Guide for New Construction Homebuyers
When buying new construction, you have the option to buy without a realtor representing you, however the builder’s realtor represents the builder’s best interest not yours. An exclusive buyer agent represents you and your best interests. Having a professional working on your behalf can go a long way and save you time, money, and stress.
We suggest you follow these 18 steps; the steps 1 through 6 are similar to the first time homebuyer section. The specific steps for new construction are from 7 through 18.
New Construction Homebuyers
The cost at closing will vary based on the home you plan to purchase. Other than the down payment there are other costs that range from 2% to 5% of the total home price, including closing costs, escrow for home insurance and property taxes; also for other expenses such as inspections, property survey, etc.
It’s recommended that you review these costs with the mortgage banker to have an understanding of what closing cost will be for your home purchase.
Check Your Credit Report
Review your credit report and preferably with the three credit score bureaus.
If you find incorrect information, errors or information not up to date, be sure that you contact them to ask them to do the changes or updates.
Also follow these general recommendations to improve your credit score if you plan to buy a home in the near future:
Pay all of your bills on time
Do not make any major purchases
Do not close any credit cards
Do not apply for new credit cards
Having a higher credit score will help you to obtain a lower interest rate, which results in a lower monthly house payment.
Federal Programs to Become a Homeowner
The Federal Government through the U.S. Department of Housing and Urban Development
is responsible for national policy programs that address America’s housing needs. Also HUD plays a major role in supporting homeownership by underwriting homeownership for low and moderate income families through its mortgage insurance programs. In the specifics of homeownership, HUD administers the mortgage and loan insurance through the Federal Housing Administration and fair housing public education and enforcement.
In case you need assistance on how to manage your finances, work on your financial situation to apply for a mortgage in the near future or to learn more about the programs available; we suggest you to contact one of the HUD approved housing counseling agencies in Houston, TX.
Please follow this link
or download this PDF file
How Much Can You Afford for a Monthly Payment?
Use an online mortgage calculator to determine what you can afford for a monthly payment. The payment amount should be manageable and not stretching your finances. You don’t want to buy a home that will put stress on your finances for the next 15 or 30 years.
This is a mortgage calculator from Bankrate or you can also find them in the websites of the major banks or credit unions.
Please note most of the calculators include the principal and interest based on the down payment, loan amount, length of the loan and interest rate. The homeowner’s insurance, property tax and home owner association (HOA) fees will vary depending on the house you plan on buying.
This step is critical and it will take a bit longer than you may expect. Contact different mortgage lenders and start with the bank or credit union that you already have a banking relationship; where you deposit your paychecks or that you currently have auto loan. Also meet with other mortgage lenders, so you can compare the overall costs and interest rate that you can get.
Continue the process with one lender and obtain a pre-approval letter before you begin your home search. After the lender has verified your documentation and approved the loan; you will have a mortgage pre-approval letter that will help determine how much you can spend on a home and get financing.
Furthermore having a loan pre-approval in hand strengthens your proposal when you submit an offer on a home, townhome or condo, since you don’t need to wait on the lender to review your application.
In general there are two types of mortgage loans:
- Conventional loans are offered by private mortgage lenders like banks, credit unions and other private companies.
- FHA loans are backed and insured by the Federal Housing Administration.
Location and Type of Home
You should start with these questions:
- Where do you want to be located?
- Do you want a house, townhome or condo?
Also, you should make two lists:
- Items you and your family will need
- Items you and your family would like
Choose an Exclusive Buyer Agent to Represent You
As mentioned above, an exclusive buyer agent will represent you and your best interests. We recommend you interview for an exclusive buyer agent, who is committed to serving and representing the buyer’s interests in the real estate transaction. Rather than working with the builder’s real estate representative that represents the builder
The responsibilities of your exclusive buyer agent are:
- Get the most value for your money.
- Review the builders that you are interested in and help you compare the various things they offer.
- Advise which home builder to use.
- Help you understand the cost of an upgrade versus the potential return on investment.
- Provide you with the pertinent information about the builder, development and community.
- Offer advice on locations, floor plans, elevations and finishes that add to the long term value to the home.
- Keep everything in writing for future reference.
- Negotiate the final purchase at the best price and terms.
In the event your exclusive buyer agent is not able to attend a meeting with a potential builder, inform them that you are working with and being represented by an exclusive buyer agent. If you do not communicate this information upfront when buying new construction, your exclusive buyer agent can’t represent you when negotiating with the builder and over seeing things are done in your best interest.
Research Prospective Builders
All builders need to meet the current building codes but that doesn’t mean that they are all the same. Some builders may try to cut corners in order to reduce cost and some builders provide quality work to maintain their reputation and peace of mind by using quality materials and contractors.
Visit Builder’s Developments and Model Homes
Depending on the stage of the development, they will have different amenities available such as parks, trails, community pools, schools, etc. Research the developments and decide which fits your needs and wants best.
Also consider future needs, amenities and locations that can accommodate your current and future lifestyle.
Some of the model homes you visit will look different then some of the homes you will see for sale. The reason is that the model homes are typically built with most of the upgrades offered. The homes seen for sale may not include the offered upgrades.
