The 9 Key Steps to Buying a New Construction Home

Longing for a brand-new home? Buying a new construction home can be an exciting journey, offering a blank canvas to personalize your living space. This guide simplifies the process, helping you navigate key steps and make informed decisions, whether you’re just considering new construction or already sold on its advantages.

In today’s market, choosing a new construction home offers a multitude of benefits. From modern layouts and energy efficiency to the joy of customizable options and potential builder incentives, choosing a new build offers a compelling alternative to existing properties.

This guide outlines the key steps involved in this exciting journey, ensuring a smooth and successful experience towards owning your dream home.

What is a New Construction Home? 

There are actually quite a few types of new construction homes, but all new construction homes have the same thing in common, they are all homes that are either not built yet, in progress, or have been newly built and where the buyer is the first to actually live in the home.

This is exciting because you’re given an opportunity to customize your home to better suit your needs. You’ll be part of the designing and planning process if you wish to be, which will make your home even more unique.

Types of New Construction Homes 

When choosing a new home, you have several different construction options to consider.

The most common types of new construction homes are:

• To-be-built homes are purchased before construction begins. This gives you the most flexibility in terms of personalization, as you can work with the builder to design a home that meets your exact needs. However, to-be-built homes typically take longer to complete than other types of new homes.
• Tract homes (also known as production homes) are built in large numbers in planned communities or subdivisions. They are typically similar in style and floorplan, but you may still be able to choose from a variety of options, such as countertops, flooring, and exterior finishes. Tract homes are often more affordable than other types of new homes, but they offer less flexibility in terms of personalization.
• Custom homes are designed and built to the buyer’s exact specifications. This gives you the most control over every detail of your home, from the layout to the finishes. However, custom homes are also the most expensive type of new home.
• Semi-custom homes are a mix of custom and tract homes. They typically have a pre-designed floorplan, but you may be able to make some changes, such as adding or removing rooms or changing the size of rooms. Semi-custom homes are typically more affordable than custom homes, but they offer less flexibility in terms of personalization.
• Spec homes are built without a specific buyer in mind. They are typically based on research and speculation of what buyers want. Spec homes may be available for immediate occupancy or may need some finishing work before they are move-in ready. Spec homes are typically more affordable than custom or semi-custom homes.
• Quick move-in homes also known as move-in ready homes, are new homes that are completed or nearly completed and are available for immediate occupancy. They can be a good option if you need to move quickly or don’t want to wait for a new home to be built.

Which type of new home is right for you depends on your individual needs and budget.

9 Step New Construction Home Buying Process 

Buying a home isn’t exactly an easy process, however there are specific steps you can take to make it a less painful process and more of an exciting and rewarding one.

So you don’t forget anything along the way, follow these nine steps to make your new construction home buying process a breeze: 

Step 1: Determine How Much You Can Afford: Finances, Budget, Mortgages & Pre-Approvals

Buying a new home is a huge decision and may be one of the biggest investments you make, which is why looking at your finances is a great first step. This includes your credit, savings, budgeting, mortgages, and pre-approvals.

Understanding your finances will help you feel more knowledgeable, prepared, and confident as a new home homebuyer.

Finances & Credit 

To help you decide if you’re really ready to purchase a home, take a closer look at your finances. This includes but isn’t limited to: 

• Your income — Is your main source of income reliable and stable? Mortgage lenders will look at this, so you may want to start pulling those W-2s and paystubs now. 
• Debt — From credit card debt to student loans and more, consider how this will impact your choice in becoming a homeowner in terms of finances and what you can afford. You can also calculate a Debt-To-Income ratio, or a DTI. This calculation is found by dividing your monthly debt by your gross monthly income. 
• Monthly payments you’re responsible for already — Think about any recurring fees or subscriptions you pay.
• What you have in savings and if you’ll be tapping into that.
• Liquid Assets — Figure out how much you’d like to set aside for a down payment and closing costs. 
• How you’ll pay a mortgage.
• How much you can actually afford to spend on a house. 

Another component is credit. Are you in credit card debt? Does your credit report accurately reflect correct information, or will you have to fix any errors before you begin a loan approval process? This is important to keep in mind because your credit score can be a determining factor that affects whether or not you get approved for a loan.  

