Overview

By following the 5 Steps to New Home Ownership you will avoid many of the common mistakes many New Home Buyers make. Besides understanding how much of a home you qualify for, Step 2 – Choosing a Builder is by far the most important step. If you pick the wrong builder, you will have a miserable new home building experience. Please spend a great deal of time in this section and pick a builder that will partner with you to build your dream home. After you have selected your builder, Steps 3 through 5 can be done in any order. By utilizing the Beome.com new home search engine, we can help you find the right community, lot and Home Plan.

Step 1 – Financing

Unless you’re independently wealthy, you will need to get mortgage to build your next home. There’s a lot of factors that a lender considers when qualifying someone for a mortgage, including creditworthiness, income, amount of existing debt and future liabilities to name a few. It’s not as easy to qualify for a mortgage as it used to be a few years ago and it essential for new home buyers to plan ahead. The sooner you meet with a mortgage lender to understand how much of a home you qualify for the better. It’s always a good idea to meet with a lender at least 6 months before you plan on building your next home. This would allow enough time to address any credit issues that may appear on your credit report.

Predicting the exact cost is a guess until all choices are finalized. Information planning and self-discipline are your best assurance of keeping costs under control. Begin by determining how much cash you have (liquidity) and how much you borrow.

Your Assets

List available cash such as checking and savings accounts. Will additional cash accumulate during construction? Homebuyers typically need cash for loan application fees, the down payment, closing fees and move-in expenses. Consider assets you can turn into cash, such as equity in your existing home. Other assets might include a cash gift from a family member, maturing bonds or the cash value of an insurance policy.

Amount You Can Borrow

Mortgages come in many shapes and sizes. Fixed-rate, adjustable, balloon and so on. Some areas even have special programs for first-time home buyers. Your goal is to match a loan program to your circumstances so you can by the home you want. Here is some basic terminology to help familiarize yourself:

Pre-approval -- Smart buyers today request an informal review of their financial positions to determine how much money they can borrow. A pre-approval can help establish your budget, identify financial details that might interfere with your plans (such as an error on your credit report), and help you compare loan programs.

The amount you can borrow is based on factors such as your assets, how much you owe, your income and the length and stability of your employment. If you fail to qualify for the amount you want, find out what changes might qualify you for a larger loan. Consider omitting some items now (a deck or finished basement) and adding them later.

Loan Application -- Assemble the required financial documents and information prior to your application. Your lender can provide a list of needed items, but at a minimum you should have the following documents available when you meet with your lender:

Two most recent pay stubs
W-2 forms for the last two years
Federal tax returns for the last two years (if self employed)
Last two months’ bank statements
Monthly debt obligation (credit cards, child support, auto loans, installment debt, etc.)

When you meet with the lender, you will be asked to sign preliminary loan documents. Read any documents and ask questions before you sign them. You should receive a copy of each document you are asked to sign. Expect to pay for a credit report and an appraisal when you submit the application.

Don’t have a lender? Getting pre-approved is easy by applying online at www.beome.com.

Down payment --The down payment is the difference between the price of the home and the amount of the loan you obtain. The deposit you give to the builder and items you pay for during construction may count toward the down payment. If you own the lot upon which your home will be built, its appraised value will be considered part of the down payment. Be certain you understand the builder’s contract regarding potential refund of your down payment.

Closing Costs -- Charges associated with the transfer of ownership make up your closing costs. They are often estimated at 2 to 3 percent of the loan amount.

Construction Loan – A construction loan is a short term loan (1 year or less) which usually last the length of construction. Upon completion, the lender will require the construction loan to be replaced with a permanent loan. Construction loans are primarily provided by a local lender. Most lenders require the homebuyer to obtain special insurance to cover the additional liability that comes with building a new home. This type of insurance can range from $500 - $2,000.

Permanent Loan – A permanent loan can be any residential mortgage for you home that is not in the construction phase. Home must have an occupancy permit to qualify for a permanent loan. Mortgages are either considered a conventional, government or portfolio loan. Each have there pros and cons and are best for different situation. When picking a lender, select a lender that offers as many products as possible to ensure lender is providing you the best mortgage available and not putting you into a mortgage simply because it’s the only loan program they offer. All mortgages can have different loan terms including adjustable rate, fixed rate or balloon payment.

Conventional Loans – a conventional loan is a standard loan that is underwritten by one of the two government owned agencies: Fannie Mae and Freddie Mac. Because the loans are underwritten by one of these 2 agencies, the mortgage can be easily sold between lenders.

Government Loans – a government loan is insured by the Federal government. A government loan usually has expanded qualification standards than a conventional loan. Government loans used to be for those people with credit problems or limited income. That’s not the case anymore and many people will save money with a government loan verses a conventional loan. If your credit score is below 700 or you have less than 10% down, you may want to consider a government loan. There are 2 types of government loans are FHA and Rural Housing. FHA loans require 3.5% down payment. Rural Housing is the only 100% financing program available. Rural housing loans do have property and income limitations.

