September 2024

Make it yours: Buying a new construction home

If you're frustrated by the shortage of existing homes for sale, buying new construction could be the answer. Here are some things to look for — and to avoid.

The advantages of new construction

Because everything is new, you can expect better energy efficiency, with no need for major repairs in the first few years. If you buy in a builder community, there may also be warranties on major systems. Plus, depending on the type of new build, you may get to choose your preferred floor plan and many of the finishes.

The downside of new construction

While you can sometimes buy a newly built home that is completely finished, in most cases you'll need to wait months for your home to be built. That may require careful timing if you also plan to sell your existing home. And if the community is in its early stages, you may have to wait for amenities like a clubhouse, fitness center or pool. Plus, new construction, on average, can cost 13% more than existing homes.Footnote1

Types of new construction homes

  • A custom home is built to your specifications on a lot that you own. This gives you the most choices about style, layout and finishes, but the financing can be more complicated. In most cases, you'll need a construction loan, then refinance into a regular mortgage when the home is complete.
  • Semi-custom or production homes are built by a developer on land that they own. They can range from luxury homes with plenty of options for the layout and finishes to production homes that may be mostly finished and have much more limited options. You can usually use a regular mortgage when you buy this type of home.

Steps for buying from a developer

Consider getting a real estate agent.

Keep in mind that the builder's sales agent represents the builder, not you. A real estate professional can be very helpful in reading contracts and understanding all of your options. In many cases, the builder will pay your agent's commission, so it won't add to your costs.

Get prequalified or preapproved for a mortgage.

Every home search should start by getting prequalifiedFootnote2 by a lender so you have a good idea of what you can borrow. Later, before you sign a contract, most builders will require you to get preapprovedFootnote3 to confirm you'll be able to finance the home. Be aware that while many builders have a preferred lender, you are free to choose your own.

Tip: With Bank of America's Builder Rate Lock Advantage®, you could lock in your rate for up to a year while your new home is being built. This can protect you from rising interest rates during construction.Footnote4

Research builders and communities.

Once you know your budget, start looking at communities in the area where you want to live. Here are some things to consider:

  • Location and selling price. These are key for any home purchase.
  • The builder's reputation. Are they known for quality and responsive customer service?
  • The degree of customization. How many options will you have to choose from?
  • Builder incentives. Some may offer credit toward upgrades, help with closing costs, or interest rate buydowns.
  • Community amenities. Is there a community pool or fitness center? What's their policy for guests and pets?
  • Homeowners association dues. How much will they add to your monthly payments, and what do they cover?

Understand your design options.

If the builder offers some customization, choose carefully. It's important to understand which options are standard and which have an extra cost, because that can have a big effect on the final price of the home.

Carefully review the contract before signing.

The builder's contract will include a description of the home, lot specifications, details about the options you've chosen, and a timeline for construction. It will also include information about warranties and any payments you'll need to make up front or during construction. Your real estate agent can help you review it, and many people also have a lawyer look at it.

Wait for your home to be built.

During construction, you'll finalize your mortgage. You should also schedule independent inspections, one before drywall goes up and one when the home is complete, but before you move in. This is important so you can make sure there are no major issues to deal with later on.

With care and patience, you could find yourself enjoying a beautiful new home.

A note from your lending specialist

Contact me to learn more about how Bank of America's Builder Rate Lock Advantage® can help you buy a new construction home.

1 Guide to Buying a New Construction Home in 2024, Valencia Higuera, The Mortgage Reports, January 3, 2024. Accessed June 2024.

2 Prequalification is neither preapproval nor a commitment to lend; you must submit additional information for review and approval.

3 Final loan approval is subject to satisfactory appraisal and title review and no change in borrower credit and financial condition. Preapproval is subject to terms and conditions and timely submission of required documentation; ask your Lending Specialist for details. Preapproval does not commit to the continued availability of the loan program. The interest rate shown in a preapproval is based on our current pricing and is not locked. You may choose to lock an interest rate after we receive the complete and executed purchase contract. Borrower must submit purchase contract within 90 days of preapproval. If the rate at time of lock is higher, or a rate lock expires prior to funding, or for adjustable-rate loan programs when the index value rises, we must determine your ability to repay the loan at the higher rate, which may lower the loan amount or invalidate the preapproval. Not available on all loan products. Not available on refinance loans.

4 Extended rate lock options require a lock-in fee. A portion of the lock-in fee may be applied to closing costs at loan closing. If the loan does not close, the lock-in fee may be refunded in full when certain conditions are met and required documentation is timely provided. See the Interest Rate Lock-in Agreement and Confirmation and Float Down Addendum for details. Pricing is based on extended rate lock options which are 120 days, 180 days, 270 days and 360 days. You should consult your home builder to help you choose a reasonable closing date when construction will be completed and within the lock-in period. Float down option is subject to time limits, other restrictions apply. May not be available for all loan programs.


MAP6838774 | 08/2024