Credit score is often determined by five key factors, each contributing a specific weightage to the overall score as defined by models like FICO® Score and VantageScore®:

1. Payment History (35%): This is the most crucial factor, reflecting your ability to pay bills on time. Late payments significantly impact your score negatively.
2. Amounts Owed (30%): This considers your total debt compared to your available credit limit (credit utilization ratio). Lower utilization generally indicates responsible credit management and positively impacts your score.
3. Length of Credit History (15%): Having a longer credit history with responsible management generally leads to a higher score. This factor includes the age of your oldest account, newest account, and the average age of all accounts.
4. New Credit (10%): Frequent applications for new credit lines can negatively impact your score as it might indicate an increased risk of excessive debt.
5. Credit Mix (10%): Having a diverse mix of credit accounts, such as revolving credit cards and installment loans, can positively impact your score as it demonstrates your ability to manage different types of credit responsibly.

It’s important to understand how these factors influence your score and take steps to manage your credit responsibly, as your credit score plays a significant role in securing loans, obtaining favorable interest rates, securing housing and even employment opportunities.

Budgeting, Saving & Setting Money Aside 

You’ll save yourself a lot of time and much disappointment by determining your budget from the start. Be realistic about how much you can afford to spend on a new house and maintain your desired lifestyle once you move in.

Remember the real cost of your new home will include not only the purchase price and closing costs but also additional one-time expenses such as landscaping, new furniture and window coverings, and ongoing monthly costs such as home insurance, taxes, mortgage insurance premiums if your down payment is below 20%, and HOA fees.

Try to make an accurate estimate of the total costs of your new homeownership and ask yourself if you are comfortable with the number. Knowing what expenses to expect with your new home will help you know how to save for a house. 

Down Payment

Your down payment will be a large one-time payment you make, so ensure you’ve considered all your options and what you’re comfortable with and able to put down.

And if you’re not able to put down 20%, you have options! There are assistance programs, and you can consult a financial advisor or mortgage lender should you have any questions or concerns. 

Closing Costs

Don’t forget to set aside enough money to cover any construction loans or closing costs. Closing costs are the fees you’ll pay to get your loan. These costs will be outlined in your Closing Disclosure, which you’ll receive before you close. Keep a close eye on all the fine print to ensure you understand exactly what you owe and that there aren’t any errors. 

Research Mortgage & Home Loan Options 

Remember that you’re not in the home buying process alone. If you’re not paying cash, researching mortgage lenders familiar with new construction homes will be beneficial to assist with getting a mortgage pre-approval. This helps you determine what you can realistically afford and what your down payment should be.  

To figure out what type of mortgage is right for you, consider the differences between conventional loans and FHA loans, VA loans, and USDA loans. 

• Conventional loans are a popular option for homebuyers, and you can even get one with as little as 3% down. While not backed by an agency or the government, most are also conforming loans, conforming to limits to regulate how large your loan can be and still be eligible for any government-sponsored enterprises.  
• In comparison, FHA loans are backed by the Federal Housing Administration. These have credit score requirements that aren’t as strict as conventional loans, and you can be approved for one with a down payment of as little as 3.5%. These loans are less risky for lenders because the government insures them if you stop making your payments. 
• Veterans, active-duty service members, National Guard members, or surviving spouses can look into VA loans. One of the most popular benefits of this loan type is there’s no down payment requirement.  
• USDA loans help those who live in rural and suburban areas to purchase a home. While you can get one with 0% down, your income must meet the eligibility requirements. 

Pre-Approval for Financing

Unless you are paying cash for the building of your new home, you’ll want to get pre-approved for financing early on in the process, preferably before you start visiting home builders’ sales offices. Many home builders offer financing through their mortgage subsidiaries or affiliated companies, which can offer substantial benefits to home buyers.

Talk to different lenders and get quotes so you can compare costs and interest rates to better negotiate the best deal for you. A pre-approval will show sellers that you’re in a stronger position to make a purchase.  

Consider asking lenders these questions: 

• What’s the interest rate and how long is this good for? 
• What’s the loan length? 
• Are rates adjustable?  
• What fees are there? 
• What’s your down payment requirement? 

Step 2: Do Your Research: Find The Perfect Place for Your New Home

To be sure your dream home turns out to be everything you want it to be, you should conduct a significant amount of research before you are ready to sign the contract.

Choosing the right neighborhood for your new home is one of the most important decisions you’ll make. After all, you want to live in a place where you feel safe, comfortable, and happy.

Here are some things to consider when doing your research:

• What are your priorities? Do you want to be close to schools, shopping, or public transportation? Do you prefer a quiet neighborhood or a more urban setting?
• What is your budget? The cost of living can vary widely from neighborhood to neighborhood. Make sure to factor in the cost of housing, taxes, and other expenses when making your decision.
• What are the crime rates in the neighborhood? You can find crime statistics online or by contacting the local police department.
• What are the schools like? If you have children, or plan to have children in the future, it’s important to consider the quality of the schools in the neighborhood.
• What are the community amenities like? Does the neighborhood have parks, playgrounds, or other amenities that are important to you?

