A Guide to Buying a New-Construction Home

Today, nearly 1 in 3 homes for sale is new construction—and in certain areas, homebuyers can get a lot more bang for their buck because these brand-new builds are cheaper than older homes.  And with recent high mortgage and interest rates—before the Fed’s historic rate cut this week— discouraging some homebuyers from getting out there, builders who have properties to sell are offering a range of incentives to entice buyers.

Here’s how—and where—to find affordable new-construction listings, pinpoint builder incentives that can help you lower the price, as well as pick up some negotiation tactics to get some sweet freebies thrown in to maximize your home purchase:

Explore builder incentives

Developers often drive sales by offering special incentives that amount to a discount on the house. Those deals might include the builder offering to pay some of a buyer’s closing costs, offering free upgrades on materials, or even offering a mortgage rate buy-down, which allows buyers to obtain a reduced interest rate by paying a one-time fee upfront.

Typically, these incentives are offered only if you agree to work with the builder’s preferred lenders, but that can be well worth it, particularly if you find numerous incentives bundled together. Realtor.com makes that easy with its Days of Deals home shopping portal by giving buyers an instant look at all the incentives offered on various properties in their area.

Even if you don’t see certain incentives advertised, it’s worth asking if they can be added in to sweeten the deal.

Time your home purchase right

Getting a bargain on a new-construction property is all about timing.

Homebuyers who aren’t in dire need of a home right away might consider buying in a new development that hasn’t yet been completed. Developers often incentivize getting in early. Buyers should also remember that builders are most busy during the spring and summer months, and deals are to be had in colder months.

Not being on a strict timeline can also give buyers more freedom of choice.

Know the difference between custom vs. production builds

Production builders, who are building multiple lots within a subdivision or development, often finance differently from custom builders and have different financing structures.

With production builders, they usually have financing secured for their subdivisions and build on their own dime, selling the completed homes. Custom builders, however, require you to purchase the land and set up a drawing account with your lender, from which funds are used to build the home according to your specifications.

While production builds tend to be cheaper, this doesn’t mean you’re getting a “cookie cutter” home that can’t be customized. It can, although your options will be limited.

When using a production builder, you choose from their available lots and floor plans, which limits customization options. In contrast, custom builders allow you to select your own land and customize your home to meet your specific needs.

Think carefully before signing on for pricey upgrades

It can be tempting to go with the top-of-the-line everything as you pick out finishes for your new-construction home, but that can quickly spiral out of control. Don’t be a victim of the upsell, warns McCollum.

With any purchase, try to stay within your budget. It can be exciting to make selections with new construction but that you can unknowingly pick items that balloon the sale price. Ultimately, you need to understand the difference between wants and needs and make selections that work for your budget.  Sometimes, the fancier, bespoke finishes aren’t worth it.