The exclusive buyer agent can assist you determining which development best fits you and your needs, as well as sorting out the standard and upgrades offered from each builder. The upgrades that may benefit you and the upgrades that are required for your needs and comfort. The goal is to have the ideal location, largest lot, space options, materials and finishes that will add value to the home.
Narrow Your Choices
After visiting various developments, eliminate the neighborhoods that don’t fit your needs.
Research the schools assigned to the neighborhood and if possible visit them to ensure they can accommodate you and your children’s needs.
Inquire for any Homeowners Association fees and the tax rates of the property; when you initially buy your home and when the development is completed.
Figuring Out Your Living Situation
A new house can take six months or longer to build if the builder runs into delays during construction. It is important to plan your living arrangements while your new home is under construction. If you sell a home you will need to find temporary housing and storage for your belongings while your new home is being built. If you decide to wait until your new home is completed to sell your current home it is possible you will have multiple mortgages while waiting for a home to sell.
Your exclusive buyer agent can advise you when the appropriate time is to put your house on the market to minimize the wait and reduce the chances of having to pay for multiple mortgages.
Select a Community, Builder, Style, Standard Items and Upgrades
Once you have selected the community that best fits your lifestyle, offers the amenities that you would like and offers a school that is appropriate for your family. The next step is to select a builder that offers a quality finished home and maintains a relationship with past and current home owners.
Next you should select the style of home, floor plan, standard items and upgrades.
Your exclusive buyer agent can assist you when it comes to choosing upgrades that will add value to the home.
Negotiations and Contract
During the negotiation process, your exclusive buyer agent will negotiate on your behalf and look at the transaction from a dollars and sense perspective.
If there are any issues, the agent will catch them and explain them clearly to you and to the builder. Furthermore, your exclusive buyer agent will be diligent with any concessions or guarantees provided by the builder should be confirmed in writing and ensure the terms agreed upon are included in the contract.
Prior to any contracts that you sign, your exclusive buyer agent will study them to make sure you are protected and that you are getting what you agreed to. Confirm that you fully understand the timeline, costs, mutual obligations, and conditions of the agreement.
Even when buying a brand new home we strongly recommend hiring a home inspector. This will add cost to your home buying process but you will gain confidence that the home you’re purchasing has been checked by a third party that has your best interest in mind, rather than relying on the builder’s construction staff.
As your exclusive buyer agent, we recommend experienced home inspectors in new construction and help you set the appointment with the inspector that you select. A home inspector will check the interior and exterior of the house to make sure it is well constructed. The inspector will also explain how your new home works. You will receive a written report with their findings plus, any suggestions about upkeep and maintenance.
Your exclusive buyer agent will review the inspector’s report and identify potential areas of negotiation, corrections, repairs or replacements with the builder. Request the builder to take care of the issues listed in the report and confirm that they have been properly addressed or solved.
We also advice certain features and details that you should check your self, such as:
- Check fit and finish on all doors and windows. Do they open smoothly?
- Try all faucets. Is the water pressure and temperature acceptable?
- Try all lights and dimmers. Are the lights working properly and bright enough?
- Turn on all ceiling fans. Are the fans working properly at different speeds?
Builder Warranty Documents
The builder warranty is a big part of new construction home buying process, and it’s important to learn and understand in detail the specifics of the warranty offered by the builder. The warranty will outline the potential issues, defects, or mishaps that you can expect to be covered, or be compensated for, should they arise.
The builder warranty lasts six months to two years, with some lasting up to 10 years for “major structural defects” like an unsafe roof. The warranty should cover all of a home’s materials and workmanship.
The builder warranty should include:
- Concrete foundations and floors
- Clapboard and shingles
- Landscaping (if included in the house)
- Thermal and moisture cover
- Roofing and siding
- Doors and windows
- Garage doors
- Heating and cooling
Most builder warranties will NOT cover:
- Household appliances
- Defects resulting from work conducted by the homeowner or anyone after the house was finished
- Shrinkage and expansion of the house
- Normal fading of paint
- Shrinkage of joints/minor cracking
- Weather-related issues
- Dampness/condensation caused by failure of the homeowner to maintain adequate ventilation
- Insect damage
Before you sign the contract, make sure you know not only what is and isn't covered in the builder warranty, also the length of the coverage and who you should contact. Your exclusive buyer agent will take the time to familiarize you with the builder warranty and what it covers. If you have questions about the builder warranty, your exclusive buyer agent will assist you in reviewing and answer any questions, and / or address your concerns with the builder for clarification.
Pre-Settlement and Walk-Through
You and your exclusive buyer agent will attend the pre-settlement and walk-through where the project manager will educate you on your new home, go over the systems and features and make sure that there are no last-minute items to address prior to your settlement.
After the walk-through and having a clear understanding of the contract, the builder warranty and the new home you’re purchasing, your exclusive buyer agent will assist you during the closing.
At the closing you will pay for the closing costs, including loan processing, title fees, insurance, taxes and HOA fees.
Depending on the type of home you purchased you may immediately get the keys to your new home if it is ready for move in or will receive them when the builder completes and prepares the home for move in.