Narrow Down the Neighborhood

Needless to say, where you’ll live is a major consideration. We all have our priorities and expectations for the neighborhood we are going to settle in for a certain stage of our lives, or maybe forever. For some, amenities may be of great importance; for others the quality of schools is paramount; for some others, it may be proximity to shopping, activities and transportation; and for some the main consideration may be living close to family and friends.

Unless you plan to buy close to your current home and already know the neighborhood very well, you should invest some time in exploring your desired neighborhood(s).

You can do online research, read neighborhood reviews, drive and walk around the neighborhood and perhaps talk to people who live there to make sure you’ll feel at home after you move. Many neighborhoods even have social media groups. See if you can join them and hear from the people who already live in the community.

When checking out a neighborhood, consider the following factors:

• Walk scores: How walkable is the neighborhood? Are there sidewalks and crosswalks? Are there amenities within walking distance?
• Safety/crime rates: Is the neighborhood safe? You can check crime rates and other safety data online online, talk to local residents, or contact the local police department.
• Surrounding area: What’s around the neighborhood? Are there parks, schools, shops, restaurants, and other amenities nearby? Is it quiet and residential, or is it more urban and bustling?
• Proximity to shopping, dining, entertainment, recreation, activities, transportation/freeways, family and friends, hospitals or specific doctors/specialists: How close is the neighborhood to the things that are important to you?
• Community amenities: Does the neighborhood have a community center, pool, or playground?
• Education opportunities/school districts: If you have children, or plan to have children in the future, you’ll want to consider the quality of the schools in the neighborhood.
• Career opportunities: If you’re moving for a new job, consider the proximity of the neighborhood to your workplace or if you’re looking for a new job, or plan to change jobs in the future, you’ll want to consider the job market in the area.
• Climate and weather: What kind of climate and weather do you prefer? Consider factors such as temperature, humidity, and snowfall when making your decision.
• Large city vs. a small town: Do you want to live in a large city or a small town?
• Cost of living: How much does it cost to live in the neighborhood? The cost of living can vary significantly from one neighborhood to another. Consider your budget when making your decision.
• Demographics: Who are your neighbors likely to be? Consider factors such as age, income, and education level when making your decision.

Choosing the right neighborhood for your new home is a big decision, but it’s important to take your time and do your research. By considering all of the factors involved, you can find the perfect place to call home.

Additional tips for finding the perfect neighborhood for your new home:

• Use online tools such as Google Maps and Street View to get a feel for the neighborhood.
• Read online reviews of the neighborhood and schools.
• Drive and walk around the neighborhood at different times of day and night. This will give you a good sense of the atmosphere and activity level.
• Talk to people who live in the neighborhood. Ask them about their likes and dislikes, and what they would change if they could.
• Check out the local businesses and restaurants. This is a great way to get a feel for the community and the people who live there.
• Join a local social media group. This is a great way to connect with residents and learn more about the neighborhood.

Step 3: Think About Your Timeline – Do You Want to Build Your New Home or Move-In Now?

Do you want to build your new home from the ground up or move in now? This is an important question to answer early on in your home buying journey, as it will have a big impact on your timeline and options.

Building a new home is a longer process, typically taking 6-12 months or more. This is because there are many steps involved, such as land acquisition, permitting, design, and construction. However, building a new home gives you the most flexibility in terms of personalization. You can choose everything from the layout and finishes to the location and lot size.

Buying a quick move-in home is a much faster option, with some homes available to move into within weeks. Quick move-in homes are typically already built or close to completion. This makes them a good option for buyers who need to move quickly or who don’t want to wait for a new home to be built. Quick move-in homes are often available in a variety of styles and sizes, so you can find one that fits your needs and budget.

Determining your timeline is important for several reasons. First, it will help you narrow down your options. If you need to move quickly, you’ll want to focus on quick move-in homes. If you have more time, you can consider building a new home or buying an existing home.

Second, your timeline will affect your mortgage and home sale plans. If you’re selling your current home, you’ll need to coordinate the closing date with the move-in date for your new home. You’ll also need to factor in time to get pre-approved for a mortgage and complete the closing process.

Finally, knowing your timeline will help you stay organized and on track throughout the home buying process.

