Phil: 0:00

Welcome to the first time home buyers podcast. On today's episode we'll be focusing on purchasing a new construction home and some tips from our resident real estate expert, Monica, who is also a certified new home specialist. Monica, thanks for being on the show. Now, you got your start in selling new construction homes, right?

Monica: 0:26

Hi. Yes, that's right. I started out primarily with new home buyers and new construction. I'm very familiar with this type of purchase and can definitely offer some helpful advice. I've helped many clients get into new construction homes.

Phil: 0:37

Great. What kinds of tips do you have for someone considering a new construction home?

Monica: 0:42

First, make sure to know what city or cities you're definitely looking to buy in. I know that there's lots of different builders in each city, and each builder is very different in what they offer with their prices and what they offer for their upgrades. Once you know about where you wanna be, and more importantly, which builder you wanna be with, find out what features are included with that builder and what they offer. This will vary from builder to builder, so it's important to inquire about all this.

Phil: 1:09

Can you give us some examples of those?

Monica: 1:10

Of course. Most builders will have a base level features that come with a home. This is often carpet in the entire house, with the exception of wet areas like the kitchen, bathrooms, laundry room, and those are usually tiled or a different type of water resistant flooring. In the kitchen, you're likely to have a base level countertop that's different from the models, upgrades to quartz or even granite may be costly. Cabinets could also have some upgrade options as well, type and color and even the quality. Usually the builder offers a couple of different standard options to choose from. However, they do have other options for those upgrades as well. There's usually a baseline package such as the stove, dishwasher, and microwave, and you can often upgrade to a stainless or higher end appliance package as well. In many of the rooms, you might be paying extra to have electrical wiring for fans in the bedrooms or additional power outlets.

Phil: 2:02

So, what's the best way to know what's actually included?

Monica: 2:06

So, the best way to know what's included is to ask your builder. They're gonna be able to provide you with the details of what comes standard and what may require an upgrade or an additional cost. Also, I like to advise you to work with a real estate agent with any new build. Look for one that is familiar with a new construction homes, and specifically that builder. They'll know the ins and outs, but can also help you navigate the purchasing process and make sure that you're getting a fair deal.

Phil: 2:32

I want to ask about the cost of upgrades and when to know if it's worth it.

Monica: 2:37

Well, when it comes to the cost of upgrades, there's a few things to consider. First, take into the account the amount of money you're gonna be spending for the upgrade versus how much value you're gonna get in the long run. Make sure it fits into your budget, and if it's something that you're looking for that will increase the resale value of the home, then it might be worth shopping around. You are usually paying more for the convenience of the builder to install those upgrades than contracting it out yourself afterwards.

Phil: 3:03

And another point to consider is, how is this getting paid for?

Monica: 3:08

Well, when you're buying a new construction home, there's usually several components that have to be paid for. The builder will likely require a certain amount of the earnest money and a down payment before the building process begins, and then your mortgage will cover the rest. The earnest money is like good faith money, and it's gonna be deducted from either your closing costs or your down payment. Each builder's different and they can range from $2,500 to$10,000 for what they require you to put down as earnest money. But for upgrades, often these costs are out of pocket and you can only finance so much with upgrades. If you aren't putting a higher down payment down on the home, expect to have to pay for many of those upgrades out of pocket. The reason for this all comes down to what the home will appraise for. If the home is $400,000 and you put $50,000 into upgraded flooring, appliances, and kitchen counters, the home will have to appraise for that amount if you are trying to roll that into the loan. Realistically, an appraiser isn't going to give you that much value for those upgrades, so you would need to pay the difference in cash.

Phil: 4:06

It can be a bit confusing, but at the end of the day, the home's cost, including the upgrades, can't be more than an appraiser values the home at. A bank won't give a loan in that case, so you'd have to pay the difference in cash.

Monica: 4:20

You should always speak to your real estate agent or the lender first before committing to any major upgrades. It's important to know what you're budgeting for.

Phil: 4:27

Another area that's a bit unique with new home builds is how you finance them. Most builders will require that you pre-qualify with their lender. They'll also give really good incentives, like high closing cost concessions and long rate locks, by using their lender. They don't bring it up, but you can definitely shop around for better rates. Ask lenders that you shop around to match the incentives. You might just find that they can match them and provide even better rates and/or better service. So again, make sure you bring your agent and have them help you understand the cost for those upgrades because it will impact your loan and your overall home cost.

Monica: 5:07

Right. Your agent can definitely identify which upgrades are worth it and what the least expensive options are to get the most value out of your new home. It's definitely a good idea to tour new homes with your agent for this reason as well as most new home builders work, they require you to tour with your agent for the first time in order for those agents to represent you and help you in the process. If they aren't there with you, the builders are not gonna let them be part of that transaction afterwards.

Phil: 5:33

So, always bring your agent along when touring new homes.

Monica: 5:37

I agree, especially first time home buyers who aren't as familiar with the process and want someone who isn't working for the builder to give them good, unbiased advice. Now remember, you don't have to have a separate agent with you, and there are agents on staff with a new home construction team, but if you don't have an agent with you representing you as a buyer's agent for the first visit, you can't have any buyer's agent assisting you with the questions or concerns you may have throughout that transaction. There are gonna be people there on staff to help you along with that transaction if you decide to go with the new build of construction just solely. But if you want a separate agent, you don't have to pay any additional fees or costs with having a buyer's agent who doesn't work for the builder. So, it's a good idea to have a buyer's agent who does not work for the builder to come along with you.

