May 12 2022

Working With a Builder to Buy a New Home

There are certain advantages to working with a builder when buying a new home, and a few pitfalls to watch out for.

Now that you’ve decided to look for a new home, you have to decide whether you want a home that’s new to you or new altogether. There are certain advantages to working with a builder when buying a new home, and a few pitfalls to watch out for. 


3 Categories of New Home Construction 

Whether you’re looking for a sprawling multi-family dwelling or a cozy condo, there are three basic home-building options: custom, semi-custom, and spec. 


  • Custom. This is where your new home starts with nothing more than a dream. In some cases, the buyer will purchase a piece of land and then hire an architect and a builder — though more often the buyer first finds a builder and together they find the land. It goes smoother this way because builders are usually experts at bidding on lots, armed with knowledge of the process buyers don’t have, and most builders have a team of engineers, architects, and real estate agents at the ready. If you go this route, consider a Construction to Permanent loan from City Lending. 


  • Semi-Custom. More common than custom homes, semi-custom homes are often found in more upscale neighborhoods. Here, a builder will begin with a basic design and offer a range of different options that the buyer can choose from. This could be anything from the difference between a one- or a two-car garage, varying floor plans, exterior options such as stone veneer siding, or interior upgrades including fireplaces and hardwood floors. 


  • Spec. Also known as production homes, spec houses are built and sold as-is. Any customization the buyer can do is highly limited — perhaps choosing paint colors and different lighting fixtures among the few add-ons that spec homes allow. As the term suggests, builders build these homes on the speculation that they’ll find buyers, so they’re often made with traditional aesthetics to appeal to the masses and spec homes are usually move-in ready. 


Mortgage Pre-Approval is Key 

It’s often the case that a builder will want to steer buyers to their preferred lender. While there’s nothing inappropriate about this, know that the homebuyer is under no obligation to work with the lender that a builder recommends. And it’s more than likely the case that you can find better and more diverse lending options with City Lending. Whichever lender you choose, mortgage pre-approval will show a builder that you are serious about the deal, and it will almost certainly make the sale go faster and smoother. 


Yes, you should still hire a real estate agent. 

Some people may assume that buying directly from a builder is a great way to cut out the middleman, and so they won’t have to pay the commission that a real estate agent receives. That’s possible, but not advisable. Here are a few reasons why: 


  • Advocacy. Your real estate agent advocates for your interests; a builder is out for the interests of the builder. And these two interests are usually at odds. This is most often the case when buying spec and semi-custom homes and there’s negotiation on a host of different contractual issues between the buyer’s agent and the builder’s sales representative. 


  • Inspection. Don’t think because a home is newly built that it doesn’t need to be inspected. New-home defects are common and the agent for the builder isn’t likely to seek them out. So having an agent in your corner to shepherd the inspection process is a big plus. 


  • Choosing the right builder. Real estate agents tend to know a lot about the builders in their markets, so you might want to find a real estate agent first and have that agent help you find a new home from a builder. 


  • Resale value. How the home appreciates is also an important factor to consider, and real estate agents are some of the best people to give advice in this area. If you’re buying a semi-custom home, there are bound to be available upgrades that may or may not add resale value to the home. A real estate agent can give you good guidance here. 


  • Agent fees. You probably don’t even have to pay your real estate agent; it’s quite common for the builder to pay the fee of the buyer’s agent, which is often around 6% of the home’s sale price. 


The Pros of New Construction 

  • Smart technology. With smart homes getting ever more common these days, chances are pretty good that most new spec or semi-custom homes come with high-tech features. These can include smart thermostats, lighting, and smart appliances among the many fun new gadgets. 


  • Customization. While nothing offers personalization like a full custom home, semi-custom and even some spec homes offer the buyer more of a chance to make it their own on move-in day than existing homes do. 


  • Less maintenance. With a brand-new roof, shiny new plumbing, and new everything else, the possibility that the buyer of a new home will be saddled with home maintenance and repairs is low. And if any problems do arise, they’re almost surely covered by a warranty initially. 


