $255 directly from lender.
According to the National Association of Home Builders, single-family house construction increased by 12% last year. This year also seemed to be going well. In February, housing starts climbed by 6.4 percent year over year, accounting for 14% of single-family home sales.
Because people’s preferences for working from home continue to impact what they desire in a home this year, NAHB chief economist Robert Dietz predicts that new buildings will rise this year, but at a slower pace than in 2020.
Keep in mind that purchasing a brand-new house is everything but simple. Here are some crucial questions to get you started, ranging from home finance to house warranties.
What is the difference between a speculative house and a custom home?
You have a few alternatives if you’re thinking about purchasing a new house.
Spec houses are often constructed to the developer’s specifications and found in big residential complexes or subdivisions. As a buyer, you wouldn’t be able to make alterations to the property since it had already been constructed.
Because spec houses are often fully completed, or near completion, the approach would be comparable to purchasing an existing home. A spec house is a way to go if you’re seeking a move-in-ready property.
According to Alec Hartman, CEO and co-founder of Welcome Homes, speculative houses usually have a year’s supply available. This year, they’re virtually wholly sold out for new construction customers, which leaves semi-custom and custom-built homes.
Semi-custom houses, like spec homes, are often found in big projects and are constructed according to developer requirements, although they provide some freedom. Customers who buy semi-custom houses, for example, have a variety of floor plans and interior choices to pick from. For additional customization, some developers may demand a fee.
A semi-custom construction is a decent alternative if you want some customization but don’t want to start from scratch. Seventy percent of all new single-family houses are speculative or semi-custom.
Custom houses account for 20% of new development and are created totally according to the buyer’s wishes. (The remaining 5% is made up of build-to-rent homes.) It’s constructed on the property you already own or want to acquire, and you’d employ your architect and contractor to realize your concept.
With a custom construction, you have complete control, but you must manage many details and make hundreds of little choices.
How much does it cost to build a new home?
According to the National Association of Realtors, the average price of a newly constructed single-family home in February was $349,400. According to the US Census Bureau, the median price of an existing home jumped to $313,000.
According to the National Association of Home Builders’ 2020 Cost of Constructing Home research, the average cost of a new single-family home is $296,652 (excluding land fees), or about $114 per square foot.
Keep in mind that if the cost of materials rises, your construction expenses will almost certainly climb with it.
In February, builders took a vacation because of rising material costs, rising interest rates, and harsh winter weather, resulting in a drop in house starts. According to Dietz, the cost of timber has increased by 199% since April 2020, adding $24,000 to the price of a newly constructed house.
According to Hartman, a Guaranteed Maximum Price contract may assist you in maintaining budget management. The contractor gets paid for the actual expenses spent plus a charge, up to a certain level, under this contract form. Unless the owner has accepted further change orders, the contractor is responsible for any cost overruns.
Expenses vary depending on where you live, with metropolitan regions spending more than suburban or rural places. It’s easy to get carried away with alterations that might increase the cost of the property. Pay special attention to landscaping and personalization, such as landscaping and personalization. Even if not included in the construction expenses, they should be incorporated into your budget.
What are the financing possibilities for a freshly constructed home?
If you’re purchasing a speculative or semi-custom house in a significant development, you’ll require new construction financing.
To secure the purchase, you need to apply for a mortgage before the house is completed and provide the builder with a loan pre-approval letter. When the home is ready to move into, the financing is completed.
You’ll need a construction loan if you’re planning a bespoke home. The mortgage operates as a line of credit, enabling disbursements from the allowed amount. You’ll only be making interest-only payments during this period. The loan will be converted to a conventional mortgage after the construction is completed.
If you’re purchasing a new home, the developer may be able to refer you to a lender who is acquainted with the project. Even though it is convenient, you are not obligated to utilize that lender. You have the option to shop around for the best mortgage rate and conditions, and you should do so.
On average, how long does it take to construct a home?
It might take a year or more to build a unique home. Weather delays, material shortages, and other obstacles may create a six- to seven-month wait for a spec house or semi-custom home.
Delays are expected, so be sure your existing living situation is adaptable, whatever choice you select. If you’re renting, discuss the possibility of extending your lease month-to-month with your landlord.
If you need to sell your house, you may want to wait until it’s virtually finished before placing it on the market, or you may want to add a leaseback provision in the selling contract to enable you to remain in your home for a little longer.
How can I be sure I’m working with a reputable contractor?
Whether you’re building a spec, semi-custom, or custom-house, you’ll want to hire a reputable builder. Visit the Better Business Bureau or your local homebuilder’s group for online reviews and ratings.
Inquire about the experiences of family members and friends who may have just completed a house construction project. You may also speak with local real estate brokers to learn about new projects currently under construction. Then pay a visit to the model house to inspect the artistry. Cabinetry, trim work, flooring, and paint are crucial factors to think about.
Spend a weekend seeing new subdivisions and complexes that have just been built and sold. Stop, introduce yourself, and inquire about the homeowners’ satisfaction with their houses, any quality concerns during or after construction, and how the builder handled the situation.
Interview many builders for a custom home, get references from prior clients, and ask many questions, such as if they provide a warranty program and the estimated property taxes.
According to Hartman, custom buyers should employ an independent construction manager to undertake weekly walkthroughs of the home to confirm that it is being constructed according to the design and standards. A house inspection may discover faults that aren’t up to code in time for the builder to make the required changes if you’re purchasing a home that has already been completed or will be built. It’s simpler to remedy electrical or plumbing issues before installing the walls and floors.
Is it necessary to have a builder’s warranty?
In contrast to a home warranty, a builder’s warranty, which homeowners may purchase to protect appliances, covers the house’s materials and structure. State legislation mandates the issuing of builder warranties. Most builders will guarantee the customer at no cost, either directly or via a third-party provider.
The guarantee will cover electrical and plumbing systems, heating, and air conditioning systems, insulation, and roofing. Defects, fading paint, or weather-related damage caused by other contractors or the homeowner are not covered.
According to Hartman, each state regulates builder warranties, so find out the minimum criteria in your area. The typical guarantee period is six to three years. However, builders must issue a ten-year structural fault warranty in certain areas, like New Jersey.
Builders may charge extra for an extended warranty beyond the statutory minimums. Before signing any warranty agreements, be sure you understand what is and is not covered, as well as how long the contract will last.