Escrowing Funds at Closing

This type of escrow is not the same as the account used in the normal course of the closing. This section refers to escrow accounts that are established to deal with problems that occur prior to or at the closing.
It is important to understand the specifics of each situation to insure that your interests are fully protected. This means understanding how an escrow account works and making sure that sufficient funds are escrowed. It is also essential to have supporting agreements and documentation that properly and completely protect your interests.
Funds are usually escrowed to address two different types of problems:

Repair Issues

Many purchases are contingent upon the seller completing some type of repair or other work prior to the closing. Aditional problems are often discovered by the buyer’s inspector.
If these items are not completed on time the closing may be delayed – causing considerable inconvenience to all parties.
An alternative to delaying the closing is to establish an escrow account to cover the cost of the repairs – which will be completed after the closing. Since the buyer is protected by the escrowed funds the sale can be completed on schedule.

The escrow arrangement should meet the following requirements:

• The funds should be adequate to cover the cost of the work under any reasonable circumstance – including an allowance for contingencies.
• The agreement should allow the escrow agent to release funds only after the buyer has approved the work.
• The buyer should have the right to replace any contractors that do not perform satisfactorily – even if the replacements are more expensive.

Always make sure you understand the scope and cost of the work involved before agreeing to an escrow arrangement.

Title Issues

If the seller is subject to judgments or other claims, the ability to pass clear title to the buyer may be jeopardized.
Typically, any existing claims are paid at the closing out of the purchase funds. However, sometimes a seller will dispute the validity of a claim and declare the intention have it legally removed.
Unfortunately, this type of action is often unfeasible within the time available before closing. Funds can be escrowed by the seller to protect the buyer and insure that there are no title problems.
In this situation, the escrow agreement should meet the following requirements:

• The amount deposited should be enough to cover the claim plus any foreseeable interest that may accrue. An additional amount should be added to cover contingencies.
• The buyer’s lender and title company must accept the arrangement in writing. The title company must provide the title insurance and the lender must agree to fund the mortgage based on the escrow.
• The buyer must have the right to force payment of the claim from the escrow if the seller has not resolved the problem is a reasonable period.

Make sure you fully understand the situation before accepting this type of arrangement

Understanding the Closing Documents

There are a number of documents that have to be reviewed and signed at the closing. Each serves a different purpose, but all – or most – are required to complete the purchase. 

The Note

This is your contract with the lender whereby you agree to repay the loan with interest as specified. 

The Mortgage

The mortgage provides the lender with a claim against the home you are purchasing as security for the note. 

Truth in Lending Form

This is a form that confirms that your lender has disclosed all loan costs to you in accordance with legal requirements. 

RESPA

This stands for, “Real Estate Settlement Procedures Act.” It is essentially a declaration that you understand the closing procedure. 

Homeowner’s Insurance

Most lenders require that the first year’s homeowner’s insurance premium be paid in full before the loan proceeds are released at the closing. 

Closing Statement (HUD-1)

This is an accounting of all amounts that are due to and from the buyer and seller in the transaction. The HUD-1 lists all of the uses of the sale proceeds, including the payoff of the seller’s mortgage, apportionments for property taxes, real estate commissions, etc. The statement is used to determine a final amount of cash that is due to or from the buyer and seller.

Utility Checklist

Some utilities require more lead time than others to terminate service at your old residence and activate at the new. While the time required varies, you can use this checklist as a starting point.

One month or more before closing… 

Cable Television and/or cable modem

Contact the cable company early, in case the new home needs any wiring or hook ups to accommodate your service. Call especially early if you are installing cable modem service. 

Phone service

With today’s often complicated home phone set-ups it is important to give the phone company some extra time – especially if you will need several extra numbers and/or jacks in specific locations. 

Satellite television and Internet service

Unless your new home has a compatible dish already in place, you will require installation services. Depending upon demand in your area this could entail a wait of a month or more, so put your order in early. 

DSL Internet service

DSL installation is subject to large backlogs in most area, so put in your order as soon as possible.

