New Construction Terms, Explained
Builder contracts, design-center upgrades, incentives, warranties and new-construction costs explained.
Buying from a builder uses a different contract, a different price structure and a different set of incentives from buying a resale home. The terms here explain base price versus total contract price, upgrades, incentives, warranties and the inspections you still need.
Follow the journey from choosing a community to the warranty walkthrough after move-in.
Start here
Buying new construction, step by step
Most of the money is decided before construction starts.
- STEP 1
Compare total cost, not base price
Lot premiums, elevations and options can add substantially to the advertised base price.
Your decision: What will the home you actually want cost in total?
- STEP 2
Read the builder contract
Builder contracts are written by the builder and differ from resale agreements.
Your decision: Which terms - deposits, delays, changes - need negotiating or attorney review?
- STEP 3
Choose upgrades at the design center
Options chosen now are financed in the loan; some are cheaper to add later.
Your decision: Which upgrades are worth financing, and which can wait?
- STEP 4
Compare incentives and financing
Incentives often depend on using the builder's lender; compare with an outside offer.
Your decision: Buydown, closing-cost help or price reduction?
- STEP 5
Inspect during construction
Independent inspections before drywall and before closing catch problems the code inspection may not.
Your decision: Which inspections will you order, and when?
- STEP 6
Close and use the warranty
Document defects and submit warranty claims within the stated windows.
Your decision: What is covered, for how long, and how do you file a claim?
All 19 terms
An allowance is a set dollar credit a builder or seller offers toward a specific item — most commonly flooring or carpet — instead of installing a particular product themselves, letting the buyer choose and pay any difference for their own preferred finish.
- Builder IncentiveIntermediate
A builder incentive is a discount or credit a new-home builder offers to encourage a purchase, such as closing-cost help, a mortgage rate buydown, design upgrades or a lower price. It often requires the builder's affiliated lender, and matters because its true value depends on that lender's rate and fees.
- Builder WarrantyIntermediate
A builder warranty covers defects in materials or workmanship on a new home for a set period after closing, typically with shorter coverage on systems like HVAC and longer coverage on structural issues.
- Builder's Preferred LenderIntermediate
A builder's preferred (or affiliated) lender is a mortgage lender the builder recommends or owns a stake in, often tied to incentives for using them.
- Certificate of OccupancyIntermediate
A certificate of occupancy is a document issued by a local government confirming a newly built or renovated property meets building codes and is legally safe to live in.
- Change OrderIntermediate
A change order is a formal, signed modification to a construction contract that adjusts the scope of work, cost, or timeline after the original agreement was signed.
- Construction-to-Permanent LoanIntermediate
A construction-to-permanent loan finances the building of a custom home in stages as work is completed, then automatically converts into a standard mortgage once construction finishes.
- Design CenterIntermediate
A design center is the builder's showroom where new-construction buyers choose finishes and upgrades - flooring, cabinets, countertops, fixtures and structural options - before the home is built. Selections are added to the contract price and usually financed in the mortgage, so they are paid off over the life of the loan.
- Development Application (DA)Advanced
A development application (DA) is a formal request submitted to a local planning authority — standard terminology in Australia and New Zealand — for approval to build, subdivide, or otherwise develop a property.
- Engrossment FeeAdvanced
An engrossment fee is a charge, typically from a closing attorney, for preparing the final, formally executed ("engrossed") version of legal documents or the deed ready for signature at closing.
- Floor Rise ChargesAdvanced
Floor rise charges are an additional per-floor cost, common in Indian apartment pricing, added to a unit's base price for each floor above ground level — reflecting the premium buyers pay for higher floors.
IFMS is a refundable, interest-free deposit collected upfront by a developer in India to fund a building's future maintenance until the resident welfare association or management body takes over ongoing upkeep.
- Model HomeIntermediate
A model home is a fully built and furnished example home a builder uses to showcase available floor plans, finishes, and upgrade options to prospective buyers.
- Mortgage Rate BuydownIntermediate
A mortgage rate buydown is an upfront payment that lowers a borrower's interest rate, either permanently through discount points or temporarily for the first years, as in a 2-1 buydown. It is often paid by a seller or builder, and matters because it lowers payments but only saves money if its cost is recovered.
PLC charges are an additional cost, common in Indian real estate, added to a unit's base price for a preferred location within a development — such as a corner unit, park- or pool-facing view, or a specific floor.
- Punch ListIntermediate
A punch list is a list of minor items — touch-ups, fixes, or incomplete details — identified during a final walk-through that a builder agrees to complete before or shortly after closing.
- Setback Requirements (Zoning)Intermediate
Setback requirements are local zoning rules specifying the minimum distance a structure must be built from property lines, streets, or other structures.
- Spec HomeIntermediate
A spec ("speculative") home is a new-construction house a builder starts and finishes without a confirmed buyer, choosing the floor plan and finishes based on what the builder expects will sell.
- Total Contract Price (TCP)Advanced
Total contract price is the full, final amount owed on a new-construction or builder contract — the base price plus every selected lot premium, design-center upgrade, and change order — as opposed to the base price alone.
Common mistakes
- Comparing communities on base price instead of total contract price.
- Assuming the builder's lender and incentive are the best financing available.
- Skipping independent inspections because the home is new.
- Overspending on design-center upgrades that add little resale value.
Practical examples
An incentive tied to the builder's lender
A $15,000 incentive is worth less if the builder's lender prices the loan higher than an outside lender would. Compare Loan Estimates for the same loan on the same day.
Upgrades become debt
Upgrades financed in the mortgage are paid off over 30 years with interest. Items such as paint or light fixtures are often cheaper to add after closing.
Comparisons and common questions
Calculators and guides
Frequently asked questions
Should I use the builder's lender?
Only after comparing. Incentives can make it worthwhile, but get a Loan Estimate from an outside lender the same day and compare total cost.
Do I need an inspection on a new home?
It is strongly advised. Code inspections check minimum standards; an independent inspector works for you and can catch workmanship issues before closing.
Can I negotiate with a builder?
Often, though more commonly on incentives, upgrades or closing costs than on the base price.
Explore more of the glossary
Definitions are provided for general educational purposes and are not financial, legal, tax, or real estate advice. Rules vary by transaction and location - verify important decisions with qualified professionals.