3 Signs a New Construction Home Is Wrong for You

If you've been following the real estate market, you may be aware of the various conditions that are making things very difficult for buyers. For one thing, mortgages are expensive to sign. And mortgage rates might remain stubbornly high until the Federal Reserve begins implementing interest rate cuts.

Another issue is a glaring lack of inventory. As of late February, there was only a 2.9-month supply of homes on the national market, according to the National Association of Realtors. It can often take a six-month supply of homes for there to be enough inventory to satisfy buyer demand.

But there is a bit of good news on the inventory front. Housing starts, which are a measure of new construction, rose 5.9% in February from the previous year, according to Census data. So you may have an opportunity to buy new construction during the actual construction phase. This gives you an opportunity to customize your home and incorporate features from the start that may be difficult to retrofit later on.

But while the idea of buying new construction might appeal to you, there are some pitfalls you might encounter. Here are a few signs that buying new construction may not work out well for you.

1. You're on a tight budget

Because home prices are elevated these days, as are mortgage rates, buying a home is not going to be an inexpensive prospect. Still, some buyers have more wiggle room than others. But if your budget is very tight, then new construction may not be the best idea.

For one thing, you might pay a premium to get into a newly built home that's never been lived in. But also, new construction homes tend to come with higher property tax bills than their existing nearby counterparts simply because they're new.

To put it another way, let's say you buy a 3,000-square-foot home on a certain block, and there are four other homes around the corner that were built 20 years ago that are similar in terms of size and features. While your neighbors might end up paying $5,000 a year in property taxes, your annual property tax bill might be $7,500 simply because your home is new.

2. You're on a tight timeline

Home construction has a tendency to take longer than originally expected. If you're in a flexible housing situation, like a month-to-month rental lease, then new construction may not be a problem. But if your lease is ending in a few months and you have to be out of your current home by a certain date, then you may want to think twice about making an offer on a home that's not fully built yet.

Factors like inclement weather, materials shortages, and permit issues all have the potential to delay a home build. So if you absolutely have to be moved into a new home by Aug. 1 and you sign a contract with a builder tomorrow saying your home's estimated completion date is July 15, don't believe it. Add at least a couple of months to that estimate -- and avoid making an offer if the time frame doesn't work for you.

3. You're not a fan of financial surprises

When you buy a home that already exists, you know exactly what you're getting. When you buy new construction, you often don't realize what features will be missing until after you move in.

For example, you might close on your new construction home only to realize it didn't come with curtains or window treatments. So now that's money you have to find and spend.

Of course, reading your new construction contract carefully should loop you in on the items that are (and, by default, aren't) included. But it's hard to remember every detail.

You may not think to look for things like towel rods in writing when you'd just plain expect them to be included in your bathrooms. But if you're someone who tends to get thrown for a loop when extra costs arise, then new construction may not be your best bet.

There are plenty of perks to buying a home that no one has lived in before. But before you rush into buying new construction, think about the downsides as well as the benefits.