One to two weeks before closing… 

Fuel deliveries

If you receive automatic deliveries of heating oil or propane you should contact the supplier and terminate the service (and transfer the account to your new home if you still require deliveries). 

Automatic deliveries

While they are not, strictly speaking, utilities, any automatic delivery services (bottled water, pool suppies, etc.) you may use should be contacted 1-2 weeks in advance of your move to terminate deliveries or change the service to your new address.

Several days to one week before closing… 

Electrical service

Contact the electric company and switch your account to the new address effective on the closing date (make sure you have electrical service at both locations on moving day). 

Gas service

Contact the gas company and switch your account to the new address effective on the closing date (make sure you have gas service in both locations on moving day). 

Water service

Notify the water company several days before the closing. 

Sewer service

Notify the sewer authority several days before the closing. 

Garbage pickup

If you pay for private garbage pickup you should notify the service provider a few days before the closing. Even if you have public garbage service at your old location you may need to arrange for private pickup at the new house. Check it out – you don’t want to end up without garbage service just after you move in. If you want to have a special pickup – either at the old address or the new – make the arrangements at least a week in advance.

Comparing Loan Types

There are many factors to consider when choosing the right home mortgage for your purchase. 

Fixed vs. Adjustable Rate

A fixed rate loan carries a higher interest rate than an adjustable, so it may be a more costly option if you don’t plan to stay in your new home for at least five years. Conversely, if you plan to remain there for many years it may be worth locking in a fixed rate – especially if interest rates are at lower than average levels. 

Term – 30 Years or 15

While there are loan programs available with various durations, most home mortgages have a term of 30 years. There are some significant advantages, however, to choosing a loan with a 15 year term. Although the payments will a bit higher, the loan will be paid off in only 15 years – and you’ll save thousands in interest. 

Points vs. No Points

Some loan programs require the borrower to pay points while others do not. Among competitive lenders, a no point loan will carry a higher interest rate than one with points. The no point loan is probably the best deal if you don’t expect to remain in your new home for more than 2 or 3 years. If you intend to remain for at least 5 years then it’s most likely worth paying the points to get a lower rate. 

High Loan-to-Value

There are a variety of loan programs available for borrowers who want to borrow more than 80% of the purchase price. Depending upon the lender, the borrower, and the state of the market there are loans available to finance 95% or more of the purchase price. Most of these high loan-to-value mortgages require the borrower to purchase private mortgage insurance.

Mortgage Documentation Checklist

Every lender requests some level of documentation in support of a loan application, though each has its own specific list of requirements. Most will require some or all of the items on this checklist in addition to a completed application form. 

Copies of contracts

The lender will want a copy of your purchase contract specifying the price and closing date. If you are selling your current home the lender may want to see the contract on that transaction as well. 

Income verification documents

The lender will want copies of pay stubs for the previous 2-4 weeks. Additionally, they may request tax returns with accompanying W-2 and 1099 forms. 

Contact information

You may be asked to supply contact information (name, address, phone number) for your employer to allow the lender to verify your information. 

Credit card and installment loan information

The lender may want to see copies of several months credit card statements, as well as payment books or statements for car loans and other consumer debts. 

Bank statements

You may be asked to provide statements for bank and brokerage accounts for the past 2-3 months. 

Proof of down payment funds

Some lenders require verification that the buyer has the required funds to cover the down payment and closing costs. If any portion of the down payment is being provided by others (family members, for example) the lender will probably require a letter stating that the funds are a gift and not a loan. This is often called a gift letter. 

Special items

Some lenders may require copies of car titles and ownership documents for other major assets. If relevant, divorce or bankruptcy paperwork should be provided. Borrowers who are relying upon income from a legal settlement or similar source will need to provide documentation.

Understanding Title

You’ve considered what it will be like to own your new home, but you probably haven’t given a thought to how you’ll own it. Understanding the different forms of title is the first step toward choosing the right one. 

Sole Ownership

This is where a single owner holds full title to the property. The owner may sell, finance, or encumber the property at his or her discretion. The property passes to the owner’s heirs through probate. 

