Buying a Home? Don't Make These Mistakes

Building a Home? Don’t make these mistakes…..

Research suggests that building a home can be one of life’s most stressful events. Your dream of building that perfect home, on that perfect lot can easily turn into a nightmare. I worked in the real estate industry for over 15 years. I’ve seen a lot of heartbroken homeowners who realized to late that their dream was crashing. Most often the disaster could have been prevented if only they had done their research before signing any papers. Here are a few mistakes that I’ve seen over the years that just might save you some money and a lot of time. Maybe even prevent a headache or two:

1. Only work with reputable companies: From your lender to your builder, researching the companies that you are bringing on board for your project can save you money and headaches.

The Lender:

Don’t just assume that the bank you’ve always done business with is the one you want to borrow from to build your new home. Do check out their loan products but don’t forget to apply at 2 or 3 other institutions. Fees can vary as much as several thousand dollars between lenders and there are literally hundreds of loan products out there that might meet your needs. Always check the fees on the Good Faith Estimate that you receive at the time of application. An easy way to compare lenders is to check the APY (Annual Percentage Yield). Every bank is required to give that percentage to you. Basically, it’s the real cost of your loan. The higher the APY, the higher the cost of borrowing from that institution. The APY rate.is not the same as your note rate. Your note rate is what your payments are based on, the APY is the cost to you of borrowing.

If you are thinking of being your own general contractor for the project, the smaller, hometown banks are usually easier to work with. You are going to be in contact with them regularly throughout the process so make sure you can get in touch with them easily ie: you will need to submit invoices to receive draws on your construction loan. Many banks have their own process for receiving your draw money so make sure you thoroughly understand their process and make sure you can work with it. Working with a lender across the country might not be the best thing for your money and your sanity if you’re the general contractor.

Above all, read before you agree.



The Builder:

Work with a reputable builder that you can readily get in contact with. Here are a few good questions to ask before you agree: Do they have an after hour emergency number? Do they carry builder’s risk insurance? Do their subcontractors clean up the trash daily? Do they have a good reputation? Does the price seem too good to be true? If it does, it probably is. Builders now days can build huge homes for less money. They advertise “more square feet for your money”. Sounds great, right? Not necessarily. Can you put a waterbed on the second floor?

This is a true story. A friend of mine built one of those ”more square feet for your money” homes. Sure, it was big and it looked nice but…the studs were 24” on center and not the standard 16”, no waterbeds allowed, the walls were not finished smoothly, and EVERYTHING was an upgrade. She ended up paying more for a “huge” home than she should have because the builder “forced” her to work with their lender who, after qualifying her knew exactly how much they could charge her and ultimately that’s what she ended up paying. They’re staff was very well trained.

Make sure you know who you are dealing with before you sign and make sure you know exactly what you are getting for your money.

2. Make solid decisions in a timely manner:

As you can imagine, building a home from the ground up will require hundreds of decisions to be made. Many times, those decisions need to be made quickly. If the electricians are there and have a question, remember that they are waiting on you to make a decision and likely there are other contractors working on the house waiting for them to finish. Holding up one decision can hold up the entire process, sometimes for a good length of time. Think of the building process as a well orchestrated play. Everyone has their part to do and many times they can’t do it until someone else has done their part. Don’t get me wrong, sometimes there are catastrophic circumstances and stopping the building process is necessary, but many times it’s not. Making good, quick decisions can be the difference between your suppliers getting their money on time or not, and that in itself can be catastrophic.

3. Take frequent road trips:

It’s your home, and ultimately your money. Take the time to go to your building site and make frequent inspections. It can save you a lot of heartache in the long run. Check the workmanship, make sure it’s what you expected. Check the design, is it what you agreed on? Check the details, are they what you asked for? Did they put in a tub and shower instead of an octagon shaped garden tub? Maybe you changed your mind on the tub early in the process and told your realtor or builder. Maybe you even signed a “change order” form. There, you thought it was all taken care of, right? Not necessarily….It’s so easy for miscommunication to happen when there are many people involved in a project, and building a home is no exception. Take it upon yourself to double check the realtor/builder. If they made a mistake it’s a lot easier to fix things early in the process than to wait and then play the blame game. Don’t wait, and don’t assume anyone cares about your new home more than you do. Remember, it’s their job, not their home.

4. Don’t sign that stack of papers unless:

Don’t sign unless you understand what you are signing, the house is completed the way you agreed on and there are no outstanding bills for work done on your new home. At the closing, there will be a mound of paperwork for you to sign. You have the right to read every document, either at closing or before. Ask the title company to get you a copy of all of your closing documents 24 hours before closing and then take the time to read them. Ask questions before you get to the table. Sometimes it’s not a quick thing to fix an error so the more you know before closing, the easier it will be. This is your loan that you will be paying on for a long time, make sure you understand your responsibilities.

I’m a big advocate for not signing before the house is done. A new home will always have a “call back” list. Little things here or there that need touched up. However, if there is something major that’s not done, or something major that’s not done to your satisfaction, you should think about calling a lawyer. Once you sign those papers it can become a battle trying to get something corrected by the builder. Remember, they have their money and other homes to build. Until you sign and they have their money, it will be easier to get their attention.



5. When problems arise:

If you don’t already have a lawyer, get one (some states require it). Sure, your realtor, builder and lender all want to make sure the process goes smoothly and will do what they can to make sure that happens. After all, they are all getting paid once you sign those papers. However, if things are not going well, the best way to make sure your interests are being looked after is to get a lawyer. Find a lawyer that specializes in real estate transactions. They will get things worked out in a way that protects your interest. It may cost you a few hundred dollars but it will be well worth it. Sometimes you can’t put a price on peace of mind.

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