Should You Buy a New-Construction Home?

A new-construction home can be a good option for people who are struggling to find the right property to buy amid a shortage of available housing. But while there are perks to buying a new-construction home, there also can be some real drawbacks.

Here’s a look at some of the pros and cons of new-construction homes to help you decide whether it’s the right fit for you.

How Much Does It Cost To Buy a New-Construction Home? 

One major consideration when it comes to new-construction homes is the cost. 

In general, new-construction homes cost more than existing homes, especially if you’re paying extra to customize yours. According to the U.S. Census Bureau, the median sales price for a new single-family home is $449,800 as of May 2023. According to the National Association of Realtors, the median sales price for an existing home is $375,700 — more than $74,000 cheaper.

Upfront costs of new-construction homes

• Land. If you’re building a new home, then you first need to purchase the land it will be built on.
• Hiring professionals. Building a new home also typically means hiring a builder, an architect, and a design consultant.
• Preparing the site and laying the foundation. Before construction can begin, you’ll need to prepare the site by clearing and leveling the land and then laying a foundation. 
• Down payment. You’ll typically need to make a down payment of 3% to 20% of the purchase price when you close on the home.
• Taxes and insurance. After you close on your home, you may need to pay for the first year of both property taxes and homeowners insurance.
• Closing costs. Closing costs can add up to 2% to 5% of the purchase price of the home.

Ongoing costs of new-construction homes

• Monthly payments. Most homeowners make monthly mortgage payments to pay back their home loan. If you built your home, then you might also have payments on the loan you used to purchase the land.
• Homeowners association fees. If the home is part of a community with a homeowners association, then you’ll also need to pay HOA fees.
• Taxes. You’ll pay property taxes to your local government either as part of your monthly mortgage payment or in quarterly installments.
• Insurance. Your lender will require that you purchase homeowners insurance, which is also paid through your monthly mortgage payment.
• Maintenance, repairs, and utilities. Like with any home, you’ll periodically need to cover the costs of maintenance, repairs, and utilities. The good news is that there shouldn’t be much wear and tear in the short term with a new-construction home.

‘Hidden’ costs of new-construction homes

• Construction delays. Big renovations or construction projects rarely run on schedule. Even if you’re as organized as possible, you could run into unexpected delays caused by your builder’s schedule or the availability of certain building materials.
• Upgrades. You might assume that new-construction homes won’t require you to replace anything. However, spec homes sometimes come with the most basic appliances, so you might want to make some upgrades.
• Lack of representation. If you don’t use a real estate agent, not having your own representation could result in you paying more in interest or fees.
• Utility connections. To get your utilities up and running, you’ll need to get connected to the local water, electrical, and sewer lines.

Pros and Cons of Buying a New-Construction Home

New-construction homes come with some trade-offs. Let’s go through some of the different benefits and drawbacks.

Pros of buying a new-construction home

• Everything is new. One of the biggest perks of a new-construction home is that the buyer is the first person who will live in it. This also typically means the home has modern appliances and features that are on par with current homebuilding trends.
• Some homes are customizable. If you buy the home before it has been built, then you can work with the builder to customize the home to your personal style and preferences.
• The building is up to code. Safety standards have gotten stricter over the years. With a new-construction home, you can walk in with more confidence that your home meets current requirements. 
• New-construction homes are more efficient. New-construction homes are often more energy efficient, which can help you reduce your utility bills.
• Less maintenance is required. Because everything is new, it should be some time before you have to think about repairing or replacing anything.

Cons of buying a new-construction home

• New-construction homes cost more. All the perks that come with new-construction homes are also what make them more expensive. If you’re on a tight budget, then going the new-construction route can mean you won’t be able to afford a bigger home. 
• Your move-in date can get delayed. Construction delays could pop up and result in the home not being finished by the projected deadline. As a result, you may have to pay for temporary living arrangements.
• Builders must be vetted. It’s important to research builders and gather reviews or references before picking one. A builder who cuts corners could leave you to discover expensive problems after you’ve moved in.
• There could be risk of off-gassing. Some building materials release toxic gases into the air that could be harmful to your health. Known as off-gassing, these volatile organic compounds can stay in the home for weeks, months, or even years.
• You have less negotiating power. It can be easier to negotiate with a seller who needs to sell their home in order to buy a new one. Negotiating with a builder can be trickier because they need to turn a profit.
• Landscaping can take time to mature. The yard of a new home might look a little bare because the trees and vegetation need time to develop into a lush landscape.

Should You Go With a New-Construction Home? 

The answer is going to depend on your budget, priorities, and timeline.

“One of the biggest benefits of new construction is that everything is brand-new so you can customize the house to meet your desires,” says Jonathan Rundlett, president of Exit Realty Mid-Atlantic in Bethesda, Maryland. “You will also receive the benefit of lower maintenance and repair costs than if you purchased a previously owned home since everything is new and will have a longer life expectancy. Another big positive is that most new homes are now built with higher efficiency and many incorporate smarter technology.”

Rundlett says that even though new-construction homes can cost more, some builders offer various incentives and credits if you use their preferred lender or title company. So, if you want to buy a home that hasn’t been lived in before, you aren’t in a rush, and you can handle the cost — then a new-construction home can be a smart move.

FAQ

Here are the answers to some frequently asked questions about new-construction homes.

What is the most expensive part of building a house?

The most expensive part of building a house is often the framing, which is essentially the skeleton of the structure. According to Forbes, quality wooden framing costs an average of $33,000, while metal framing starts at roughly $20,000.

How can I save on home construction costs?

One great way to save on construction costs is by choosing a cost-conscious builder. You also can select efficient building materials that will lower your maintenance and energy costs in the future.

What is the earnest money for new construction?

An earnest money deposit on an existing home is typically 1% to 2% of the purchase price, while earnest money on a new-construction home is usually about 5% of the purchase price.