Tenancy in Common

In a tenancy in common arrangement, multiple parties each own a share in the property. The owners do not have to be related, and the ownerships interests need not be equal. Each owner accrues tax liabilities and benefits in accordance with the ownership percentage and may freely sell or transfer his or her interest without consent of the others. The interest of each owner passes to his or her heirs through probate. 

Joint Tenancy

This is a common form of title for properties with 2 or more owners. Each owner holds an equal, undivided interest in the property. Upon the death of an owner the interest does not go into the decedent’s estate, but rather passes to the remaining owner(s). 

Tenancy by the Entirety

This is similar to joint tenancy, but is only allowed in certain states, and only for use by a husband and wife. Upon the death of either spouse the survivor automatically becomes the sole owner of the property. A property held in this way cannot be sold to satisfy creditors unless the claim is against both spouses (except in certain situations involving obligations to governmental bodies). 

Owning Through Other Entities

Property can also be owned by a partnership, corporation, or trust. In this case, the individual(s) involved own an interest in the entity (or, in some cases with a trust, are a beneficiary) – which itself holds title to the property. There are a number of advantages and disadvantages to using each of these entities to hold property. These forms of ownership are primarily used by investors rather than homeowners.

Contingencies checklist

A home purchase contract should include contingencies to protect against uncertainties and allow the buyer the time to complete the required checking and other tasks prior to closing. All of these contingencies should be included. 

Attorney Review

Every home purchase contract should be expressly contingent upon review and approval by an attorney. Many states provide for an automatic review period regardless of the specifics of the contract. 

Financing

The contract should be contingent upon the purchaser obtaining a mortgage commitment within a set period of time. The contract generally stipulates that the loan should be at “market” rates and terms – so the buyer can’t be compelled to accept an unfair loan if that is all that is available. 

Inspections

The contract should allow the buyer a reasonable period of time to arrange for required inspections. The exact inspections necessary may vary with area, but typically include a general home inspection (always!), termite/pest inspection, and a radon test. 

Appraisal

This is partially covered with a financing contingency – since the buyer will not obtain a mortgage if the property fails to appraise. Nevertheless, it is sometimes worth including a separate contingency – if, for example, the buyer does not require a mortgage but wants the appraisal anyway. 

Repairs and cleanup

If the purchaser’s willingness to buy is based upon certain action by the seller – making a repair or removing excessive garbage or debris, for example – the contract should contain an express contingency to that effect. 

Sale of buyer’s home

Some contracts are contingent upon the sale of the buyer’s home to another party. While it is often difficult to get a seller to accept this type of condition, a buyer who cannot otherwise afford to proceed has little choice but to try. 

Special contingencies

Some transactions require special conditions. For example, if the home needs a significant work the buyer may want a contingency period to get pricing from contractors.

Offer Checklist

Whether your offer is in the form of a contract or a letter, it’s important to make sure it includes all of the required information. 

Buyer name and contact information

The offer should include the full name of all proposed buyers as well as contact information (address, phone number, etc.). 

Seller and property information

The offer should include the seller’s name(s) and the address of the property to be purchased. 

Purchase price and terms

The offer should clearly state the purchase price being offered for the property as well as any terms that are required. 

Deposit information

The offer should include a complete breakdown of any deposits as well as a description of how they will be handled prior to closing. Typically, a small deposit is made with the offer (or shortly thereafter), with the balance of 10% of the purchase price due in 7-14 days. All deposits should be held by an attorney or escrow agent and should be refundable unless the buyer defaults on the contract. 

Closing date

The offer should specify the proposed closing date. Of course, the date is approximate at this stage. 

All contingencies

All contingencies should be clearly specified in the offer. Typically, a home purchase is subject to the buyer obtaining a mortgage and conducting a series of inspections. The offer should specify time limits to satisfy each contingency. 

Contracts and attorney review

If the offer is not in the form of a contract the letter should clearly state that it is subject to a satisfactory contract being drawn. If the offer is a contract it should provide for an attorney review period of at least three business days during which either party may cancel.

Buying a Fixer Upper

If you’re considering a home that needs some work it’s even more important to do all of you homework. A fixer upper can turn out to be your dream home – or a nightmare of delays and cost overruns – so it’s essential to learn everything you can at the outset. 

