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Building a New Home

March 7, 2012
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Jeff Donnellan Re/Max

Building an new home is an exciting process and some times necessary when the real estate market is short on supply of what you need or want.  When people have specific needs or looking for that forever home it’s important to get what you want, otherwise you just end up moving again.

The home builder market has shrunk considerably since 2007, with many being stuck with a large inventory and eventually declaring bankruptcy.  In many ways this was a good thing since it cleared out many of the people that had no idea what they were doing as well as the disreputable business men.  What remains is the best of the best and home builders with a well run business.  Most home builders do not build spec homes any more or if they do, the selection is very limited.  Because of this they some times charge a premium which is a little bit over market.

The benefits of a building a new home are that you get to make all the selections, such as location, lot, features and amenities with no trade offs or remodeling.  The benefits of projected long term ownership and energy efficiency can be well worth paying a bit over market because moving costs are extremely expensive when you consider closing cost, hiring a Realtor and paying commissions.

Once you find the right home builder and location it’s important to negotiate the final price of the home with the lot and all upgrades.  Find out what is standard and what is an upgrade.  Ask about the materials used and how they effect over all usage, durability and energy efficiency.  Make sure the home builder provides a warranty and is reliable about fixing any issues that go wrong in the 1st months of ownership.  Also ask for at least 3 referrals.

The largest challenge is planning a strategic move.  Financing plays key role and may take some creative financing to make it work since many home buyers also have a home to sell.  Here are some options that can set you up for success if you currently own a home and want to build a new one.

1.  You many need to qualify for loans, your current and the new one in order to start construction.  The construction period is usually 4-6 months.  This would give 3-5 months to market your home and find a buyer.  This may be challenge depending your current real estate market.

2.  Qualify for both loans and rent out your existing home just before construction is complete.  This may be a great option if you can afford the new down payment and use rents to pay your existing mortgage.

3.  Find alternative financing or a portfolio loan.  The rates may be a bit higher but they do not have to meet conforming mortgage standards and could be a bit more flexible.  Many of these mortgage lenders will set up a refinance with in 1 year once the mortgage has  seasoned and you build property management history.  At that point you can qualify for a conforming loan with lower rates.

4.  Option 4 is to sell your home and find temporary living while the new home is being built.  This could be a short term rental of 6 months.  The key to this option this option would be to select all the details of your new home and once you get a purchase contract for your existing home, get the construction process started immediately.

Good luck with your new home.

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