Phil: 6:23

Okay. Great advice, Monica. That's really helpful to keep in mind when looking for a real estate agent for any new build. Now, when you are looking at new homes, you'll be touring model homes. These are representations of what you'll be buying, but they're not the actual home. Can you tell us a little bit about that process?

Monica: 6:41

Sure thing. So, once you've decided on what builder you want, um, usually they have a main office and then off to the side are a few model homes in the same area. Those model homes are gonna be what you're gonna choose from the floor plans, and the builder probably will have you tour one of their model homes that is the same layout. This is different from touring an existing home because they can show you what your house would look like with all the upgrades that are available. Some upgrades are included and some are not. Each builder is different on what they offer, and having a buyer's agent there with you allows for us to point out what items are included and what items aren't. There's really a couple of different timings or phases, too, with the model homes. First, you can buy what they call a quick move-in. These homes are usually homes that are ready within the next week or month. These homes are usually homes that a previous buyer has picked out the flooring and cabinetry already, but have for some reason had to have backed out of the escrow. There are not usually too many move-in ready homes and each builder is different, but usually by the time your loan is approved, you can move in or very shortly after that. The next home would be called a spec home, and these are the homes that they build as they're selling, and the most common with the new construction homes. There's usually at least six months' wait time from when you move in, so this gives you a little bit of time to kind of pick out your cabinetry, your flooring, any upgrades that you wish to do then. This is what the builders like to call phases. Each few months, the builders are gonna release phases of certain amounts of homes based off of the models you've looked at. In order to get updated information on each of these phased releases, you're gonna be qualified with their lender, and then you're gonna be put on a priority list. Each builder is different and some wait lists can be as early as two weeks, and some can be up to six months just based off the floor plan and the model that you are wanting to purchase. Now, on every phase release, the builder will go down their list and call the buyers to let them know which lots and homes types are available. Whichever buyer kind of comes in first and puts their earnest money down, will get that specific lot. Some builders will allow cash clients to have priority on the list, though. Once you have put a deposit down for a lot, most builders allow you to go in and kind of see the progress of the building, as much as you'd like. As long as you're not interfering with the construction or not doing anything unsafe in manner, you're definitely welcome to take pictures along the way. And I encourage that with my clients.

Phil: 9:00

And one other thing that you can do if it's something that you wanted, is you can actually bring an inspector out during these different times. So, if you wanted to have an inspector come out before they put drywall or something like that so you could see all the framing, that's something that you can do if you really wanted to.

Monica: 9:16

And they do have to do their own inspections as well. They do have to be certified with the city and go through those phases as well. But you're also welcome, like Phil said, to bring in your own additional inspector, which we highly recommend always.

Phil: 9:29

And can you talk a little bit more about the wait list and kind of the requirements on those?

Monica: 9:33

Sure. So, the wait lists, they're gonna vary with the market and the builder. Some are as little as three months out, some are a year out. The longer out the homes, the more customizations you can do, like I previously said. Builders usually have quite a few different options for items like cabinetry, colors, or flooring choices for standard options. And again, the models usually will have lots of upgrades, so you can see what it would look like with the upgraded flooring or cabinetry, and you can definitely play around with those upgrades based on what you want in your home.

Phil: 10:02

Yeah, the drawback though is that you are in a loan for a long time because there's six, 12 months to actually build the home. Interest rates can change, the real estate market can change. So, always be aware of that.

Monica: 10:16

And it's also important to keep an eye on the interest rates and talk to your lender about how you can protect yourself from any changes. It's a lot of work, but it'll pay off in the end. And also remember that most new construction homes, to be put on their wait list they're gonna ask you to qualify with their lender. This is just their way of knowing that you are pre-approved. So, once they get going down on that list, they already have pre-approved buyers.

Phil: 10:38

That's great. And any additional advice on purchasing a new home?

Monica: 10:42

Yes. So, just be patient and do your research. Make sure that you know what you're getting into. Ask a lot of questions, and definitely don't be afraid to ask any questions or negotiate on the upgrades. Certain builders will allow for certain concessions and some won't, uh, so it's always good to check.

Phil: 10:57

New builds can be really great, but also come with additional hidden costs. Some areas, like in California, require solar panels, which can add $5,000 to $20,000 on top of that sticker price of the home. So, make sure that you talk to your lender about that, because you may need to be approved for a higher dollar amount than the home's price. So, oftentimes the price that you see for the home is lower than the price that you're actually going to have to pay. You're also typically going to be required to do landscaping within that first year, so you're gonna wanna make sure you budget for that. There are also limitations on being able to rent out or buy new construction homes as a second or investment property. So, make sure you're aware of what's allowed in your area and with each builder and with your situation. And Monica, any other last bit of advice?

Monica: 11:52

Yeah, just make sure, you know, you speak to your realtor or you speak to the builders about the tax rate as well. You wanna make sure that the tax rate falls into your budget as well. Sometimes with newer homes, the tax rates can be a little bit on the higher side, especially here in California. So, just make sure that you have all that information before going forward with that. I personally love new builds, but definitely make sure that you always bring an agent with you and make sure to have a third party inspector before you sign off on that home. Just because it's new doesn't mean it's perfect.

Phil: 12:22

Thanks for joining us today, sharing your knowledge on new home builds. Definitely a pleasure to have you on here and getting your advice.

Monica: 12:29

Thanks, and if you need any advice on any new homes, feel free to reach out to me any time. My phone number's (951) 395-1848

Phil: 12:37

Thank you, and head on over to fthbpros.com where we've got all of our other podcast episodes available, articles, newsletter, resources, along with our new Facebook group where we have lenders and agents that can help answer your questions. Also, feel free to reach out to us if there's a certain episode that you guys would like us to cover. Again, thank you for your support and happy home buying.