Tips for planning your timeline:

• Start by thinking about your ideal move-in date. Do you need to move by a certain date for work or school? Are there any holidays or other important events that you want to be settled in for?
• Once you have a general idea of your move-in date, you can start to work backwards to determine how much time you need for each step of the process. For example, if you want to move in within 6 months, you’ll need to start your search for a new home now.
• Be realistic about how long each step will take. Building a new home can take 6-12 months or more, while buying a quick move-in home can take as little as a few weeks.
• Be prepared for unexpected delays. Things don’t always go according to plan, so it’s important to have some wiggle room in your timeline.

By taking the time to think about your timeline early on, you can make the home buying process smoother and less stressful.

Additional tips for planning your timeline:

• If you are selling your current home before or while buying a new one, be sure to factor in the time it will take to sell your home and close on the new one.
• If you are building a new home, get a clear timeline from your builder from the start. This will help you plan accordingly and avoid any surprises.
• If you are buying a quick move-in home, be sure to ask the builder about their closing timeline. Some builders may be able to close very quickly, while others may need more time.

Step 4: Decide What Type of New Home You’re Looking For 

What type of home is best suited for your lifestyle and living arrangements? 

Single-Family Homes – With no shared walls, single-family homes offer more privacy and room for expansion. 

Townhouses & Condos – Townhouses share walls with its properties next door, and can be two to three stories high, but don’t have units above or below them.  

Condos (or condominiums) – are residential units housed within a building and may have units above, below, or next to each other. 

Multi-Generational / Extra Suites – Investing in an Extra Suite for multi-generational living can be a convenient addition to your new construction home. Consider this extra space for parents moving in with their children, adult children moving back home, an au pair, or for housing guests for an extended stay. 

Step 5: Finding the Right Community for You 

Finding your ideal community can truly enhance your lifestyle. 

HOA or No HOA – HOA, or Home Owners Associations, are people (typically neighbors) who are dedicated to managing and overseeing their communities. Depending on how it’s set up, you may have to pay HOA fees monthly, quarterly, or annually. An HOA may also have particular rules about what you can or can’t do to the exterior of your home, so keep that in mind prior to purchasing. 

New Community or Established Community – Are you looking to join a community that’s just forming now, or one that’s already been fairly established? 

A new community will be full of other newcomers, so you’ll learn and grow together in your new spaces. You’ll support one another at the start of your journeys and will welcome in newcomers as the community continues to thrive. 

An established community has already been created and you’re joining after the fact. You’ll have the benefit of meeting those who have lived in your area for longer than you and you can turn to them for guidance. 

Home Development or Scattered Lot – A home development, or master-planned community, features convenient access to basic goods and amenities. You’ll feel safe in your space of quality-controlled homes and neighborhoods, and have stabilized property values. It’s a great way to enjoy a busy social life with your neighbors and new friends! 

A scattered lot community includes homes built on finished lots, with many lots that may not have homes that exist just yet. This allows for more privacy and freedom! This means you won’t really get that cookie cutter feel to your neighborhood.  

Gated Community – Get an added sense of security by joining a gated community, which includes only those who live in that specific area closed off to the general public. 

Active 55+ Community – Those who are 55 and older looking to spend their golden years with likeminded people will enjoy the different types of active 55+ communities available. From luxury and golf communities to amenities and services that promote an active lifestyle and sense of community and more. 

Step 6: Find the Right Home Builder 

Research home builders and make your selection on which company you think would work best with you based on their offerings, timeline, and expertise. Pay attention to reviews about others’ experiences on trusted sites such as NewHomeSource. Speak to representatives from your top choices to ensure your final selection is the perfect fit. 

Choose Your Home Builder

Choosing the right builder can make the difference between being a happy and a miserable homeowner. You want to make sure you choose a company with a proven track record of success, financial strength, solid reputation and experience so you can rest assured they’ll do the job well and stand behind it in case any problems develop.

Start with online research. Visit multiple builders’ websites, read information about the company, their experience and values, and explore their offerings. Do they have home designs that appeal to you and are priced within your budget? Contact their call center for additional details. Are they easy to get hold of? Are they knowledgeable and responsive? Check out what people say about these home builders on social media and on review sites like NewHomeSource’s TrustBuilder.

Once you’ve narrowed down your list, schedule appointments at sales offices. When you meet with the builder’s sales representative, ask all the questions you have. Do they offer the options that are important to you? How long will it take to have your home built, and do they have any quick move-in homes? What are the specifics of the new home warranty?

Step 7: Finalize Your Financing & Financials

Finalizing financing for your new construction home is an exciting time and will be a seamless process if you’ve prepared your documents ahead of time. Gather all your personal and financial records you’ll need to get approved on your home loan. Make a checklist to ensure you’re not missing anything important.  

