Anyone who's entered a new build knows that it's a similar feeling to sitting down in a brand new car. There's a faint smell of freshly cut lumber. Everything is shiny and pristine. The carpets have yet to be worn and there's not a crumb to be seen in the kitchen.

Being the first inhabitant of a new construction home is highly desirable and offers the benefit of no major repairs in the foreseeable future. However, it's a very different process than purchasing a previously owned home. Before you jump into a new build, make sure you understand the basics. 

types of new construction

spec home

A home that's already planned or in the process of being built is a spec home. The layout and finishes have been decided by the builder and you will have few, if any, customization options. Customizing a home can be stressful and costly. Purchasing a spec home is a great choice for those who want a new build but don't mind leaving the design process to the pros due to their schedule or budget.

semi-custom

Semi-custom homes are often purchased in neighborhoods owned by the developer. You can make your home more unique while deciding on a number of options provided by the builder. For example, they might tell you that you can pick from one of several floor plans. From there, you will likely be able to choose from a pre-set selection of finishes, flooring, paint, siding, and upgrade options. Semi-custom homes are good for buyers who want a say in their home's details but don't have the time or budget to design a home from scratch. 

custom home

A custom new build costs considerably more and requires the buyer to be hands-on in just about every facet of the planning and construction process. Typically this requires the customer to purchase land then work with an architect and builder to see through the blueprints, local permits, interior and exterior design, and the overall construction process.

financing options

Construction loans are short term loans that typically have a higher interest rate than traditional loans and may have variable rates. Construction loans are riskier for banks because they can't seize the home in the event the buyer defaults. The lender will need detailed plans and a realistic timeline/budget for approval. Once approved, there will be a draw schedule in which the contractor will be paid as certain milestones on the home are completed and inspected.

There are two types of new construction loans. A single-closing loan will be modified to a traditional loan of 30 or 15 years once the home is complete. A 2x close requires approval for two separate loans. The first loan provides funds for the construction. Once the home is complete, you will refinance into a new traditional loan and pay off the construction loan. You will have more loan and closing fees with a 2x close.

Generally, a construction loan is only necessary if you're building a custom or semi-custom home on a lot without plans for a spec. Spec homes are usually funded by the contractor during the construction process and allow the buyer to obtain traditional financing.

deciding where to build

Location is a major factor in buying any home. Your location options will be more limited when buying a new construction as you either need to purchase land on your own or choose from a lot owned by a developer or builder. If you decide on a builder's lot, you will most likely be purchasing in a subdivision. Let's take a look at the pros and cons of both choices.

subdivisions

Subdivisions often have a homeowners association. HOAs implement and uphold the regulations of the subdivision which are referred to as covenants, conditions and restrictions (CC&Rs). When you purchase property subject to an HOA, you are agreeing to abide by those rules and pay the HOA fees. Not doing so can lead to fines or a lien on your property. 

It's important to make sure you understand the CC&Rs before buying in a subdivision. Some of the most common HOA rules include landscaping, fencing, parking, exterior storage, pets, design choices, holiday decorations, and whether or not you can rent out your home. HOA fees typically cover the maintenance of common areas and shared utilities. The HOA board is made up of members of the community who are elected by other subdivision residents.

pros

• Some subdivisions have amenities such as shared land, swimming pools, tennis courts, or clubhouses
• Prevent unsightly or unkempt yards
• Promote strict rules on home appearance and design choices
• HOAs stabilize home values
• HOAs are often tight-knit communities that may offer social events in the neighborhood

cons

• HOA fees can be expensive, particularly if they're going toward amenities you don't care to use
• Less ability to personalize the exterior of your home
• Strict rules regarding what you can and can't do with your property
• Risk of lien or foreclosure if you don't follow the rules or pay HOA dues
• Risk of mismanaged community

buying land

Maybe you don't want so many rules, or maybe you can't find a development in your preferred area. If you're hoping for acreage, buying land to build on might be your only option. There are a couple of ways to start this process.

You can first meet with a builder to advise on your land prospects. They can bring up considerations you might have missed— like is this raw land or does it have utilities run? How costly will it be to clear trees or improve grading? Do you need soil testing to determine if septic/well is an option at this site? If you don't have a builder picked out before buying land, your Realtor can offer guidance through the land search.

pros

• Having total control to choose a property you love
• Freedom to customize every aspect of the house
• You own the land and aren't restricted in who you hire as a builder

cons

• Most buyers don't have the experience to accurately estimate the cost of utility hookups or land development, so budgeting is much more difficult
• Home must be tailored to the land which can limit design ideas
• More funds needed upfront as the cost of the lot isn't rolled into the construction price
• May have trouble financing land

deciding on a builder

Do your research before deciding on a builder. How long have they been in the business? Where have they built? Do they have finished properties you can walk through? Your Realtor is an industry insider and can be a great source for builder recommendations. If you have friends or family that have built, find out who they used and how they felt about the experience. What do they wish they had known or asked prior to building?

When meeting with a builder, ask about customization options and limitations. If you have distinct preferences, let that be known upfront and don't assume you get free reign even if you have some ability to customize. You don't want to be told that you get to pick out paint only to find out later that the brand you like isn't carried by the store your builder uses.

Ask the builder and your Realtor about contract specifics and what kind of financing you need to obtain. What are your contingencies? Is the earnest money non-refundable? What happens if the appraisal comes in low? Who is your point of contact with the builder? What's the timeline? What happens if the timeline isn't met? Will you have access to check on the home while it's under construction? What kind of warranty do they provide? Who do you contact if issues arise after closing? These are all details you want to have clarified before signing a contract. 

Buying new construction is quite a different experience than one might be used to with a previously owned home. Set yourself up for the best possible outcome by learning as much as you can beforehand, arming yourself with a list of questions, and hiring a Realtor to represent you.