Key considerations if buying new construction in 2022
Many families have found their savings accounts a little fatter over the last two years, thanks to remote working, less commuting and more cooking at home versus dining out. If that sounds like you and you're in the market to buy a new home, you might find that new construction fits — maybe for the first time — in your budget.
It's true that construction materials are a little more costly — thanks to supply chain issues — but that could be changing soon. Industry experts predict prices for new home construction materials will stabilize in the coming months, setting off a boom in homebuilding in 2022. According to the National Association of Home Builders, builder confidence on the market for newly-built single-family homes is high: in December 2021, it registered an 84 out of 100!
That's echoed by the Mortgage Bankers Association (MBA), who say single-family housing starts in 2022 should come in at around 1.13 million. That'll nearly meet the 1.2 million homes needed to meet current demand.
5 things to consider
But before diving headfirst into the market for a newly built home of your own, consider our shortlist of things to look out for.
- Be a pre-approved homebuyer
Get together with a mortgage loan officer to determine your budget, purchasing power, time frame, neighborhoods to consider and potential savings needed for downpayment and closing costs. Getting pre-approved (which carries more weight than being pre-qualified) can take the guesswork out of whether or not you should take a tour of an available site or skip it because it's out of your range.
Many home builders will even have mortgage representatives on-site to assist. While you shouldn't feel obligated to use a builder's recommended lender, it doesn't hurt to pick their brains to learn about the different new construction loan options available. Just remember, rates are still historically low, so it pays to shop around.
- The “model home” is merely a suggestion
When exploring newly constructed properties, it's a good idea to take a tour of a model home. But go in knowing this: model homes will feature the top of the top as far as features and options go. Builders typically outfit model homes with the most premium upgrades they offer. While this allows buyers to envision the home's full potential, buying all the bells and whistles shown in the model home can have you reaching deeper into your pockets to pay for it.
Downgrade to less-premium “builder grade” materials and finishes can make the home fit more into your budget, but if you have the funding for middle-range or premium options, go for it. Choosing the higher-end design can increase your home's value when it comes time to sell.
- Ask the tough questions
You can't do a walk-through of the actual space with new construction since it's yet to be built, so it's up to you to research the location and get references on the homebuilder before committing. Search for builder reviews online and, if possible, do a drive-by of their previous projects.
Asking questions is to be expected. Good communications will help manage your expectations around the process, costs and timelines and keep everything as transparent as possible. In most cases, builders appreciate it since having a buyer interested in the process helps avoid misunderstandings and buyer's remorse! Here are a few topics to get you started:
- What other projects is the builder associated with?
- How much of the development is already under contract?
- Who is our main point of contact during the build-out?
- What mode of communication is preferable: phone, email, text or in-person?
- Which features are standard and which are premium upgrades?
- How are schedule delays handled?
- At what point will we (or our home inspector) be allowed access to the home?
- Timing is everything
Many factors affect the timeline of completing a custom-built home. These include delays with building materials, labor shortages (unfortunately, increasingly familiar with the current pandemic state and Great Resignation trend) and weather conditions at the construction site.
The average new home construction takes anywhere from 7 to 12 months. That's usually perfect for buyers who aren't in a hurry, but uncertain construction timelines could be a big issue if you're selling a house to buy the new one. You may require a short-term rental, go the Airbnb route or end up paying pay two mortgages simultaneously if you're still trying to sell the old house after moving into the new one.
One workaround may be the model home discussed earlier. After a certain number of units in a development have been sold, the builder may no longer need the model to generate interest. It could go up for sale long before you'd ever be able to get into one built from scratch. It's worth a shot and — bonus — model homes are move-in ready and come complete with top-of-the-line upgrades.
- Mistakes happen, so do inspections
Just because a home is built from the ground up doesn't mean it won't have structural issues. Be sure the one you purchase is inspected by a licensed professional before committing to closing.
The homebuilder will handle city and county inspections, typically through a third-party expert who knows how to navigate the local government processes and red-tape. But unlike a pre-owned home sale where inspections only happen at the end of the previous owner's occupancy, you'll want to hire a licensed inspector to inspect the build-out at various stages of development.
Schedule a foundation, wiring and plumbing inspection before the drywall goes up. If any work is not up to par, the inspector can alert you to bring your concerns to the builder and negotiate a fix. Then, a final inspection at completion will confirm that the property is safe and up to code.
Be a confident buyer
First things first: don't underestimate your purchasing power. Potential first-time homebuyers often second-guess whether or not they're financially ready to buy a home. Without professional guidance and advice, they may decide to put it off for a few years.
The reality is that you may be ready earlier than you ever thought possible and could take advantage of the current new construction market if only you knew enough to speak to a home financing pro. Well, now you know.
Movement Mortgage loan officers are experienced in all sorts of new construction loans. They are pros at meeting strict deadlines and accommodating moving closing dates common with newly built homes. Find a loan officer near you to get started.