Your loan officer will be able to provide a complete list of the documents needed. But all lenders will need to see documentation such as your:

• Income
• Employment
• Two years of IRS filings if you are self-employed
• Bank accounts
• 401(K) funds
• and other assets.

Many major builders have wholly owned mortgage subsidiaries as well as affiliated title insurance and settlement services. This can streamline the financing process and reduce the time needed to proceed from application through settlement.

For example, at K. Hovnanian, we offer financing through K. Hovnanian American Mortgage, LLC (KHAM). While you are under no obligation to finance through KHAM, there are many advantages to it, and 90% of our homebuyers choose to do so. As part of the same company, KHAM can offer increased efficiency and a smoother, faster financing process, while being extremely competitive with our rates. KHAM does not do resale home loans, refinancing or home equity loans, but focuses exclusively on serving K. Hovnanian new home buyers. According to Dan Klinger, President of KHAM, “We can do everything other companies do, but they can’t do everything we can do.” Visit KHAM’s website to learn more.

The builder may also offer incentives contingent on using their preferred finance company. Builders’ financing packages may offer significant benefits and you should carefully consider them, but it always helps to shop around and get offers from outside lenders to make sure you’ve made the right choice. 

Step 8: Design Your Home: Select Your Options and Upgrades

You’ve done your research and exploration, found the ideal home and signed the contract. But you still have work to do. Luckily, this is the fun part.

Design your home exactly the way you want it from lighting, paint, fixtures, finishes, and more. The little details make all the difference. This is your chance to truly create the home you always wished to live in with your loved ones. You can research ideas online or visit model homes for more ideas.

Selecting options and upgrades is a very important step in making sure you are happy in your new home.

Your average home builders will offer you several choices for the basics, such as the color of your kitchen and bath counters and cabinets. Additional options are often available at an extra cost, such as a designer paint schemes, upgraded kitchen countertops and appliances, bath fixtures and finish options, and upgraded flooring.

In some instances, you’ll also be able to select structural options, such as adding a fireplace, an extra bath or additional garage bay.

Most home buyers will want a home that shows a little bit of their personality, and while making selections at a design center you may feel like a kid in a candy store. It’s easy to get carried away, however, so make sure that the any options or upgrades you select still allow you to stay within your budget.

If you are selecting any structural upgrades, it’s particularly important that you select them before the construction of your home begins.

At K. Hovnanian, we schedule a meeting with new home buyers a few days after the contract is signed to make sure there are no delays in your home’s construction, and our experienced designers then guide you through the process.

Stay Involved During the Construction Process

During the construction process, you’ll have opportunities to see your new home take shape. Once the frame goes up, it’s time to have the frame meeting. You will meet with construction representatives at your future home, who will walk you through the structural options you have chosen. It’s important that you ask questions and verify that everything is correct before the walls go up.  

Once construction is complete, a final inspection will be conducted by a local building official. Upon passing, you’ll receive a certificate of occupancy, which gives you the green light to move in. 

Final Walk Through and Punch List

As the closing day approaches, you will do the final walk through of your new house. You will be given the rundown of all of the systems and features of your brand-new home and have the opportunity to inspect it for any minor defects that need correction prior to your moving date.

Step 9: Celebrate Your New Home! Closing Day and Beyond

Closing day marks the culmination of your journey and the exciting beginning of life in your new construction home!

The much-anticipated closing day has arrived, and your new construction home is within reach! To ensure a smooth closing process, remember to bring:

• Photo ID: Verification for important legal documents.
• Cashier’s check/wire confirmations: Proof of funds for closing costs.
• Closing documents: Double-check your loan officer or title company for a complete list. This often includes financial and tax statements, insurance and inspection paperwork, and more.

Pro-Tip: Create a checklist to stay organized and to avoid missing anything crucial. Don’t hesitate to seek help or to ask your lender, realtor, or closing agent if you have any questions. Remember, asking questions is crucial to understanding the agreements you’ll be signing.

After careful review and signing, congratulations! You’re officially a new construction homeowner.

Now just don’t forget to file a change of address with the postal service and schedule utility connections for essential services like electricity, gas, heating, water, internet, and other essential services before your move-in date.

New Construction Home Buying Process FAQs 

Are you looking to buy a new construction home? Consider one of K. Hovnanian’s new communities located across the U.S., each with a range of thoughtful, stunning home designs. Find our communities in your state today!

Last Updated on February 28, 2024