Some aspects of buying new construction are similar to buying an established home. For example, unless you are paying cash, you’ll need to apply for a construction loan to purchase the property. However, there are other parts of the process that may differ. Here’s what you can expect if you want to buy new construction. 1. Application and preapproval Start by finding a lender that offers construction loans — not every lender does. Once you’ve evaluated potential lenders and the loan products they offer, the application process for a construction loan is fairly similar to that of a conventional mortgage. You submit an application, and the underwriter thoroughly reviews your financial information. Construction loans tend to have more stringent requirements than conventional mortgages. Lenders are typically looking for lower debt-to-income ratios, higher credit scores and more significant down payments from applicants. For example, while some lenders will allow a 3.5% down payment for a conventional mortgage, you may have to put down 20% of the estimated costs for a construction loan. When the underwriter has completed their review of your finances, you’ll receive a preapproval decision that helps you move forward with building your dream home. This lets you establish your construction budget and gives builders an idea of what you can spend. 2. Get an agent Hiring a real estate agent to help you through the process may be especially important when buying and building new construction. While this may be a new process for you, many real estate agents have experience helping buyers purchase lots and construct new homes. They can help you negotiate a fair price for the project and offer their expertise in customization options. For example, your agent may have insight into which fixtures and flooring will give the home a higher value in the future. You can start by asking friends and family for their real estate agent recommendations. Interview more than one agent and ask each one about their experience with new home construction. 3. Pick a spot and find a builder The location of the property is a huge consideration. For instance, you may want to purchase a lot in a new suburban development from an established builder, or you could have dreams of building on a rural piece of land. Either way, it’s often beneficial to find a builder who can help you choose the right plot of land. Some properties may have beautiful views but aren’t ideal for construction. You’ll want to spend some time researching reputable builders. You can ask your real estate agent and lender for their recommendations and search the directory of the National Association of Home Builders. If you decide to buy a lot in a development already owned by a builder, you’ll probably have to put down a new-construction deposit, which can be 5% to 10% of the purchase price. This deposit is usually nonrefundable, so you’ll want to be certain you are ready to move forward with that particular builder. 4. Design the home Once you have decided on a builder, it’s time to design your home. Most lenders will require a detailed plan from a licensed contractor or builder for the home’s construction. This may include blueprints or drawings and a list of estimated costs for the project. In addition, you’ll also need an appraisal that will estimate the property's future value based on the plans for the project. As you work with your builder to draw up the plans, you may be offered certain upgrades, such as custom cabinetry. Your builder could require a deposit to make those upgrades to the home’s original plan. Deposits can range from 25% to 50% of the upgrade costs. 5. Get an inspection The builder or contractor will conduct routine inspections throughout construction, but you’ll want to hire your own home inspector to ensure the house is built to code and has no major structural issues. The last thing you want is to approach move-in day only to find out there was a serious problem with the home’s foundation. An independent home inspector acts as a second set of eyes that can monitor the homebuilder’s progress as well.