Don’t Forget the Contingencies

Make sure your purchase contract includes sufficient contingencies to allow you to have the property reviewed by a home inspector and a contractor – and to back out if you don’t like what they tell you. 

Is There Potential?

If you make the effort, do the work, and spend the money…will you have what you hope you will? Some fixer uppers can be wonderful homes once they are restored – but not all. 

Inspections, Inspections, Inspections

The number one goal when buying a fixer upper is avoiding surprises. Surprises in home renovation are almost always bad – and expensive. Before you close title on any fixer upper it is essential to have a comprehensive, top to bottom, inspection done. Find out what is wrong before you close, not after. 

Are the Bones Good?

Installing trim, fixing sheetrock, and painting walls is one thing – major structural work is another. Make sure your fixer upper is sound structurally. Unless you are very familiar with construction work it is probably best to avoid a property with any major foundation or framing problems. 

Price What You Can

It’s probably impossible to get solid pricing before the closing on every repair and improvement you are planning to do, but it is essential to get a reliable approximate cost for the project. Have your contractor inspect the property with you and give you firm pricing on the major projects – and some guidance on the rest. 

Financing the Fixer Upper

One thing is certain – you’ll still be spending money after the closing. Possibly a lot of money. Make sure you include the improvement costs in your budget – and add a generous contingency factor as well. Poor funding is probably the #1 cause of home improvement problems, so make sure your financing program will provide the money you require. 

Do It Yourself Fixer Upper

It can be very dangerous to purchase a fixer upper based on the assumption that you will do the repairs yourself. Homeowners often find they lack the skill, tools, time, or motivation to complete improvement projects themselves – often in the middle of the work. This is bad enough, but if you buy a property you can only afford to improve if you do the work yourself – and then find out you can’t finish – you could have serious troubles. Be careful.

Multi-Family Housing Checklist

It’s important to consider all of the issues that pertain to multi-family housing before deciding to purchase this type of unit. Review the items on this checklist so you don’t miss anything. 

Take a close look at the community

Is the housing density too high? Are the buildings attractive? Will you have enough privacy? Check out the parking situation – are there garages? Is parking reserved or otherwise restricted? 

Review the project amenities

Most multi-family projects offer community amenities, including open space, playgrounds, tennis courts, swimming pools, gyms, and golf courses. Find out whether you will be able to use the facilities as a resident or if you will need to join a separate organization (and pay an additional fee). 

Check out the maintenance arrangements

Because multi-family homes are interconnected, maintenance is generally handled by the homeowner’s association. Find out which items are your responsibility and which are handled by the association. Are the landscaping and building exteriors well maintained or do they appear to be neglected? 

Check out the maintenance reserves

The homeowners’ association should maintain cash reserves to replace and repair building systems (painting, roof replacement, etc.) on a reasonable schedule. Inquire about these reserves. Do the amounts seem adequate? Is the work schedule reasonable or is it overly optimistic? 

Review the rules and regulations

Multi-family communities generally have rules and regulations to protect the interests of all residents. There are often rules covering parking, pets, rentals, and renovations or improvements to units. Make sure that the rules do not interfere with your use and enjoyment of the property. 

Check the monthly maintenance fee

The costs of maintaining public spaces and amenities is paid by a monthly fee assessed to each property owner. These fees are mandatory and non-payment can result in the establishment of a lien against the property for the amount due, plus interest. Check to make sure the fee is reasonable. If the community has been complete for several years, check to see if the fee has been increasing unreasonably. 

Watch out for runaway boards

The homeowners’ association is run by a board consisting of community residents. While it stands to reason that they would act in the best interests of the community, the sad truth is that many of these board members begin to act as petty dictators, imposing their will on their hapless neighbors. If a community seems to have a runaway association board you may want to consider looking elsewhere. 

Is the homeowners’ association protected?

Check to make sure that the homeowner’s association is not subject to any pending litigation. Legal troubles can result from a number of sources — contractors injured while working on the site, disgruntled residents, etc. Make sure that the association carries sufficient insurance — at least $2-5 million. 

