Buying a new construction home for the first time can be stressful for any home buyer. What is earnest money? What’s the deal with the option period? How do inspections work? Don’t worry, our Director of Builder Relations answers some of the most frequently asked questions about purchasing a new construction home.
How does earnest money differ between resale and new construction?
Earnest money in regards to resale is most often a percentage of the price of the home. With new construction, the earnest money is impacted by 3 factors:
1. Price of the home set by the builder: Like resale, the earnest money of a new construction home starts by being a percentage of the sales price. Unlike resale, the price is not dictated by market value, but rather by the price the builder sets for specific neighborhoods and types of homes.
2. Contingent Buyer: If you are a buyer in the process of selling your home, the builder may increase the earnest money.
3. Amount and type of upgrades: If the buyer selects more upgrades than the average amount for that neighborhood or if the buyer selects upgrades that are not traditional for that type of home, the builder will ask for more earnest money.
Is the earnest money refundable if I choose not to buy the home?
Since the earnest money is just to secure the lot, it is typically refundable up until construction has started on the new home during the financing period. Once construction starts on the new home, the earnest money is typically non-refundable.
Is there an option period?
Unlike resale, there is no official option period. A new construction home buyer can select options for their home anytime between when they reserve the lot and when construction commences. Once construction starts and the earnest money is non-refundable, the “option period” ends.
Do I have to use the builder’s lender?
The builder typically has a few preferred mortgage lenders that can provide you the full approval needed to build the home. While it is not required to obtain financing from the mortgage companies provided by the builder, typically, the builder will provide closing cost assistance, and in some cases, pay all of your closing costs if you use their trusted recommendations.
Do I need an inspection?
The builder will be inspecting your home at each stage during the building process. When construction is complete, the builder will then walk-through the home with you and your agent (if you chose to use an agent). During the walk-through, you and your agent can point out problems with the home that need to be repaired prior to closing. The builder will then fix up those issues. If you would like to use a 3rd party inspector to survey the property, you are more than welcome to do so. The Loken Group will even provide you a list of trusted 3rd party inspectors, if you wish to go that route.