Economists are predicting that 600,000 brand-new homes will be sold this year. If you’re in the market for a new-construction home there are several things that you have to keep in mind. Paying attention to these tips could save money and aggravation.
Have a pre-drywall home inspection. A typical buyer of a new home may think, “Aren’t home inspections only for older, existing homes?” While not getting a home inspection before buying an existing home is a bad idea for a number of reasons, it’s also not a good idea to avoid an inspection when buying a new house.
There are two types of new-home inspections: pre-drywall and final walk-through. First, if you’re buying a home that is being constructed from the ground up, it’s a good idea to get a pre-drywall home inspection. A pre-drywall inspection helps a buyer be sure about electrical outlets, cable and internet access lines and other electrical features, such as ceiling fans and entertainment systems.
If you’re paying to have additional electronic features installed in your home, a pre-drywall inspection helps ensure that they’re in place. Better to know before the dry-wall is hung than after.
Look past the nice finishes. It’s easy to be wowed when browsing through a model home. However, model homes are often decorated with high-end finishes that could dramatically increase the price of the property, above what the sign out front says.
Once you’ve realized that the home you’ve fallen in love with comes at a hefty price when the decorator selections are considered, it’s time to make a list of your must-haves and nice-to-haves. A builder may be willing to discount some finishes from their list price in this pre-selection phase. But do the homework. Just because the builder says that the marble countertops can be had for half of the listed price doesn’t mean that they’re a deal. Maybe another stone finish is more your style and looks just as great – and is less expensive.
A buyer’s real estate agent can ask around for typical wholesale or builder prices to ensure that a deal is really a deal, and then help you negotiate for the best total price.
Work with an agent. As mentioned above, use a buyer’s agent even when purchasing a brand-new home. The new-home builder may offer some resistance, but it’s in the best interest of buyers to have their own representation. No matter what the builder says, if he's sitting across the table at closing, his interests are his own, not yours. A buyer’s agent will help ensure the process goes as smooth as possible and according to the final contract.
Consider all mortgage options. Bundling may be a great way to get cable TV, but it’s not always the most affordable way to shop for a new home. A home financing bundle offered by a builder may include the mortgage, discounted mortgage insurance and the waiving of other fees. The bottom line of this bundle provided by the new-home sales agent may seem like a good deal. But is it?
As with any financing choice, partner with a home mortgage advisor from a U.S. Department of Housing and Urban Development-approved housing counseling agency to help shop around for the best products. If you’re a first-time homebuyer, you may qualify for a low-down payment mortgage that doesn’t require mortgage insurance, eliminating the need to use the builder’s mortgage product that may have offered the same, but at a higher price.
Do the math on energy efficiency. Be mindful of the pluses and minuses of major systems upgrades being pitched by the builder such as high-end water heater, appliances, heating and cooling systems and super-efficient windows. Upgrading the right items could increase the price of the home, but pay for themselves in a short time.
However, if you plan to move within a few years, getting payback on the upgrades through lower utility bills is not likely to happen. When calculating payback period for energy efficiency, take into account how long you reasonably expect to live in the home. Of course, resale should be a consideration, too, when looking at items like windows, as high-quality windows could be a positive for future buyers.
Weigh your appliance options. Speaking of appliances, some home builders, especially builders that construct entry-level priced homes, may not include appliances in the deal. However, not having appliances come with the home can turn out to be a bonus. Big-box stores and specialty retailers often have deep discounts on refrigerators, stoves, washers and dryers and more. Keep a sharp pencil handy and figure out the least expensive option, and decide accordingly.
Know the details of the new-home warranty. Most new houses will come with some kind of warranty that covers various things in the home – everything from appliances, heating and air conditioning systems, the roof to the garage door and more. However, not everything is covered for the same length of time. Knowing the different coverage details and planning for their expiration can save money down the road if a covered item fails and is out of warranty.
Read the HOA rules. The majority of new homes built in the U.S. today are part of a planned community that has a homeowners association. HOAs often charge a fee that is separate from your mortgage, and could range from just a few hundred dollars per year to thousands of dollars. This fee covers the maintenance of common areas, certain types of insurance and access to amenities like pools or recreation centers.
The rules of the community as enforced by the HOA may restrict what you can do to the exterior of your home – dictate the color of siding, for example – and how you could decorate your home. Work with your housing counselor and real estate agent to review the homeowner’s association documents and to know the ins and outs of your HOA’s requirements.
Expect delays in the home-build process. When buying an existing home, the house is already built. New-home builds are often finished on time, but finishes can be delayed weeks and even months after the original contract. Make sure you’re prepared for delays by having a month-to-month lease if you’re renting, or contingencies if you’re selling an existing home at the same time you plan to move to your new property.
Teresa Mears | May 3, 2019
Conventional wisdom says 20%, but you can buy your first home with much less down.