15 Things You Need to Know About Buying New Construction

Whether you're buying a home to live in or as an income property, new construction can be a solid investment. But there are drawbacks to buying a newly built home, too. Here are some important things to know if you're going this route.

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Last year, the average new construction home cost $36,000 more, on average, than a comparable existing home. Because the price of building materials is still elevated, you'll need to prepare to pay up if you buy a newly built home.

ALSO READ: Will 2022 Be a Good Time to Buy New Construction?

Upgrading a new construction home can help ensure it has all the features you want. But it also means paying whatever price your builder charges -- or overcharges -- you. When you do home renovations, you can shop around for quotes and go with the most competitive. But with new construction, your builder gets to call the shots and set the price.

It's common for new construction contracts to have an escalation clause allowing a builder to pass higher costs onto buyers. If yours has a similar clause, you could end up spending thousands of dollars beyond your home's original purchase price. That's why it's important to have a savvy real estate lawyer negotiate a new construction contract on your behalf.

Not all builders do the same good job. If you're going to buy new construction, vet your builder thoroughly. See, in person, some completed homes your builder has constructed to make sure the quality of the work is decent and talk to property owners who used your builder so they can speak to things like how timely and responsive your builder was.

ALSO READ: How We Found the Perfect Home Builder

The completion date your builder gives you for your new home may not be the actual date you get to move in. It's common for delays to pop up in the course of the building process. That could leave you in a tough spot if you have to close on an existing home you're selling or vacate your home at the end of a lease.

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Some new construction homes let you truly customize your property. But others may only allow you to put certain personal touches on your living space, like choosing one tile color over another. Make sure you're okay with whichever option you're being presented with. While getting to customize every nook and cranny of your home might seem like the better choice, you may also find the process overwhelming.

New construction homes tend to have higher property tax bills attached, even when they're comparable in size, features, and updates to existing homes. Be sure to factor higher property taxes into your budget if you're buying a home that's brand new.

ALSO READ: Why I Won't Fight My Property Taxes This Year -- Even Though I've Done It Before and Won

When you sign up to buy new construction, you may only be given an estimate of your property tax bill -- not an actual bill. That's because an assessor may not be able to assign you an official number until your home is complete. As such, don't get too comfortable with the original number you're presented with; it has the potential to climb.

One benefit of buying new construction is that you might spend a minimal amount of money on maintenance and repairs during your first few years in your home. That could help offset the higher price tag you'll pay to buy it.

ALSO READ: 4 Ways I Keep Home Maintenance Costs Down

While you may not have any major repairs or maintenance issues arise during your first few years of owning new construction, that doesn't mean you won't have to deal with any issues. Budget some money for upkeep and repairs and prepare for that figure to climb through the years.

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It's common for new construction homes to offer a one-year builder's warranty at a minimum. This protects you from workmanship issues. If your builder won't include that guarantee, you may want to run the other way.

Builders are notorious for using low-end materials when constructing new homes. Before you sign a contract, have your builder specify in writing what materials will be used.

If you're taking out a mortgage to finance your new construction home, you may be encouraged to use the lender your builder likes to work with. But that doesn't mean you have to use your builder's preferred lender. Another mortgage lender may have a better rate to offer you, so don't hesitate to shop around and seek out different options.

ALSO READ: Best Mortgage Lenders of January 2022

Because new construction tends to cost more than an existing home, you may need to take out a larger mortgage. And that could result in higher closing costs on that loan. You'll generally get the option to roll closing costs into your mortgage and pay them off over time. If you're thinking of paying them upfront, prepare for a larger sum.

ALSO READ: Mortgage Closing Costs Soared in 2021. Here's the Average

As is the case when you're buying an existing home, when you buy new construction, your home will need to appraise for a high enough value to justify the loan amount you're taking out. If your home somehow doesn't appraise for a high enough amount, you may need to make a higher down payment, so your mortgage goes through.

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Buying new construction isn't for the faint of heart. If you're going to purchase a newly built home, make sure you completely understand what you're getting into. That said, there's something nice about getting to buy a home that's never been lived in. And that's reason enough to deal with the potential costs and headaches that could arise.

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