A step-by-step guide to buying a pre- or new construction home

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When you decide to buy a home, you have a couple of key options that you have to decide on pretty early on. Namely, are you going to buy an existing home or a home that’s pre-construction or new construction?

There are a lot of things appealing to buyers about new and pre-construction. You can customize many of the details, and you can reduce the potential for a bidding war that can happen when you’re buying in the resale market.

You also won’t have to think about making big repairs or doing a lot of work potentially for years or even decades to come.

There are some things you have to know, though, and we detail these below.

Pre-Construction and New Builds

A new-build home is frequently called pre-construction. This is a situation when a builder will release lots or homes that can be purchased. Typically, a developer will have a master plan for the community, but in some cases, they might just have a few new properties for sale.

Builders who are creating entire developments will often set up a model home. The model home is where interested buyers can go to get a feel for what their home might look like.

There will be floorplans and renderings available to help you better visualize the space.

With a new build, you’ll often be able to choose items, like your countertops and cabinet color in your kitchen. Some builders will even let buyers make changes to the layout.

Customization options can be categorized in the following ways:

With a full custom home, you can decide on all the details in a home. You’ll be picking even the smallest of things.

Semi-custom homes usually let you customize the key features like floors, countertops, and lighting.

A spec home is built for you, and it’s sold as-is. If you want to make any changes, you usually have to pay for them. Spec homes usually are the result of a buyer building custom and then backing out, or it can be when the builder sells their model.

The Process

There are different rules and steps to buying a pre-construction home, depending on where you live.

You might need to pay a reservation agreement, which may be a deposit of anywhere from 3-10% of the purchase price. The builder usually has the right to change the price. That deposit goes into escrow, and you should be able to cancel at any time and get a full refund.

Once development is approved for construction, the developer submits documents for approval by the state, and then they’re sent to you so that you can review them.

If you don’t withdraw from the contract, you provide the balance of the down payment and then sign a binding contract where you agree to buy the property.

When construction is almost finished, the developer gets a Certificate of Occupancy on your behalf, and then there will be a closing date set when you give the developer the balance of the purchase price and then sign any documents.

Again, this is a very general overview, and different states and developers are going to have their own ways of doing things.


If you’re looking at new construction or pre-construction homes, you’ll need to figure out what you can afford, just as you do when buying any other type of home. A lender will consider your yearly income and your income stability, your monthly debt load, and your savings. Lenders and banks will also look at your credit score and savings.

You’ll need a good credit score to get a loan with favorable terms, and you’ll need sufficient savings to cover your down payment and closing costs.

You’ll need to get pre-approved for financing so that you don’t waste your time or anyone else’s looking at things you can’t afford.

In some situations, a construction loan might be appropriate.

A construction loan is short-term funding that helps you as you’re building your home. Usually, the terms are for 6-12 months. Once your construction is complete, the loan converts to a long-term loan with terms of either 15 or 30 years.

A construction loan is very specialized, and they are tougher to secure.

Once you have financing and home and the home is complete, you can request an inspection. If there are any issues and you’re working with a real estate agent, they can negotiate with the builder on your behalf.

Finally, your builder should provide you with a New Home Warranty. This outlines the things the builder will repair for you or compensate you for if they come up.

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