What are you allowed to do to your unit?

Check to see what changes you are allowed to make to your unit. Typically, owners are allowed to make non-structural internal changes, but must obtain approval for any other work. This is not universal, however, so it makes sense to find out exactly where you stand.

Evaluating Real Estate Markets

Real estate markets are extremely cyclical, with pricing and demand greatly influenced by interest rates and economic conditions. Flexible buyers and sellers can often do very well by timing their entry into the market. 

Choose a Weak or Strong Market?

Most people who buy a home also have one to sell. Thus, except for first-time buyers, it may be difficult to determine the most advantageous time to enter the market. It’s important to consider all aspects of the transaction – the homes being bought and sold, interest rates, time pressure, etc. – to determine what is best for you. 

When is a Weak Market Best?

Generally, it is advisable to act during a weaker market when moving up – purchasing a more expensive home – since a bargain on an expensive new home will offset losses on the old one. 

When is a Strong Market Best

If you are downsizing – moving to a smaller home – you may want to act during a strong market to maximize gains on your larger, current home. Retirees and empty nesters are the primary members of this group. Since a home is a major asset, choosing the right time to sell and then buy a smaller property can have a major impact on retirement savings. 

Signs of a Weak Market

A weak market is characterized by large numbers of homes on the market and stable or declining prices. During such times homes tend to sit on the market for fairly long periods, and sellers may have difficulty finding buyers – so this is the time to find a real bargain. 

Signs of a Strong Market

A strong market is characterized by appreciating prices, tight inventories, and short selling times. Buyers may have a difficult time finding a suitable property in their price range. 

Signs of an Overheated Market

Overheated markets are characterized by rapidly increasing prices, extremely low levels of available inventory, and bidding wars for attractive properties. While obviously an ideal time to sell a home, buyers should exercise extreme caution when purchasing during an overheated market – prices almost always contract sharply when the economy falters. 

Market Lag

Popular perceptions and pricing often lag behind the actual turn of a market. For example, prices are often slow to react to the onset of adverse economic conditions, as sellers and agents are reluctant to accept the change until properties have languished on the market long enough to force price reductions.

Affordability

Nothing causes greater stress and disappointment than chasing after homes that are out of reach. Start your search with an honest assessment of what you can comfortably afford to spend. 

Keep Your Payments Affordable

Most lenders consider home payments to be affordable if the combined mortgage, property tax, and homeowner’s insurance costs equal 28% or less of the owner’s gross income. While this is a good starting point in calculating your affordability level, don’t forget to contemplate other costs – utilities, commuting expenses, maintenance, etc. 

Do You Have the Cash You’ll Need?

Standard mortgage programs require a minimum down payment of 20% of the purchase price. While numerous alternative programs exist, many of these require the buyer to purchase private mortgage insurance or carry higher interest rates – all of which can considerably increase the monthly payment. In addition to the down payment, the buyer can expect to spend 4-8% on closing costs. Don’t forget moving expenses, decorating costs, and any necessary repairs. 

Interest Rates Affect Affordability

Buying when interest rates are low can dramatically affect how much house you can afford. A buyer who can afford the payments on a $170,000 mortgage at 10% can manage a $200,000 loan at 8%. That’s $30,000 of extra buying power for the same monthly payment. 

Determine Your Own Comfort Level

While rules of thumb can be useful when determining affordability, each buyer really has to consider his or her own lifestyle and financial situation. Do you have large expenses in addition to your home? Will you want to purchase new furniture or do you have everything you need? 

Will Your Employer Provide Assistance?

Companies often provide financial assistance to transferred employees. Some employers pay for moving and relocation costs. Others offer payments to help employees moving into areas with high real estate values. Any benefits of this type can help extend your affordable price range, so find out if your employer provides any assistance.

Homeowner Tax Breaks

Favorable tax treatment is a major benefit of homeownership. The tax breaks offered to homeowners can substantially increase affordability and investment returns. 

