Why New Construction Could Be One of the Best Ways to Buy a Home Right Now

If you’re thinking about buying a home but today’s mortgage rates have you sitting on the sidelines, there’s one part of the housing market you should be paying very close attention to:

New construction.

For years, buyers generally assumed that buying a brand-new home meant paying a premium. You got the new appliances, new roof, new HVAC, modern finishes, and builder warranty—but you usually paid more for it.

Today’s market is creating a very different situation.

With a large supply of newly constructed homes available and builders motivated to keep inventory moving, buyers may be able to find something that has been extremely difficult to find over the past several years:

A brand-new home with aggressive incentives, closing-cost assistance, and potentially a significantly lower mortgage rate.

Why Builders Are So Motivated to Sell

A traditional homeowner may be able to decide they don’t like the current market and simply take their home off the market.

A builder doesn’t have that same luxury.

Homebuilding is a business built around continually acquiring land, constructing homes, selling them, and reinvesting that money into the next projects.

Builders also frequently use financing to fund construction. That means completed homes sitting unsold can tie up capital and create carrying costs.

Builders need to sell homes to keep the machine moving.

When inventory builds and buyers become more hesitant because of higher mortgage rates, builders have a choice: sit around and hope buyers eventually show up—or give buyers a reason to purchase now.

Many are choosing the second option.

The Sticker Price Isn't the Whole Story

This is where things get interesting.

When comparing a resale home to a new construction home, don't look exclusively at the asking price.

You need to look at the total monthly payment and overall cost of buying the home.

For example, imagine you're comparing two similarly priced homes.

One is a resale home where you're financing at around 7.5%.

The other is a new construction home where the builder is offering financing incentives that could potentially get your rate into the 5% range.

That difference can dramatically change your monthly payment.

On a $400,000 30-year mortgage, for example:

7.5% interest: approximately $2,797/month in principal and interest.

5.5% interest: approximately $2,271/month in principal and interest.

That's a difference of roughly:

$526 PER MONTH

or more than:

$6,300 PER YEAR

And that's before considering some of the other incentives builders may offer.

Builders Can Offer Something Most Homeowners Can't

This is one of the biggest advantages new construction has in today's market.

A normal homeowner usually can't call a mortgage company and offer you a special below-market interest rate.

Large builders often can.

Many builders have relationships with preferred lenders or affiliated mortgage companies, allowing them to offer financing incentives such as:

• Permanent mortgage-rate buydowns

• Temporary rate buydowns

• Closing-cost assistance

• Design or upgrade credits

• Appliance packages

• Lot premiums waived or reduced

• Price reductions on completed inventory homes

Instead of simply dropping the price of a home by $10,000 or $20,000, a builder may be able to use incentives in a way that creates a much larger impact on your monthly payment.

That's why buyers should look beyond the advertised price.

New Construction Can Compete With Resale

Another major change is the price gap between new and existing homes.

Historically, buyers expected to pay more for a brand-new home.

But increased new-home inventory, builder incentives, smaller floor plans, price adjustments, and financing promotions have created situations where new construction can be surprisingly competitive with—and sometimes less expensive than—comparable resale homes.

Think about what you're getting as well.

With a resale property, you could purchase a home and discover that within the next few years you need:

A $15,000 roof.

A $10,000 HVAC system.

New appliances.

Windows.

Water heater.

Electrical repairs.

Plumbing repairs.

With new construction, virtually everything is new, and the home typically comes with builder and manufacturer warranties.

That doesn't automatically make new construction the better deal, but those future expenses absolutely belong in the comparison.

Higher Mortgage Rates Can Actually Make Builder Incentives More Valuable

It sounds backwards, but higher mortgage rates are part of the reason new construction deserves so much attention right now.

When rates increase, affordability decreases.

That means fewer buyers can afford—or are willing—to purchase the builder's inventory.

Builders then have even more incentive to make their homes financially attractive.

One of the most effective ways to accomplish that is buying down the buyer's mortgage rate.

So while you may see conventional mortgage rates in the 7% range, don't automatically assume that's the rate you'll have to pay on a new construction home.

Some builder promotions can offer substantially lower rates to qualified buyers when using their preferred lender and meeting the promotion's requirements.

That's the number you need to compare.

Don't Walk Into the Builder's Office Alone

There's one other thing buyers need to understand.

The salesperson sitting inside the builder's model home works for the builder.

They aren't your real estate agent.

Their job is to represent the builder's interests and sell the builder's homes.

You can typically have your own real estate agent represent you when purchasing new construction, and in many cases the builder pays the buyer agent's compensation subject to its policies and the transaction terms.

An experienced agent can help you compare communities, identify builder incentives, analyze financing options, negotiate available concessions, review the contract, and determine whether the builder's promotion is actually a good deal.

And there's an important catch:

You should involve your agent before your first visit to many new-construction communities.

Builder registration and representation policies vary, and waiting until after you've already registered or toured on your own can create problems with agent representation.

The Bottom Line

If you've been sitting on the sidelines waiting for mortgage rates to come back down, don't assume your only option is to wait.

Instead of asking:

“What's today's mortgage rate?”

Ask:

“What rate and incentives can I actually get on this particular home?”

Those can be two completely different numbers.

Today's combination of new-construction inventory, builder competition, financing incentives, rate buydowns, warranties, and available completed homes has created an opportunity buyers shouldn't overlook.

A new construction home won't be the best choice for everyone.

But if you're planning to buy, it absolutely deserves to be part of the conversation.

Before buying a resale home, compare it against new construction in the same area.

Compare the purchase price.

Compare the interest rate.

Compare the monthly payment.

Compare the closing costs.

Compare the incentives.

And compare the repairs and maintenance you're likely to face over the next several years.

You may be surprised which home actually costs less.

Thinking about buying a home?

We can help you compare new construction and resale options side-by-side, including available builder incentives, financing promotions, and estimated monthly payments, so you can see which option makes the most financial sense for you.