New construction closing costs typically have additional fees beyond the “normal” estimated closing costs associated with an existing home. Some builders (like Windsor Homes) offer buyers financing incentives as a method to pay closing costs in order to lower the loan’s costs.
The mortgage loan process varies slightly for newly constructed homes. The three major differences are:
- the timing of locking new construction interest rates,
- how to structure a new construction escrow account,
- the additional fees of new construction closing costs (as discussed below).
New Construction Closing Costs
New construction closing costs can be higher than “normal” purchase loans due to the prepaids and additional fees.
Owner’s Title Policy
The owner’s title policy is the “wild card” for new construction closing costs. For existing home purchases the sellers typically pay for this fee. By contrast, this fee becomes the buyer’s responsibility when purchasing new construction. A title policy calculator can estimate this cost.
Builders will often offer concessions as a financing incentive if the buyer uses their preferred lender. Builders typically offer a credit at closing to cover this fee (or issue a predetermined credit amount that is comparable to the cost).
It’s worth noting that high-end custom builders typically don’t offer concessions of any kind. The buyers are often responsible for the title policy cost and get jumbo loans.
Texas is a “survey state” which means a survey is mandatory when procuring financing. A final survey does not exist on newly constructed home; therefore, it becomes part of the new construction closing costs. The buyer is typically responsible for paying the survey which is approximately $400 to $450.
As an FYI, for existing home purchases the seller typically has a copy of the survey and can provide it to the buyer, thus saving the buyer that expense.
HOA Transfer Fees
Newly constructed home purchases in master plan communities typically have one-time HOA transfer fees that total $700 to $900. We call these the “welcome to the neighborhood” fees. These fees are used to fund the HOA’s cash reserves and cover their admin costs.
If the house is not fully completed and move-in ready when the appraisal is conducted, the lender will required final inspection. The final inspection will be conducted by the appraiser and must be provided to the lender before funding. The purpose of the final inspection is to verify that the house is fully completed. The fee is approximately $175 and increases the new construction closing costs.
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