Fixed-rate Mortgage -- With a fixed-rate, the interest rate stays the same throughout the term of the loan. At the end of the term period, the loan is paid off and you own the home free and clear. The 30-year, fixed-rate mortgage is popular because of its stability. A 15-year, fixed-rate mortgage pays off the loan in the shorter time and accumulates equity faster because you make a higher monthly payment.

Adjustable Rate Mortgage (ARM) -- A mortgage on which the interest rate can change after the initial fixed period. An ARM loan can come with an initial fixed period of 1, 3, 5 or 7 years are most common. After the initial fixed period, your loan can adjust up or down on an annual basis. This loan is best suited for a homeowner that intends on owning the home for a fixed period of time.

Balloon Mortgage -- Some lenders offer loans that mature before the loan is fully amortized. For instance, a 7-23 loan comes due after 7 year, but it may have an option to renew for 23 additional years at a predetermined rate if the borrower meets certain requirements.

Step 2 - Choosing a Builder

The choice of a builder is the most important decision in the custom homebuilding process. Choosing a builder early in the process – ideally before you’ve settled on a site or design for your home – can set the stage for a successful home-building experience.

Choosing a builder early on is a good idea because the process is so complex that most owners need professional guidance from the beginning to avoid mistakes in site selection, home design and written specifications.

Your budget probably shouldn’t be among the top criteria in selecting a builder. No builder can quote an accurate price for a custom or semi-custom home until he or she knows the type, style, finishes and features of the home, the site conditions and the type of contract you want to use for construction. Rather than focusing on cost, you may want to base your decision on the builder’s competence, reputation, professionalism, warranty coverage and experience. Here are seven criteria to consider when selecting a home builder:

1. Determine the Type of Builder
Custom Home: A truly custom home is one that is designed from scratch to be built on a specific site and purchased by a specific buyer. Price doesn’t determine whether a home is “custom.” A “custom” home is one that has original and unique design.

Semi-Custom Home: A semi-custom home starts with an existing home design, which then is modified - sometimes substantially – to fit the site where the home will be built and the individual homebuyer’s needs.

Production Home or Model Home: A model is built according to a standardized plan. Buyers don’t have many opportunities to change or customize a production or tract home within a subdivision.

Spec Home: A home built “on speculation” by a builder who hasn’t identified a specific buyer but hopes to sell it during construction or shortly after it’s completed. If a buyer decides to purchase the home during construction, he or she probably will be able to request some degree of customization. A spec home can be a custom home, a semi-custom home or a production home.

2. Reputation
Look for an established builder with an extensive client list. You may also want to check the Better Business Bureau and local builder association to see ensure the builder is in good standing.

3. Area of operations

Choose a builder who is familiar with the area where you want your home to be built. Local knowledge is important because residential construction is very regional in nature. An out-of-the-area builder might not be prepared to handle variations in local building codes, subcontracting practices, inclement weather patterns or other factors. When using our search tool on beome.com, you will get a list of builders that build in the area you’re looking at building.

4. Type of home

Select a builder who has extensive experience constructing homes in your price range and general design style.

5. Compatibility
Building a home is a highly personal and emotional experience. You’ll want choose a builder with whom you’ll feel comfortable with and provide as much or as little interaction that you desire.

6. Warranty
The builder should be willing and able to offer you a comprehensive written warranty on your new home. The standard warranty is a 1 year warranty. Additional warranties can be available by most material manufactures and many union trades. For example, Union Plumbers 75??? From Wisconsin offer a 5 year warranty for any work that’s performed by any of it’s union tradesmen.

7. Financial stability
Make sure the building company you select is financially stable.

8. Financial strength

Success in the homebuilding business is earned by building a quality product at a fair price. A builder who is financially successful likely will still be in business during the warranty period for your new home. Further, successful builders are in the best position to contract for the services of top subcontractors and suppliers – the people who will actually build your home.

9. Quality

Beyond these factors, the most important consideration is the quality of the builder’s homes. Cost is not a direct measure of quality. Rather, good quality is the merging of good design with appropriate products and materials that are installed with superior workmanship. The most expensive window might not look or perform any better than a substantially less expensive window. But improper installation of that window will diminish its quality, regardless of its cost. Generally, costly finishes and fixtures won’t offset shoddy application or installation.

10. Do Your Homework
If you are in the market for a new home, condo, duplex, or townhouse, you should shop for your builder as carefully as you shop for the items to fill your home. Don’t hire just any contractor listed in the yellow pages. You should start your search by looking at Featured builders on www.beome.com. Next visit as many communities and model homes in you area. Use Beome.com’s Builder Checklist form and interview as many builders as possible. Just remember that nothing tells you more about a builder than the homes they build. Just remember to bring your 1% Rebate Coupons during your first visit to each community you visit.

