How to Buy a New-Construction Home

What is the process for buying a new-construction home?

Some aspects of buying new construction are similar to buying an established home. For example, unless you’re paying cash, you’ll need to apply for a construction loan to purchase the property. However, there are other parts of the process that may differ. Here’s what you can expect if you want to buy new construction.

1. Application and preapproval

Start by finding a lender that offers construction loans — not every lender does. Once you’ve evaluated potential lenders and the loan products they offer, the application process for a construction loan is fairly similar to that of a conventional mortgage.

Application requirements for construction loans tend to be more strict than for conventional mortgages.

You submit an application, and the underwriter thoroughly reviews your financial information. Construction loans tend to have more stringent requirements than conventional mortgages. Lenders are typically looking for lower debt-to-income ratios, higher credit scores and more significant down payments from applicants.

For example, while some lenders will allow a 3.5% down payment for a conventional mortgage, you may have to put down 20% of the estimated costs for a construction loan.

When the underwriter has completed their review of your finances, you’ll receive a preapproval decision that helps you move forward with building your dream home. This lets you establish your construction budget and gives builders an idea of what you can spend.

2. Get an agent

Hiring a real estate agent to help you through the process may be especially important when buying and building new construction. While this may be a new process for you, many real estate agents have experience helping buyers purchase lots and construct new homes.

They can help you negotiate a fair price for the project and offer their expertise in customization options. For example, your agent may have insight into which fixtures and flooring will give the home a higher value in the future.

You can start by asking friends and family for their real estate agent recommendations. Interview more than one agent and ask each one about their experience with new-home construction.

3. Pick a spot and find a builder

The location of the property is a huge consideration. For instance, you may want to purchase a lot in a new suburban development from an established builder, or you could have dreams of building in a rural area.

Either way, it’s often beneficial to find a builder who can help you choose the right plot of land. Some properties may have beautiful views but aren’t ideal for construction.

You’ll want to spend some time researching reputable builders. You can ask your real estate agent and lender for their recommendations and search the National Association of Home Builders directory.

If you decide to buy a lot in a development already owned by a builder, you’ll probably have to put down a new-construction deposit, which can be 5% to 10% of the purchase price. This deposit is usually nonrefundable, so you’ll want to be certain you're ready to move forward with that particular builder.

4. Design the home

Once you’ve decided on a builder, it’s time to design your home. Most lenders require a detailed plan from a licensed contractor or builder for the home’s construction. This may include blueprints or drawings and a list of estimated costs for the project. In addition, you’ll also need an appraisal to estimate the property’s future value based on the plans for the project.

A home inspection helps you discover serious problems before you move in. As you work with your builder to draw up the plans, they may offer certain upgrades, such as custom cabinetry. Your builder could require a deposit to make those upgrades to the home’s original plan. Deposits can range from 25% to 50% of the upgrade costs.

5. Get an inspection

The builder or contractor will conduct routine inspections throughout construction, but you’ll want to hire your own home inspector to ensure the house is built to code and has no major structural issues.

The last thing you want is to approach move-in day only to find out there was a serious problem with the home’s foundation. An independent home inspector acts as a second set of eyes, and they can monitor the homebuilder’s progress.

» READ MORE: Homebuying checklist

What to know about buying a new-construction home

Buying a new-construction home is different from purchasing an existing property. Before you start touring model homes or meeting with builders, understand the key factors that will shape your experience and determine whether new construction is the right choice for you.

Types of new-construction homes

Not every new-construction home is built the same. You can generally choose from spec, semi-custom or custom homes.

• Spec homes are already built and move-in ready, so you won’t have much say in any special features unless you take on the work yourself after purchasing the home.
• Semi-custom homes have a set plan for the exterior and interior but may let you choose specific design elements, such as cabinet colors or the type of flooring used.
• A fully custom home allows you to have a say in all details of the home’s construction, from the floor plan to the light fixtures.

The levels of customization vary based on the builder you work with and where you plan to build. If you buy a lot in a neighborhood already owned by a developer, you may be limited in the type of home you can build. The builder may set the plans for the house on that specific lot, but you could still customize the interior to your liking.

You’ll want to consider how much you want to be involved in the design aspect of your new home so you can find the right builder and location for your needs.

