This blog was provided by our expert finance partners at Pulte Mortgage.

Given all the perks of buying and building your dream house, it’s easy to get caught up in the excitement, but you also want to be aware of the closing costs on new construction. Purchasing a home is a huge financial responsibility, and it’s essential to understand the costs involved. In this guide, we’ll break down the closing costs of buying a new construction home.

Summary:

• Overview of Closing Costs on New Construction
• What Are the Biggest Differences for Closing Costs on New Construction vs. Resale Homes?
• Average Closing Costs on New Construction
• Who Pays Closing Costs on a New Construction Home?
• What Are No-Closing-Cost Home Builders?
• What to Do if You Need Help Paying For Closing Costs on New Builds
• Closing Costs on New Construction Conclusion

Overview of Closing Costs on New Construction

Closing costs are the various fees associated with purchasing a new home and are often a one-time expense due at your home’s closing. All these fees are listed on your Closing Disclosure form, which you should review carefully.

What Are Closing Costs on New Construction?

Many costs come with closing on a new home. Here are a few you’ll likely notice on your Closing Disclosure: 

• Appraisal and home inspection fees
• Title search and title insurance fees
• Attorney fees
• Mortgage application fees
• Homeowners association fees
• Property taxes and insurance fees
• Escrow deposits

Appraisal and home inspection fees: Charged by the appraiser, these fees are for determining the home’s value and issuing an appraisal report. The lender typically contacts the appraiser to perform the appraisal, and the buyer pays the fees.

Title search and title insurance fees: The title search is a fee charged by the title company to search the property title for any existing liens or other potential issues.

Attorney fees: Attorney fees may be required if an attorney gets hired to review the terms negotiated in your purchase contract.

Mortgage application fees: The lender charges a mortgage application fee to process your loan application.

Homeowners association fees: Since your closing date may not align with the homeowners association (HOA) period, a prorated HOA fee may be applied to help ensure neither party overpays.

Property taxes and insurance fees: Property tax is a fee charged by the county or city and depends on the location of the property and its assessed value.

Escrow deposits: You can make this deposit to your lender to cover property taxes and insurance if you are required to or choose to open an escrow account.

What Are the Biggest Differences for Closing Costs on New Construction vs. Resale Homes?

Let’s explore the most significant differences in closing costs between new construction and resale homes. This way, you can make the best decision for your budget and homebuying needs.

Builder Fees in New Construction Closing Costs

Builders typically charge fees for items and services, such as architectural services, land surveying, engineering, and construction management. These fees are not typically included in the home’s purchase price and are usually added to the new build closing costs. When buying a resale home, there are no builder fees, so the costs generally revolve around the transfer of ownership.

Title Insurance in New Construction Closing Costs

With a new construction home, title insurance can be more expensive as it covers the lender's and the owner's interest in the home. That means two separate title policies are needed, making title insurance service fees slightly higher for new construction homes.

Prorated Property Taxes in New Construction Closing Costs

When you purchase a new construction home, the property taxes are often prorated based on the land’s value and any improvements made during the construction process. With a resale home, the seller pays property taxes up to the closing date, and the buyer then pays the taxes for the rest of the year based on the purchase price.

Inspection Costs in New Construction Closing Costs

Since a new construction home does not require the same level of inspection as a resale home, this can lead to lower inspection costs at closing. A resale home is more likely to have hidden problems, which can increase inspection fees and the overall cost.

Loan Origination Fees in New Construction Closing Costs

New home builders often have relationships with lenders and have the power to negotiate lower origination fees on behalf of the buyer. When purchasing a resale home, the buyer typically has to search for a lender that best fits their budget.

Average Closing Costs on New Construction

Closing costs on a new construction home are calculated based on several factors, such as the purchase price, the loan type, and the home’s location. Typically, closing costs can range from 2–6% of the home’s purchase price, but your lender will provide an exact breakdown of the expected closing costs on your Loan Estimate.

Who Pays Closing Costs on a New Construction Home?

In most cases, the homebuyer is responsible for paying the closing costs on a new build home. However, many new construction home builders offer incentives, such as covering a percentage of the closing cost, if the buyer agrees to use a preferred lender or purchase within a specific time frame.

Tips on How to Negotiate and Reduce Your Closing Costs

• Use your Loan Estimate to comparison shop to find the best deal.
• See if you qualify for any closing cost assistance programs in your area.
• Ask your lender if you can take advantage of any discounts or incentives.

What Are No-Closing-Cost Home Builders?

Some builders may offer "no closing cost" options where they pay for closing costs upfront in exchange for a higher interest rate. If you come across this option, consider the terms carefully. A higher interest rate or other fees could cost you more than the original closing costs.

What to Do if You Need Help Paying for Closing Costs on New Builds

If you are a first-time homebuyer, you may qualify for a closing cost assistance (CCA) program. These programs are intended to help buyers reduce their financial burden by providing funds or grants to offset some or all of these closing costs. Each program has its own set of guidelines, but these funds can typically be used for both down payments and closing costs, giving buyers more flexibility in how they allocate their savings.

Closing Costs on New Construction Conclusion

Closing costs can add up quickly when purchasing a new construction home, but understanding the fees and negotiating with the builder can help buyers budget accordingly. Being informed and prepared for these new build closing costs helps buyers ensure a smooth and successful closing process!

Explore new construction homes today or browse more Pulte^® blogs.

Written By: Meagan Rochard, Financial Services Copywriter and Pulte Mortgage Employee

Last Updated: 8/12/24