Buying a New Construction Home for First Timers


Custom home building becomes an attractive option when your dream home can’t be located in any existing structure that you’ve found. A pandemic-induced housing shortage doesn’t help matters. You might choose instead to construct your own custom home. Many first-time home buyers have gone this route, and now you can too.


According to the National Association of Home Builders, single family home construction has increased by around 12%. If you wish to join those homeowners, there is no better time than right now.


Constructing your own home can be a complicated process. Not only do you have to decide what your home will look like and all the amenities to include, but you must choose a home financing option, among other complexities. This beginner’s guide for new home buyers should ease your mind as you put the process of building your dream home into action.


New Home Construction Options

You have a bit of freedom when it comes to constructing a new home. Instead of building a home from scratch, you might want to consider a spec home or semi-custom home.


Spec Home

A spec home is a custom home that is built in a large residential subdivision to the developer’s specifications. It’s a model home designed to show prospective buyers what is possible by choosing that particular home builder. As a homebuyer, you would purchase the home as-is. That means you couldn’t ask for changes or customizations once you have closed on the home.


You might be thinking this arrangement is similar to buying an existing home. You would be correct, to a degree. Spec homes are usually already built or at least close to being completed. The benefit of moving into one of these homes is there is no delay between closing and moving in. The downside is that you can’t convert the home to your “dream home” by upgrading or ordering alterations. There is also a limited supply of spec homes.


Semi-Custom Homes

Like spec-homes, these homes are found in large developments and are built as models to showcase the builder’s handiwork. Unlike their predecessors, semi-custom homes come with additional options like upgraded interior finishes and varying floor plans.

A prime benefit of a semi-custom home is that you get to control the building process without starting from square one.

Both spec and semi-custom homes are ideal for finding an affordable first-time home buying option that doesn’t involve a pre-existing structure.


Custom Homes

Unlike spec or semi-custom homes, the custom home is built to your (the buyer’s) specifications. When you choose to buy a custom home, you must have land already available, or else you must secure land as part of the home construction process. Building a home requires an architect to design the home and builder to convert the written plans into a freestanding structure that houses your family.

A custom home gives you complete and total control over where the home is built, and how it’s constructed. This means you will have a multitude of details and decisions to contend with throughout the process. One of those details has to do with the cost of new home construction.


Calculating the Cost of New Home Construction

As of this year, the average price of a single-family home is as follows:

  • Newly Built Single-Family Home: $349,400 (U.S. Census Bureau)

  • Existing Home: $313,000 (NAR)

  • New Home Construction: $296,652 (sans land) or $114/sqft. (National Association of Home Builders (NAHB))

These prices could rise as building and material costs increase in the future. One downside of custom home building is that costs could start on an upward trend while construction is ongoing.


The costs associated with building your custom home will vary depending on where in the country you wish to live. The average Cincinnati custom home costs between $150,000 and $450,000, which comes to between $90 and $150 per square foot. Beware that some costs associated with your home build may not be immediately obvious. Examples include personal decorating and exterior upgrades like landscaping.


How to Finance Your New Home Construction

For spec and semi-custom homes, you will need to secure a new construction loan. This involves you getting approval for a mortgage before the home is constructed. You will present the builder with a pre-approval document that guarantees the purchase of the home. Once you close on the home, you will be able to move in right away.


For a custom home build, you will need a construction loan. The funds are dispersed much like a line of credit with this loan. You’ll receive disbursements for an approved amount as the build progresses. The only payments due are interest payments during the construction phase. Once the build is complete, the loan will be converted to a traditional mortgage, whereby the repayment schedule will begin.


For home construction in a new development or subdivision, the developer may recommend a particular lender familiar with the project. You are not obligated to use any professionals, including finance lenders. Shop around and determine which lender will give you the best loan rates and terms.


How Long is New Construction for a Residential Home?

A custom build can take around a year or longer. Spec or semi-custom homes can take six months or longer. Of course, you should always beware of weather delays, material shortages, and other setbacks that can inadvertently stretch your project timeline.

Delays are common during the several construction phases required to build a custom new home. Plan for them to avoid expensive headaches.


Other than finances, make sure your living arrangements are flexible in case move-in day is pushed back. For renters, talk to your landlord about possible extensions on your lease. Some tenants are able to go month-to-month without issue, which will put you in an excellent position to move into your new home once construction ends.


Those planning to sell the homes they are living in; you might want to put off listing your home until your new home construction is nearly finished. Another consideration is to add a leaseback clause to the sale contract of your existing home. Having a clause like that lets you stay in your home a bit longer, even after it has been sold.


Builder Warranty: Do You Need One?

A home warranty covers things like appliances. A home builder’s warranty covers the materials and workmanship during the construction phase. All states have laws that mandate builder warranties. Talk to your builder about the warranty their company offers. Some builders offer proprietary and third-party warranties at no additional cost. Ask about them and take advantage of them when needed. A builder’s warranty covers heating and air conditioning systems, electrical, insulation, roofing, and plumbing. The warranty will not cover defects caused by another contractor, weather-related damage, or faded paint.


Check your state’s builder warranties to determine the minimum requirements. The average coverage gives you between six months and three years. Some states give you even longer.

Builders can choose to offer extended warranties beyond the state minimums. While these warranty policies do come with an additional cost, they can be handy for keeping you protected long into the future. Read the warranty documents over carefully before signing so you know what’s covered and how long you have before the coverage expires.


Are You Working with a High-Rated Builder?

Spend time finding a quality builder with a good reputation. Contact your local homebuilder’s association, ask friends and family if they have recently built a home, and drive through subdivisions where spec-, semi-custom, and custom homes have recently been sold. Pay special attention to the trim work and exterior paint. You can even stop homeowners in front of homes you like to ask if they are happy with their homes, and if they had any issues during or after their new home construction.


These ideas are all useful for finding a quality contractor. Ideally, you will interview a few custom home builders. When interviewing builders, ask for references from recent buyers and ask plenty of questions, paying special attention to estimated property taxes and warranty programs.


Ready to Design the Home of Your Dreams?

Building a luxury custom home doesn’t have to be a chore. Let Ashford Homes start you on the journey toward getting your keys for the final move-in. We offer elegance, function, and comfort during a stress-free home-building process. Call our office in Cincinnati to get started: 513-478-5160.


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