The Cons of New Construction 

  • Cost. It’s a fact: new homes often cost more than existing ones. How much more? With overall home prices surging, and supply issues cutting into home construction, that answer fluctuates. But, in general, new single-family homes tend to cost more than existing single-family homes. 


  • Less landscaping. One of the big advantages existing homes have over new ones is the landscaping, as existing homes offer the possibility for tall shade trees and other mature greenery that are harder to find with new construction. 


  • Off-gassing. Love that new-home smell? Is that the feeling of hope and promise you’re breathing in? No, it’s more likely formaldehyde. From carpets and curtains to wood that’s just about everywhere, new homes tend to give off significantly more volatile organic compounds (VOCs) than existing homes do. 


Whether you go custom, semi-custom, or spec, City Lending is here with a wide range of lending options for your new home. Contact us today. 

These days, more and more people are looking to buy their dream homes, especially as remote work and work-from-home setups have become an enduring trend. A 15 point increase in requests for home tours and other home-buying services, along with a 11% rise in Google searches for homes, indicate an uptick in demand to buy houses in the country. However, there is a definite worry about affordability when it comes to housing, especially as hefty price tags on available residences have kept the market just as competitive as before, if not more.

According to the latest reports from analysts, it’s not all bad for existing homebuyers and aspiring house hunters. As previous data shows, timing matters in the housing market, and working on different approaches to home buying – like through a reliable lender – can help advance you towards more affordable housing goals. Below, we discuss whether house hunters should buy now or wait, and why.


What is your financial situation?

Counter to the rise in home demand, there is a considerable lack of supply. Along with rising prices and interest rates, the housing market may seem like a highly competitive space with wealthy homeowners fighting for what little property is left. It can be overwhelming, but knowing where you stand financially can help you better strategize your home buying journey. Following the four key components of affordability, ask yourself:

  • How much do you have saved for a down payment?

  • How much does your household earn?

  • What debts do you carry?

  • What is your credit score?


Familiarizing yourself with these components will help inform your decision on whether or not to wait. For example, taking the time to improve your credit scores before committing can save you from higher interest rates in terms of your monthly mortgage payments. Alternatively, many young homebuyers are compromising by living with family for a significant amount time to save up for a down payment. Getting this out of the way when you’re able to can help you get better loans to buy sooner than later in case interest rates end up increasing.

What kind of home is best for you?

Buying a home is a huge purchase and a big commitment. With shifts to digital and remote ways of working taking place in recent years, this has provided homebuyers with opportunities to be more flexible when buying homes. Homes in areas away from busy cities and urban hubs, for example, are considerably cheaper. This makes them a perfect option for buyers who work from home, or aren’t required to be present in the office on a consistent basis.

The lifestyle you expect to live is as much a factor to consider as money. Condos and townhouses offer lower maintenance costs in the long run, and are perfect for smaller households when compared to single-family homes. If the household grows, homebuyers looking for a side income can even invest in renting out purchased properties to passively earn back what they spent and look into bigger properties for family use.

What does the future look like?

In a previous post, we talked about the rising mortgage and interest rates. While the market may seem bleak or intimidating in its current condition, housing experts also believe factors such as supply have a high chance of returning to pre-pandemic levels by the end of 2024. If you are financially able, buying now while others may be intimidated by the prices can give you an edge. Conversely, taking some time to get your finances in order can benefit you when it comes to securing better loans and lower interest rates.

Working with experts can help you make better decisions for the loans you need, making sure you don’t get trapped with high interest rates or hidden charges. The future of fintech suggests that big data is the future of loans, as more online lenders are now using algorithms, which predict potential defaults better than FICO scores do. Data is also leveraged precisely to identify customers who fit various products well — which can give you peace of mind, as an aspiring borrower. Here at City Lending for example, we find the right programs to fit your needs and profile, making sure you get some of the lowest down payments and interest rates along with a premium service.

And if you’re still unsure, it’s worth considering that waiting it out in the market’s current wild conditions could result in even higher interest rates in the future. At the end of the day, buying a house is ultimately a huge investment, which comes with benefits such as privacy and a financial investment that for the most part will weather most economic storms.

Find out if this is the right time for you to get a house by contacting one of our loan officers today.


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Written by Alicia Christopher

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