Buying A New Home

If you want to buy a brand-new home, you need to do your homework as diligently you would when purchasing a previously owned home. That means checking out the builder, checking out the location, getting a thorough inspection and negotiating whatever you can.

One million new homes are sold every year. But how do you know when you're buying a good one or a bad one? The answer lies in some systematic research on your part (while trying not to be swayed entirely by the tastefully decorated model):

Find a Good Builder

Start your search for a new home by looking for a developer(s) first. If you find one, through referrals or your own research, check out their reputation carefully. A badly built new house is almost worse than no house at all.

Make sure you do the following:

Visit other or older projects built by the same developer. Look for durability of construction. You want to make sure that the home you buy is built to last.
Talk to homeowners in other developments and the one you're considering. You want to know how well the builder responds to complaints and follows up on repairs. Some developers have a person or department right on site to handle repairs.
Talk to authorities. This includes the Better Business Bureau, the state's regulatory agency for builders, and the county courthouse. You want to know if there have been any complaints, disciplinary actions or lawsuits against the builder.
Talk to vendors. This includes suppliers, subcontractors and lenders. You want to know if the builder pays the bills on time.

Check out the location

As with a resale home, it is important to evaluate the location. Especially in new-home communities, which are built on the developing edge of metropolitan areas for the most part, you want to be certain that a freeway isn't planned to come through in 20 years. Check with the local zoning and/or planning department to look at their master development plan (if they have one) for any future development activity that might affect you. Otherwise, check out the neighborhood as you would any other by talking to neighbors, local businesses and schools.

TIP: Booming areas ratchet up prices; so does heavy demand and short supply. Try to avoid overpaying for a new home in these situations. The market inevitably will correct itself and you could be left with a house that's worth less than what you paid for it.

Inspect construction

Buying a home before it is built means that you may follow its construction from foundation to roof. As far as inspections go, consider having three: one when the foundation is poured, another when the framing is up but not yet covered, and the last. Not every builder will agree to this condition (even though you are paying for it), but it is a way for you to exercise some quality control. Other inspection tips:

Be sure that your right to an inspection is covered in the purchase agreement.
Ask for copies of any previous inspection reports, including the soils report, for your inspector to review.
Get copies of any blueprints, construction documents or surveys for your inspector to review.
Schedule the final inspection for a week before the closing.
Understand your builder's warranty policy (a typical 10-year warranty covers structural defects for 10 years as well as construction materials and defects for the first year and major mechanical systems for the second.

What's negotiable?

Most new-home developers will want you to use their sales agents to purchase homes in the project, as opposed to you bringing in your own representative. Whether you negotiate your purchase on your own or with help, it's important to know that most contracts tend to favor builders, for example, by not providing for escrow funds to handle repairs after closing.

In theory, the sales price, contract terms, upgrades and options are all negotiable. In reality, most builders would rather upgrade carpeting, window coverings and almost anything else than lower the price (because it lowers the comparative market value of the other homes in the development).

Hidden costs of a new home

Landscaping: Most new homes come with the bare minimum; it can cost thousands to plant trees, shrubs and grass.
Homeowners association fees: Most monthly assessments usually start out low when a project is new, then go up when the developer is out of the picture and the association starts paying the maintenance bills.
More expensive design materials: Carpeting, window treatments, countertop surfaces and other options may cost as much as two or three times what you would pay if you bought it yourself.

Hidden savings of a new home

Homeowners insurance: Policies often are cheaper for new than for previously owned homes.
Low maintenance costs upfront: If the house has been built well, you'll pay little more than the mortgage and the taxes in the home's first few years.
Lower utility bills: Most new homes are more energy-efficient than older homes, which means you'll pay less for utilities every month.

Dealing for Dollars

Most new-home builders offer financing through a preferred lender, which can save you time and sometimes money because the lender is familiar with the project. Ultimately you may want the convenience of applying for a loan right on-site, but it is still prudent to shop around to make certain you are getting the best loan for you.

If interest rates are high or going up when you are in the market, many builders will offer to buy down your loan, or prepay a portion of your loan in exchange for a lower interest rate from the lender.

Where the Deals Are

You may find a real bargain in a new home if you: