There are a lot of perks to buying a new construction home. One of the most advantageous perks is your builder might assist in paying your closing costs, or even cover them entirely. That could save you hundreds or thousands of dollars when you buy a home.
Closing costs are additional expenses that home buyers and sellers pay when a home sale is completed. These costs can include a variety of fees related to the buyer's mortgage and the sales transaction.
Examples of mortgage-related closing costs include an appraisal fee, credit report charge and loan origination fees. The title search and owner's and lender's title policies are usually categorized with mortgage costs as well.
Examples of transaction-related closing costs include attorney's fees, escrow agent charges or settlement fees, and property survey fees. Government charges like recording fees and transfer taxes are usually also grouped with transaction-related closing costs.
Buyers also typically pay a variety of prepaid charges at closing, in part because it's convenient to pay them through the settlement process. Examples of prepaids include mortgage interest, property tax and homeowner insurance.
The National Association of Home Builders' guide, Closing On Your Home, explains more about these costs.
Who pays closing costs?
Who pays closing costs is often negotiable, says James McGrath, co-founder of real estate brokerage Yoreevo in New York City.
"These costs will vary from market to market. They're something every buyer should ask about before they submit an offer," McGrath says.
Buyers of new construction homes have an edge because many builders will pay some or all of their closing costs if they buy a home from the builder and get a mortgage from the builder's preferred lender.
If your builder offers you a closing cost incentive that's a percentage, ask what that percentage is applied to. It might be the home’s base price, total sale price, or your loan amount, which are all vary significantly.
The builder's incentive is normally applied as a credit at closing. That means you won't have to pay your closing costs out of pocket and wait for a refund. Instead, the amount will be applied directly to your transaction.
When you're ready to shop for a new home, your builder or mortgage lender can give you an estimate of your closing costs.
Learn more about the advantages of buying a new home and its purchase process.