LynxBanc Group
Mortgage - Investment - Real Estate
Seven Steps for Buying New Construction Homes in
Florida
Brought to you by: Your
LynxBanc Mortgage
If you are thinking of building a new home, it may be the best decision of your life! A
new home is easier to maintain, more energy efficient and your decorating possibilities
are endless. Take these simple steps to insure a smooth process and successful closing.
Step #1 – Get References!
There are many great builders but a few bad apples can ruin the whole experience for you.
Not only do you need to confirm that the builder is licensed, reputable and stands behind
their work, you need to make sure that the subdivision won’t instantly go down in
value.
Ask for names and
phone numbers of at least 3 past clients they have built a home for. Don’t dwell on
the little things that might go wrong (building a home is a complicated process) but ask a
few simple questions.
Was the builder and subcontractors easy to work with?
What was the process to make changes during construction?
How long did it take them to respond to the repairs after you moved in?
Did they complete the home on time?
Are most of the homes owned by families who LIVE in the homes or are there a number
of homes sold to investors for rental purposes? You don’t want your neighborhood to
turn into a rental area with the possibility of unkempt lawns and properties.
Are the additional homes being built (in the area) of equal or greater value?
Step #2 – Consider Using a Real Estate Agent Who
Specializes in New Construction Homes!
Some builders may tell you they don’t work with real estate agents. They might say
they won’t offer you any special incentives unless you use their lender, their title
company and even their insurance agent or appraiser.
An independent agent, with many new construction transactions has established
relationships with builders. The builder doesn’t want the risk of getting a bad
reputation with the other agents in the office. A Buyer’s Agent will make sure you
get a fair interest rate and closing costs. They know the neighborhood and have access to
community planning for schools, streets or things that may adversely affect the future
value of your home.
Step #3 – Get a Home Inspection
Most homebuyers assume that since the local building inspector has inspected the
home—or the bank or appraiser inspects the home during the building process—
that they don’t need a home inspection.
While most new homes come with a 1-year warranty, it’s next to impossible for
a builder or inspector to double check every single detail of their subcontractor’s
work. An independent, third party may just be that extra insurance you need.
Step #4 – Don’t Agree to Use Their Lender
Production builders, who develop the subdivision and build all the homes there, are
usually large corporate entities and are sometimes even traded on the Stock Exchanges.
There is much more money to be made if they require you to use their mortgage company,
title company, etc. While they may offer huge discounts to get you to buy the
home—watch out for the stipulation that says you will only get the discounts if you
use their other affiliate companies. Remember, there is no free lunch and you may end up
with higher closing costs and higher interest rates.
They may even tell you that they will not sell you the home unless you use their
lender/title company. Walk away. No house is worth taking out a bad loan and paying
thousands of dollars more in the long term.
Step #5 – Review the Contract and Specification Sheets
BEFORE You Sign!
Building a new home can be more “emotional” than buying an existing one. You
imagine how you are going to decorate. You visualize how your yard will look—where
you will build the swing set or place your garden. But, you might be pressured into
signing the contract so no one else can buy the lot or get that house.
Understand what you are signing! In addition to a contract, you should get a complete
specification sheet (listing everything going into the home) along with the blue prints.
Regardless of what is verbally promised to you, it all needs to be in writing!
Step #6 – Choose Your Appraiser!
If you need a mortgage, the lender requires that you get an appraisal. A licensed
appraiser has an extensive set of rules and regulations to follow. An appraiser who gets
work from the builder’s mortgage company could be a little more biased! Since most
appraisers charge about the same fee, you do have the option to request a list of approved
appraisers and choose one yourself.
Secondly, if you are building your home from the ground up, you will receive a
“preliminary” appraisal based upon the plans and specification sheets (see Step
#5). However, if you make changes during the construction of the home, it may either have
a positive effect—or decrease the value—which will reflect in the final
appraisal. Let’s say that you decided to change a couple of wall configurations and
turn the home into 2 bedrooms instead of the original 3 bedrooms, it could decrease the
value of your home.
Step #7 – Check Out Local Government Plans
What does the local city or township have in mind for additional roads, schools, fire
departments or zoning or ordinance changes? Is the land next to your subdivision slated
for commercial use? How about power lines? Dump sites? Etc.? A good real estate agent has
their pulse on what’s happening in the community, local government planning
proposals, proposed subdivisions or issues that might affect the value of your home.
Building a new home can be a great experience!
Please call us (Contacting LynxBanc) and I can help you find
your dream home.
Buying a home from the Builder -
Some thoughts to ponder.
The reason homebuilders are so eager to give
you money or incentives is that they are not really giving away THEIR money. They are
probably giving you back YOUR money.
Here’s the way that it works. When you read the rates in the newspaper, you’d
think that there was just one interest rate—like 6% for a
no-point loan. In fact, every lender offers dozens of different interest rates depending
upon the loan program, your credit score or closing cost rebates. If the rate is higher
than normal, it means that the wholesale lender is giving the loan officer a
“rebate”. For example, if the rate for the loan is 6.25% (instead of 6%) the
builder’s mortgage company (or preferred lender) gets a 1 per cent rebate so that
would mean $3,000 on a $300,000 loan.
So, when they promise you $3,000 in “incentives”, it’s because they are
quoting you a higher interest rate with the presumption that they will be getting a $3,000
rebate back from the lender and passing that on to you. If you STILL think this sounds OK,
consider this: paying an interest rate of 1/4% higher than market costs you $9,600 in
interest over the 1st 10 years of your loan. You pay $9,600 and you get $3,000. What a
deal!
The builder knows that if you are a shrewd shopper, you will find lower
interest rates out there. However, because it’s new construction, most of the
time you are not able to lock in your interest rate up front—or it’s too late in
the building process for you to go anywhere else. They want to coerce you into doing
something that you would not normally do (like shop around) and use the incentives to
control you.
Compare this with the automobile industry and the financing incentives they offer to car
buyers. Chevrolet and GMAC Finance are the same company and they work together to sell you
a car. The sales division is paying the finance division. With the builders, it’s the
other way around—the lender is rebating your money to the builder who is rebating it
to you. It’s still your money, right?
Anyway, there is also a big difference in the interest you pay. In a 48-month, $20,000 car
loan at 5% interest, the total interest over the life of the loan is only $2,100. In the
case of a mortgage, 5% interest on a $200,000 loan over 30 years is $186,500.
What should you do? If you decide to build a new home and the builder offers incentives,
inquire about them right up front. If you decide to build one of their homes, tell them
you want the incentive—but with no strings attached (especially if it has been
advertised that way and no mention that you have to use their mortgage company).
In a hot market, they may sell the home to the next buyer in line. That’s something
you will have to decide. But in a normal market, it’s hard for me to believe that
they would NOT sell you the house if you don’t go along with their phony-baloney
financing program. Selling homes is their business—not giving away money they never
had to give away in the first place.
Philosophically, I agree that the builder ought to make sure the buyers are qualified and
that back-up financing is available if the client ends up not having their own loan. But
coercing customers and holding incentives over their heads, I believe, is unethical.
Published in The Savvy Borrower Column
by Randy Johnson
Randy Johnson, President of Independence Mortgage Company, author of several top selling
mortgage books and writer of a syndicated column (appearing in newspapers nationwide)
called The Savvy Borrower. You can email Randy at randyj@loan-wolf.com
