So you’ve decided to move to a new home, a place you can call your own. Some first-time buyers take this decision literally: They want a newly constructed home, where everything from light fixtures to the flooring is of their own choosing.
New construction is often more expensive than comparable existing homes, says Steve Melman, director of economic services at the National Association of Home Builders. That’s a key reason why firsttime purchasers — who don’t have cash from the sale of their former home — made up just 13 percent of new-construction buyers between 2007 and 2009, the latest period the NAHB has tracked, Melman adds.
But now, many homebuilders are targeting first-time buyers with features like the chance to customize parts of the home, says Tim Costello, president of Builder Homesite Inc., an Austin, Texas-based group of 32 large homebuilding companies.
Here is a look at how builders are hoping to lure first-timers, as well as some ways the purchasing process for new homes differs from buying existing homes:
Eco- and Budget-Friendly
BHI research shows that buyers choose new construction because they want energy efficient homes.
“In new homes, EnergyStar is standard,” says Patricia Hanchette, division president for homebuilder Lennar Corp.
EnergyStar is the U.S. Environmental Protection Agency’s label for home materials and systems like heating. They are constantly improving standards so new homes can offer significantly lower utility bills than homes built even just 10 years ago, explains Paul Foresman of Design Basics, an Omaha, Neb., firm that advises home builders.
Ask about utility costs and put that figure into your comparisons between new and existing homes, he says.
Indeed, a study from the NAHB found that operating costs as a fraction of a home’s value increase the older the home is. These costs — including utilities, maintenance, property taxes and insurance — account for 5 percent of a home’s value for structures built before 1960 to just under 3 percent for homes built after 2008. Another NAHB survey revealed that Energy Star certifications are a priority for homebuyers; 84 percent of millennials say they are willing to pay 2 to 3 percent more for an energy-efficient home as long as they can see a return on their power bills.
Since the financial crisis a few years ago, getting a mortgage on any home has become more difficult, with lenders scrutinizing a borrower’s credit worthiness and financial standing, in addition to the value of the home.
“Work with a mortgage consultant before you sign a contract [with a builder],” says Ron Sozio, vice president, Wells Fargo Home Mortgage. Buyers will want to ensure they get a loan before putting up a deposit and working with the builder, he explains.
Lenders have unique concerns with new construction, adds Neil Caron, vice president of Freedom Mortgage Corp. in South Windsor, Conn. For instance, before a buyer can get a government-insured FHA mortgage on a condominium in a new complex, the whole project must meet government approval.
In many cases, builders team up with mortgage companies, and there can be advantages for both buyers and builders from the partnership, Sozio says. The lender can ensure that a project receives FHA approval, for example, or a buyer could receive guidance to lock in an interest rate on a loan to be issued several months later when the home is expected to be completed, to avoid borrowing at what the rate may be then, Sozio adds.
Still, “buyers are under no obligation to use the partnering lender,” he says.
Patience and profits
In the boom years, buyers often rushed to be the first to purchase in a subdivision to lock in what they considered low prices; the last units in a subdivision typically sell for more. But when the housing bubble burst, property values depreciated and the last, newly constructed units in the subdivision often sold for low prices that competed with home-sellers in the subdivision who were trying to move out.
Home prices have been up in 2015, with the median price increasing 8.2 percent in the second quarter to $229,400. Subdivision homeowners may be able to breathe a bit easier knowing they can eventually sell their units for a profit without having to compete with low-priced new construction in the same subdivision. But while experts can predict price trends, they “are uncertain for all homes, existing and new,” says Ken Wilson, past president for the Appraisal Institute.
© CTW Features