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Browse
the Frequently Asked Questions below
for the information you are seeking or Ask
the Experts any question you might
have about your new home. |
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FREQUENTLY
ASKED QUESTIONS
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Construction Financing
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| Q. |
How should one choose a mortgage company and what should you look for? |
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Choose an established company. The company should offer products from a large variety of lenders, not just their own. Be wary of small mortgage brokers that don't have the capital to honor their interest rate if rates rise. Get everything in writing. |
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Legal Issues/Building Codes
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How can you be sure your new home will comply with safety and health standards? |
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A building code sets forth requirements to protect public health, safety and general welfare as they relate to construction and the occupancy of a building. Building codes have specific requirements for building materials, fire protection, structural design, light and ventilation, heating and cooling, sanitary facilities and energy conservation. If a builder follows the building code, then your home will meet minimum health, safety and structural integrity standards |
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Who writes the local building code? |
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Building homes is a complicated process, so building codes are often long and complicated. To prevent each local jurisdiction from having to develop its own complicated codes from scratch, there are several major model code organizations that draft codes that local areas can adopt. |
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Miscellaneous
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| Q. |
Do I have any negotiating power with the builder. We really love the home and the location is ideal but we feel his price is too high. Do I have any way of getting them to come down? Any ideas? PLEASE!! THANKS!! |
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The demand for new housing is very strong, and builders know that their homes will sell quickly. That said, here are a few ideas. If you are planning upgrades (Patio/deck, trim upgrades, etc.), you can negotiate hard on these prices and the builder may give in somewhat because these items are usually high profit margin items.
Another strategy is to get a mortgage pre-approval and make a quick settlement bid with the commitment letter attached. Consider approaching the builder about building a similar home on a longer time frame, which may give you some price leverage.
Perhaps the best strategy is one of patience. The new home market is white-hot and late fall ,may be a great time to buy. |
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We just received the breakdown on the cost of every item along with the builder's 15% markup for profit. The builder also has a 5% real estate commission on the total cost of the land and the house. He owned the land and is the builder. Is it normal to charge the buyer the real estate commission? |
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The cost of selling each house is paid by the builder one way or the other. He either builds it into the price or shows it as a separate line item. 4-5% is the customary real estate commission. |
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Can I expect to negotiate a price for new construction as I would for an existing home? Or are new home prices more set in stone? And if the price of the home is generally not negotiable, what, if anything, is (e.g. asking them for reduced prices for options, etc.)? I would appreciate any information you have on standard practices. Thank you. |
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Everything is negotiable! Try and get everything in the initial contract. Change orders are where alot of money is made. The builder will sharpen his pencil when negotiating the initial contract. Once ground is broken, the power balance changes.
Your best bet is to get the high profit items and allowances in your initial
contract: decks, finish treatments, luxury items, fixture upgrades, kitchen allowances. Know what you want before you sign by shopping the showroom or recommended subcontractors.
One builder I know earns 40% of the profit on the total house on change orders. Invest your time in getting the plans specs and contracts completely done before you break ground. You'll be well rewarded for your effort.
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The Construction Process
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| Q. |
How can I be sure that my new home has the square footage indicated on the builders blueprints? |
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Measure the outside walls at the perimeter of the house. Plot them on a graph paper to scale. Multiply the length times the width. That's the square footage if the house is a perfect rectangle. If the house is not a perfect rectangle, you'll need to calculate the square footage of the innermost rectangular area you can draw, and then calculate the square footage of each rectangle outside of the biggest rectangle you can draw. Add them up and that's the approximate square footage. |
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What if I don't sell my home before my new home is completed? |
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Options exist to make sure your financial security is not jeopardized. Price your house realistically and determine exactly what you need to get out of it. Talk any scenarios through with your lender to make sure you get the construction financing that is right you're your situation. |
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To whom are draw payments made? |
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Draw payments are made typically one of two ways. They may be made payable to both you and your Builder or just your builder. The advantages of having them payable only to your builder are that your builder receives his funds more quickly. There is no need to obtain two signatures to cash the check. The disadvantage of this plan is that the draw check is useful in ensuring performance of your builder. Some people prefer to control the draw process. Make sure you find a lender that can offer both alternatives. |
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What if I run out of money? |
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Don't panic! You won't have been the first person to have this problem. Good planning can be a tremendous help early on. Anticipate cost overruns and consider borrowing more than you may need. If you don't use the money, there is no harm. Your permanent mortgage will be reduced by the unused amount. Also, you only pay interest on the amount you actually have had advanced. Short-term completion financing may also be available. |
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10 Easy Steps 
Am I Ready?