Mortgage Interest Is Deductible

Interest from a home mortgage is fully deductible from income taxes. Since mortgage payments in the early years of a loan consist primarily of interest, this tax break has long helped buyers afford new homes. The deduction applies to interest on up to $1,000,000 in loan proceeds used to purchase or build a primary and/or secondary home. 

Home Equity Interest Is Deductible

Interest on a home equity loan of up to $100,000 is deductible, regardless of the use of the proceeds. 

Property Taxes Are Deductible

Property taxes paid to local or state authorities are deductible from federal income tax returns. 

Capital Gains Are Tax-Exempt

Capital gains – the profit made when an appreciated home is sold – are completely exempt from taxation, subject to certain limits and conditions. Single filers may exempt total gains of $250,000 and married couples, $500,000. This exemption is subject to a number of qualifications, but usually applies to any property the taxpayer has lived in for two of the previous five years. 

Increased Basis for Improvements

Money spent on certain home improvements adds to your cost basis for the house, reducing the amount of any capital gain upon sale. Be sure to keep all receipts and records from home improvement projects.

Working with Your Agent

Establishing a good working relationship with your agent is a major step toward a successful and low-stress homebuying experience. 

Who Represents Whom – Understanding Agency

Agency is a relationship where one party (the agent) represents the interests of the other (the principal). At one time all real estate agents represented the property seller. This is no longer the case – agents can now represent either the buyer or the seller. Your agent, therefore, should be acting as a “buyer’s broker” and representing your interests exclusively. 

Use Your Agent’s Experience

Most professional agents are extremely knowledgeable about the local real estate market. This is a valuable resource, so use it well. Your agent can help you decide which communities are right for you – and are within your price range. Your Agent Has the Tools Realtors have access to the Multiple Listing Service as well as data on recent sales and closings in the area. This information can be very useful when you are researching the markets, so make sure to include your agent in your planning sessions. 

Communicate

Even the best agent is not a mind reader. Tell your agent what you want in your new home and where you would like to live. Be honest about your price range. Discuss whether you are willing to consider a house that needs work. Talk about home size, style, etc. 

Be Accessible

Speed is often important, especially when dealing with booming markets or particularly attractive properties. Make sure your agent understands that you want to be contacted at once if something promising becomes available. Provide phone numbers (home, office, cell) where you can be reached at various times of the day. 

Assert Yourself

Agents are salespeople – they typically have strong and outgoing personalities. Don’t forget, however, that it is your home search. Don’t let your agent take charge of the process and show you only a handpicked list of properties. Insist on reviewing the multiple listings and on making your own decisions about what you want to see.

Community Research Checklist

While much of your opinion of a town will be based on your own viewpoint and impressions, there are some objective standards to review as well. Consider these factors when researching a community. 

Is the community accessible?

Access is a key consideration of any location. Is the area well served by major highways? How far is the nearest major city? The closest airport? How long of a commute will you have. 

Is the school system highly regarded?

School quality is a crucial factor in property value, so it is important even if you do not have children. Are the school buildings and grounds well maintained? 

Consider prestige and pricing

Is the town considered an upscale community? Reputation can be important – sought after towns tend to appreciate strongly during good markets and retain their value best when the economy falters. Keep an eye on pricing, however, and make sure there are offerings within your price range. 

Is there significant development in the area?

This can be a source of strain on the community as local services become stretched by the growing population. However it also indicates that the area is in demand – and that property values may continue to grow. 

Review town services and recreational facilities

Does the community offer parks and other recreational amenities? What services are provided by the town – police, fire, garbage collection, etc.? Is there municipal sewer and water service? 

Are property taxes high?

It’s important to check out the real level of taxation. Since many communities use old or outdated assessments, the specified rate may not tell the whole story. Check on the actual tax bills of houses of the size and type you plan to buy – this should give you an idea of what to expect. Also check to see how quickly taxes have been rising in recent years. 

Is there shopping and recreation nearby?

Few homeowners want to drive a significant distance to buy groceries or see a movie. Check to see if the town is well served by stores and recreational facilities. 

