So you’ve decided to build a custom dream home from the ground up. Congratulations! There’s nothing quite like having a home constructed to your exact specifications. But if this is your first time going through the process of building and closing on a new construction home, it can definitely feel overwhelming. When exactly will you get to move into that beautiful, brand-new abode? Let’s walk through what to expect so you can close on your new construction home with confidence.
Timeline of the Closing Process
The timeline from start to finish on a new home build can vary, but generally follows this timeline:
Initial Contract and Deposit
It all starts when you sign the initial purchase agreement and put down an earnest money deposit, which secures the home for you. This deposit usually ranges from $1000-$5000.
Financing Pre-Approval
Next, you’ll want to get pre-approved for financing so you know your budget. Come prepared with bank statements, tax returns, and employment verification.
Permits and Construction
After contracts are signed, the builder submits permits and breaks ground. Now the fun part begins – watching your home take shape! Construction usually takes 4-7 months.
Setting a Closing Date
Your closing date is determined as the home nears completion, usually 4-6 weeks before it’s finished. Now it’s time to get serious about approving your loan.
Receiving Closing Schedule
A month out, you’ll get a closing schedule from the builder detailing the big day. This helps you arrange inspections and finalize details.
Final Walkthrough
Shortly before closing, you’ll do a final walkthrough of the home, checking for any last-minute fixes needed.
Closing Day
The big finale! After you sign the paperwork and keys are in hand, your new construction home is officially yours.
Preparing for Closing
With a tentative timeline set, there’s plenty to do to get ready for closing day. Here’s how to prepare:
Gather Documents and Paperwork
About a month before closing, you’ll need to provide essential documents like:
- Identification: Driver’s license or other government-issued ID.
- Income verification: Pay stubs, W-2s, tax returns, etc.
- Bank account information: Two months of checking/savings account statements.
- Mortgage application: Be ready to complete your lender’s paperwork.
Budget Additional Costs
Beyond your down payment, closing often requires extra fees like:
- Origination – 1% of the loan amount, on average.
- Title search and insurance – Often $700-$2000.
- Recording – $100-$300 to record the deed transfer.
- Inspections – $400-$500 for a home inspection.
- Escrow – Property taxes and insurance bundled into your monthly payment.
Secure Homeowners Insurance
Your lender will require home insurance in place before closing. Shop rates 30-45 days beforehand.
Conduct Inspections
Inspections help identify any defects to address. You’ll likely need:
- Home inspection – Checks the home’s structural and mechanical systems.
- Pest inspection – Ensures no termite or pest issues.
Any fixes identified can be negotiated with the builder prior to closing.
Closing Day Logistics
Closing day is here! Be ready for these key events:
Final Walkthrough
- Arrive early to walk through your finished home.
- Review the builder’s punch list of final fix-ups needed.
- Identify any additional repairs to address. This gets noted as an IOU from the builder if not completed by closing.
Review Closing Disclosure
- Carefully review your closing disclosure form issued by the title company.
- It outlines all the closing costs and loan terms for your approval.
Wire Transfer of Funds
- Wire your closing funds to the title company at least 24 hours in advance.
- Bring a certified check for any final amount due at closing.
Location of Closing
- Determine where you’ll sign closing documents – a title company, escrow office, or builder’s sales center.
- Arrive early in case signing takes longer than expected.
Documents to Have on Hand
- ID, wire transfer receipt, certified funds, and other paperwork.
- A family member or real estate agent can provide moral support!
- Review documents carefully before signing. Ask questions if anything is unclear.
Sign Paperwork and Get Keys!
- Once everything is signed and transferred, you’ll get the keys!
- Time to celebrate and move into your new construction dream home.
The Closing Process Compared to Existing Homes
While signing paperwork to transfer ownership is similar, some key differences exist between new construction and existing homes:
Timeline and Preparation
- New construction has a longer lead time and more advance preparation.
- Existing homes can close much quicker, sometimes in just 30 days.
Inspections and Repairs
- New construction undergoes inspections throughout the build process. Just one final check is needed.
- Existing homes require more extensive, independent inspections. Repairs are often negotiated.
Fees and Closing Costs
- New construction buyers pay more fees upfront. Builders subsidize some costs.
- Existing homes have sellers traditionally paying more closing fees.
Seller vs. Buyer Responsibilities
- New construction buyers take on more upfront costs.
- Existing homes have more negotiations on repairs between sellers and buyers.
Real Estate Agents
- Agents for new construction ensure the home is built to specifications.
- Agents for existing homes focus more on price negotiation and contracts.
Warranties
- New construction includes a builder’s 1-year workmanship warranty.
- Existing homes do not come with any warranties, unless purchased separately.
What Are the Typical Closing Costs for a New Construction Home?
When purchasing a new construction home, it’s vital to have a clear understanding of new construction closing costs. Typical expenses may include lender fees, title insurance, appraisal fees, and prepaid property taxes. Additionally, homeowners may also encounter costs for inspections, surveys, and construction loan interest.
What to Do After Closing
Once the keys are yours, here are some post-closing action items:
- Activate utility accounts for electricity, water, gas, etc. in your name.
- Officially change your address with the post office, banks, employers, etc.
- Schedule your builder’s home maintenance orientation. Learn how systems operate and where to find water shut-offs, circuit breakers, etc.
- Review warranty coverage for defects and workmanship issues. Know who to contact for covered repairs.
- Have the builder address any IOUs for repairs or unfinished items noted during the final walkthrough.
Key Differences in New Construction Closing
In summary, these major points set the new construction closing process apart:
Extended Timeline
- More time is required for permits, construction, and financing.
- Patience is key throughout the process!
Greater Role of Builder
- The builder is highly involved through completion and closing.
- They’ll provide orientation materials and warranty info.
Earlier Mortgage Rate Lock-In
- Rates can be locked 1-2 months further ahead than existing homes.
- This prevents market rate jumps before closing.
More Buyer Fees and Costs
- Lightening seller costs shifts more fees to the buyer.
- But some costs may be subsidized by the builder.
Higher Diligence on Inspections
- Inspections safeguard you on a major investment.
- Any fixes are addressed before closing.
Construction Delays and Changes
- Bad weather or materials shortage can impact the timeline.
- Be adaptable if the closing date needs to shift.
Closing on your new construction home is an exciting milestone after months of anticipation. Being prepared for the process, costs, and timeline quirks will make your journey to get the keys seamless. With your custom-built home comes the assurance of construction warranties and support too. Soon enough, you’ll be cozying into your brand new, never-lived-in residence. So take a breath, dot those I’s, cross those T’s, and get ready to make those new construction dreams come true!