Key considerations for new-construction homes

Before committing to a new-construction home, evaluate these essential factors:

• Budget and financing: New homes often cost more per square foot than existing homes, and you’ll need to account for potential cost overruns, upgrades and landscaping expenses not included in the base price. Determine your maximum budget and get preapproved for a construction or new-home mortgage.
• Location and lot availability: Research neighborhoods with new construction and assess proximity to work, schools, shopping and amenities. Consider whether lots are available in established areas or if you’ll be in a developing community where infrastructure and services may still be limited.
• Builder reputation and track record: Investigate builders’ histories, read reviews, check with the Better Business Bureau and visit completed communities to assess quality. Ask for references from recent buyers and verify that the builder is licensed and insured.
• Timeline flexibility: New-construction homes often face delays due to weather, supply chain issues, permitting or labor shortages. Be prepared for a closing date that may shift by weeks or months.
• Warranty coverage: Understand what warranties the builder offers for structural issues, systems and appliances, and how long coverage lasts. Most builders provide a one-year warranty on workmanship, a two-year warranty on systems and a 10-year structural warranty.
• HOA requirements and restrictions: Many new developments have homeowners associations with monthly fees and rules governing exterior modifications, landscaping and property use. Review HOA documents before committing.

» COMPARE: Building a house vs. buying

Cost considerations for new-construction homes

Understanding the true cost of a new-construction home goes far beyond the base price. Upgrades, lot premiums and unexpected expenses can add 10% to 20% or more to your final costs.

Prioritizing upgrades and customization

Not all upgrades are created equal. Some are best completed during construction because they're difficult or expensive to add later, while others can easily be done after you move in at a lower cost.

Upgrades to prioritize during construction:

• Structural changes like moving walls, adding windows or expanding rooms
• Electrical and plumbing additions (outlets, fixtures, pre-wiring)
• HVAC upgrades and zoned systems
• Premium flooring throughout main areas
• Energy-efficient features (insulation, windows, solar pre-wiring)
• Upgraded cabinets and countertops

Upgrades you can skip or do later:

• Paint colors, light fixtures and hardware
• Landscaping and fencing
• Window treatments
• Crown molding and backsplashes

Focus your budget on structural and mechanical upgrades that add functionality. Save cosmetic changes for post-closing, when you can shop for better prices.

Budgeting for upgrades and unexpected costs

Get a detailed breakdown of what's included in the base price versus upgrades add a 15% to 20% buffer for unexpected costs.

Track every upgrade in writing and compare builder prices to third-party installation costs — builders often mark up upgrades significantly.

Common hidden costs include:

• Lot premiums for corner lots, cul-de-sacs or views ($10,000 to $50,000 or more)
• Landscaping and irrigation systems
• Window coverings ($3,000 to $10,000)
• Appliances not included (washer, dryer, refrigerator)
• HOA fees and special assessments
• Higher property taxes on new assessments
• Utility connection and municipal impact fees

Maximizing long-term value

Here are some tips for ensuring your home stands the test of time if and when you sell:

• Strike a balance between personal preferences and broad market appeal.
• Choose neutral, timeless finishes for major elements, such as flooring, countertops and cabinets.
• Save bold colors for easily changed items, such as paint.
• Focus upgrades on kitchens, bathrooms and curb appeal, which deliver the highest returns.
• Avoid over-improving beyond your neighborhood’s standards.
• Consider energy efficiency and smart home features, which appeal to modern buyers.
• Keep all upgrade documentation, warranties and receipts for resale value.

Is a new-construction home a good investment?

Buying a newly constructed home could be a great investment, especially if it’s built to your specifications and you’ll enjoy it for many years to come. You may not want to sell and move again once you have a home that checks all your must-have boxes.

Another perk of new construction is access to a builders warranty, which protects you from paying for costly repairs for defective materials or work that was done incorrectly. Keep in mind that this warranty only covers specific components for a specified period (e.g., two-year warranty for the HVAC system; 10-year coverage of major structural defects).

Potential downsides to buying a new-construction home

A significant downside to building a new home is that construction costs often go over the original budget. This could be due to rising material costs or unforeseen delays. Going over budget could also mean you’ll have to make up the difference in cash if your lender doesn’t approve a higher loan amount.

In addition, if you don’t do your research to find a reputable builder, you could work with a less-than-honest individual who may try to steal your money. One way to avoid being scammed is to research each homebuilder to ensure they’re licensed and insured. Also, consult with your attorney before signing any contracts.