Watch out for problems

Try to discover any potential problems that may impact your quality of life. Is there excessive traffic in the area? Are there any proposals or plans to build an unappealing facility – power plant, prison, etc. – in the area?

Home Evaluation Checklist

While much of what makes a home the right choice is vague and difficult to quantify, there are a number of objective considerations as well. Review the following items to help determine if a house is right for you. 

Review the exterior condition

Check the roof and siding for signs of excessive wear. Is the paint peeling or chipping? Inspect the windows and doors – are they in good condition? Check the foundation for cracks. 

Check out the lot layout and condition

Is the lot large enough? Is it level and well landscaped? Check the area around the foundation – is the ground sloped away from the house to allow for proper drainage? Does water pool anywhere near the house? 

Inspect the basement

Is the basement dry and free of mildew? Check the basement walls – are they free of cracks and other damage? Is the ceiling high enough to allow you to finish the basement in the future? 

Rate the kitchen

Is the kitchen large enough for your family? Are the cabinets and fixtures attractive and in good condition or are they dated and worn? Is there enough storage space? Is there a laundry room? 

Consider the bedrooms and bathrooms

Are there enough bedrooms in the house? Are they large enough for your needs? Does the house have a sufficient number of bathrooms? Are the bathroom fixtures and vanities modern and in good condition? 

Think about room sizes and layout

Does the home have all of the rooms you want – living room, dining room, family room, study, or library? Are the rooms large enough? Does the house have a nice layout with good traffic flow? 

Check out the mechanicals

Are the heating, plumbing, and electrical systems up-to-date and in good condition? How old are the furnace, hot water heater, and air-conditioning units (if the home has central air)? 

Review the interior finishes

Check out the flooring, interior paint, and wallpaper – are they in good shape or are they old and dingy? Does the home have built-in shelving or other special trim? 

Consider the items on your wish list

Does the home have the features that you have identified as important — fireplace(s), two or three-car garage, room for expansion, etc.?

Building a Home

Building a new home can mean different things. Contracting for a new home in a large development isn’t very different from buying an existing house — except that you’ll have to wait until it is built to close. On the other hand, building a custom home on your own lot can be quite different. This type of project is considerably more involved – and potentially more rewarding. 

Understanding What Is Involved

Building a home can be an extremely rewarding experience – allowing you to create a custom-designed living space. But building can also be a stressful and difficult undertaking, so it’s important to understand the entire process – and what part you must play to make it a successful project. 

Buying in a Development

The most common way to buy a new house is to purchase one in a development. Depending on the size and stage of the project, you may be able to view anything from floor plans and sketches up to fully-furnished models. Most homes built this way are semi-custom – you are usually offered a selection of plans from which to choose. While this method of building offers limited customization, it is also the simplest and easiest. 

Building on Your Own Lot

Buying a lot and building your own fully custom home is the pinnacle of the building experience. It is also the most complex and difficult way to obtain a new home. You need to buy the lot, hire an architect, arrange construction financing, and find a builder. 

Can You Be Your Own Builder?

Many books and articles have been written extolling the benefits of acting as your own builder or contractor. While it is true that most builders use subcontractors to perform most of the work — and hence you can as well — it is important to understand that homebuilding is a complex job. An amateur builder can easily squander any potential savings — or worse, make a real mess out of the project. So before you consider being your own builder, take the time to do some research and learn about the process. 

Making Selections

The failure of homebuyers to make timely selections is one of the primary causes of construction delays. Some items (cabinets, for example) have considerable lead times; others are often subject to back-order. When these products fail to arrive on time, the entire construction schedule can be affected – so make all of these choices well in advance. 

How Long Does It Take?

This is a difficult question to answer. It depends upon a number of different factors, each exerting a major influence. The most important factors include:

• The size and complexity of the design.
• The quality of the builder’s organization.
• The backlog of work (how busy is the builder?).
• The topography of the lot.
• The weather.
• The financing.
• The cooperation of the homeowner (making selections, not making changes, etc.).

Building a small, noncustomized home can take as little as 90 days from the date ground is broken. Large custom projects can take 1-2 years. The typical construction time for the average semi-custom home is probably 5-8 months.