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Buying a Newly Constructed Home

New construction homes are an attractive option for anyone buying a new house. Newly constructed homes are typically custom homes. The homebuyer can design their dream home and choose the features and upgrades they want. They have the assurance that everything in their home is brand new. They can avoid the complications of owning an existing home.

But buying a home is a process, even if it's a newly constructed home. Some of the steps involved in purchasing a newly constructed home include, but are not limited to, the following:

  • Find a builder or developer
  • Understand the new construction timeline
  • Secure financing
  • Sign contracts or agreements
  • Organize home inspections
  • Warranties

This FindLaw article explores these steps in greater detail to help you understand the overall process.

Finding a Home Builder or Real Estate Developer

There are many ways to purchase a newly constructed home. Home builders or developers are at the heart of any newly constructed home. Some people buy a tract of land and hire a builder to construct the home. Other people look for real estate developers who build new home communities.

In new home communities, the developer buys several acres of land to develop a new construction project. Interested buyers often choose from several floor plans for their new home. Other buyers opt for quick move-in homes requiring less construction time.

Although these buyers have options, the developers often limit these options to maintain uniformity in the community.

Model Homes

Developers often use model homes to make sales. You can make an appointment to view a model home and get an idea of what your newly built home may look like. The builder's real estate salesperson will likely give you a tour of the model home and discuss potential upgrades. Be sure to ask for any incentives the developer is currently offering. They're offered to entice prospective homeowners to purchase a home.

These upgrades can include the following:

  • Energy-efficient light fixtures
  • Granite countertops
  • Open-concept living spaces

Real Estate Professionals

Although you can look for new construction communities independently, realtors and real estate agents can help. Some of these professionals work as buyers' agents on behalf of the developer. The developer should pay a commission to these agents.

Secure Financing

Although some people can afford to pay in cash for a new build, most need a home or construction loan to complete the real estate transaction.

Before looking for a new home, consider home loan prequalification or pre-approval. Loan prequalification or pre-approval can help determine how much house you can afford. It also demonstrates your seriousness to the real estate developer.

A loan prequalification estimates how much you can afford and carries less weight than a pre-approval. Lenders do an intensive review of your credit and finances before issuing a pre-approval letter. So, a pre-approval letter has more weight.

Sign Sales and Purchase Agreements

Buying a new construction home is a real estate transaction and, like most transactions, involves executing contracts.

Here are a few types of contracts you may encounter when buying a new construction home:

  • Purchase contract or purchase agreement: Generated after the buyer's offer lists the terms of the real estate transaction and places the home under contract
  • Sales contract: Similar to a purchase agreement but generated by the seller's offer, not the buyer's
  • Construction contract: An agreement outlining the terms of a construction project

You typically sign a sales or purchase agreement after you and the buyer agree to a negotiated purchase price. Your down payment is usually a percentage of the purchase or sales price. Be prepared to give a down payment when you sign a sales or purchase agreement.

As with most legal real estate documents, you should have a real estate lawyer review your contracts before you sign them. You should carefully review the agreement, including the fine print, before you sign a binding agreement.

New Home Inspections

Home inspections are an integral part of any real estate transaction. New home inspections help ensure your new home meets the local building codes and is safe for human life. You should expect your local government to inspect the home before issuing a certificate of occupancy. A certificate of occupancy confirms that the house is safe for human life. You may need this certificate before you move in.

You should also arrange a private home inspection to check for structural defects and ensure the builder didn't cut corners. The inspector can go through the new build and inspect the following:

  • Electrical system
  • Heating
  • Plumbing
  • Roofing
  • Insulation

Doing this before closing can save you time and money on post-closing repairs.

New Home Warranties

Even if your home is newly constructed, you may still face structural issues when you move in. Warranties are an excellent way to help you financially guard against construction defects. Many home warranties cover craftmanship items, like built-in appliances and structural soundness for varying lengths of time.

You can buy a new home warranty from a third-party company if your home developer doesn't offer a builder's warranty to new home buyers. Builder's warranties cover workmanship issues for a limited time after the builder completes construction.

Closing On New Construction Homes

You shouldn't close on your newly constructed home until the construction is complete. If you don't, you risk the developer slowing down construction on your home. One option to mitigate this risk is to place the funds needed to complete the construction in escrow until the developer completes the construction.

Alternatively, your purchase agreement should include a clause that lets you cancel the contract if the developer doesn't deliver the new home on time.

Get Legal Help

Buying a newly constructed home is an exciting endeavor with potential pitfalls. A qualified real estate attorney can help you avoid these pitfalls. They're experts in real estate law and can offer sound legal advice on your contracts. They can also represent you during your closing. Speak to an experienced local real estate attorney to learn more.

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Next Steps

Contact a qualified real estate attorney to help guide you through the home buying process.

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