Step 3 - Choosing a Community

Every person has a different idea of what constitutes an ideal location when considering new home construction. For some, it’s a convenient drive to work, for others its quality of life issues such as a good school system and family-friendly neighborhood.

Take your time when choosing the community you want to live. While many details about your new home can be remodeled in later years as your lifestyle evolves, changing the location is usually not one of them. Consider your lifestyle - is it best suited for an urban, suburban or rural setting?

There are basically 2 broad community types: Exclusive or Open. An Exclusive community is usually owned and developed by 1 builder/developer. As an exclusive community, only that builder can build in that particular community. If you already have selected a builder, you should limit you community search to only those communities open to your builder. On the other hand, an Open community is a community available to all builders.

Begin your search for available communities on Beome.com. The website is designed to streamline your search for your ideal community. You can search by city, county, zip code, school district, community type, school district or community characteristics.

Step 4 - Choosing a Lot

Every person has a different idea of what constitutes an ideal location when considering new home construction. For some, it’s a convenient drive to work, for others its quality of life issues such as a good school system and family-friendly neighborhood.

Take your time when choosing your new home site. While many details about your new home can be remodeled in later years as your lifestyle evolves, changing the location is not one of them. Consider your lifestyle - is it best suited for an urban, suburban or rural setting?

When you decide on a lot, you should take the time to truly evaluate the amenities you would like in the subdivision or area you plan on living in. The following are some, but not all, of the key issues you may want to consider.

Location

The first step in buying a lot and the most important is location. When choosing one for your dream home, first select the municipality and neighborhood desired.

Things to evaluate when selecting a municipality and neighborhood include:

  • An urban, rural or suburban setting
  • Proximity to your employment
  • The quality of local school district
  • Shopping, entertainment, parks and emergency services of the surrounding area
  • Crime rate
  • Public transit, if needed
  • Potential traffic and congestion
  • Property tax rate
  • Zoning or permitted uses of land near any subdivisions being considered

Improvements/Features

The next step is to determine what each possible lot offers in terms of improvements or features. What utilities are available such as gas, electricity, sewer, water and garbage and how much it will cost to access them. Investigate features such as steep drop-offs, drainage problems or poor access to roads.

Improvements to keep in mind are:

  • Sewer and/or municipal water availability or septic system and well: what is the cost of each and is it included in the lot price?
  • Natural gas, electricity, telephone and cable TV availability and associated hook-up costs
  • Curb and gutter with sidewalks or rural with ditches and culverts
  • Drainage issues

Features/challenges to evaluate:

  • Woods or wetlands
  • Opportunity for an exposed basement
  • Direction the house will face
  • Suitable soil or subsoil
  • Proximity to green or open spaces

Subdivision Controls

Develop a sense of the type of house you’d like to build including square footage, number of floors, types and number of rooms, architectural style, as well as any specific features you would like such as a pool, hot tub or deck. Then check each development’s protective covenants to make sure your house fits within those guidelines.

Some neighborhood amenities to consider include:

  • Protective covenants, deed restrictions and architectural controls such as square footage, setbacks, roof pitch and required building materials
  • Home Owners’ Association structure and fees
  • Uniform lamppost and mailbox requirements
  • Setback/building envelope rules

Possible Additional Expenses

When buying a lot, there may be additional expenses that first time lot buyers might not think of. In order to minimize any financial surprises, consider the following among others:

  • Sewer and water hook-up fees (each municipality will charge a hook-up fee to add your home to the municipality grid)
  • Tree removal needs or rules against
  • Fill and/or removal of fill (moving fill around the property is relative inexpensive. When you have to hire dump truck to remove/add fill from/to the property can be expensive.
  • Other impact fees for capital improvements (see the municipality)
  • Construction insurance (most lenders will require insurance called “Builder’s Risk” insurance. This can cost $500 to several thousand.)
  • Property Taxes (check the local mil rate for the municipality your building. Do not use the current tax bill as this only include the land value)
  • Survey/engineering
  • Building permit

Step 5 - Finding a Home Plan

Finding the ideal Home is easy as 1-2-3 when utilizing Beome.com. Your can refine your search utilizing more than 50 home characteristic. By utilizing our search engine to find your ideal home, we’ll introduce you to the builder that will build that home for you. Home Plans and prices quoted on Beome.com are regionally based as building code and building standards are different in and builders. So if you’re looking to build a home plan in Wisconsin, you should begin your search by entering the zip code where you’re looking to build. You will get a list of Home Plans available in the area you’re looking to build.

It’s important to note that Home Plan, Lot and Community need to be considered together. Many communities are designed with a specific home plans and lot selection in mind. For example, you wouldn’t build a $750,000 home in a community where most of the homes are in the $200,000 or vice versa. On Beome.com, pay attention to the Recommendation section of ideal communities and lots for your selected home plan.

You're now ready to begin you new home search on www.beome.com.

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