My Personal Experience Building a Home
by Laura Warner, CSR (Absolute Integrity Insurance)
A home is likely the largest purchase you will make in your life. I am currently in the process of purchasing one in the Greenwood, IN area. Woohoo! There are a number of things I have learned along the way that may be helpful to anyone thinking of buying or in the process of buying a home. This is in no way meant to be professional or legal advice, but simply some thoughts about my experience.
My first home purchase was an existing HUD owned home in 2008. Things were much different then. My current home is a new build. It is not a custom home (which is a completely different experience from these two), but has been much different than my first purchase of an existing home.
The first thing I would like to emphasize is ASK QUESTIONS!!!! Ask every question you can think of, and ask for clarification for things you don’t understand. You do not want to move forward feeling like you understand and find out the week of closing or 3 days before that your entire assumption was wrong. Even asking questions, we found ourselves being notified 3 days before our scheduled closing that the underwriter would like an additional document. Perhaps that is just how things work, because I couldn’t seem to ask enough of the right questions to prevent it, but I sure tried. Never assume your plan isn’t going to change. It probably will. Take the steps to ensure that when the unexpected things happen, you are prepared. There will be unexpected changes. There will be surprises. Prepare for the “what ifs” as much as possible. It is better to have a plan and not need it than to face a situation that catches you off guard and sends you scrambling.
One of the first things you will want to do is determine your budget. If you have never budgeted before, you need to! There are a number of free apps that can help you analyze your spending. This way you can see what you ACTUALLY spend, verses what you think you spend. Sometimes they are quite different. www.Mint.com offers an online service as well as a free mobile app to help you get control of your money. www.everydollar.com also offers a service, but requires manual entry for each item spent instead of a download. I prefer the convenience of the download.
Expect to spend more than you have down on paper (or in your app). You will. There are always unexpected expenses. Lenders will approve you for MORE than your budget says you should spend on housing. The budget trumps the pre-approval. Overspending on your home can put a great deal of strain on you, as well as your relationships with those around you. You will not regret spending more conservatively and having more available to furnish your home and make improvements or changes.
The budget is necessary because the next step you should probably take is the pre-approval. Call around to different types of lenders (chain banks vs credit unions vs independent banks) and ask what their rates are. Rates will vary by a number of factors including the lender themselves, down payment percentage, credit score, length of loan, etc. If you are bringing 20% of the home value to the closing in cash and you are looking at a 15 year mortgage, you can come out with a much different rate than if you are bringing 5% and looking for a 30 year mortgage. Not all lenders offer all programs, and sometimes the availability depends on your credit score. Some banks who offer a 5% down loan only offer it if your credit score is above 700, but details will vary. Most lenders allow a timeframe (2-4 weeks) where multiple hard credit inquiries are looked at as on single inquiry: shopping for a mortgage. It is ok (and advisable) to get information from more than one lender. If you have some lenders in mind who you would like to work with, ask their loan department what their policy is. If you are building, you may be part of the way through the process and realize the lender you thought you could work with is not going to work out for you. You will be glad you had the flexibility of multiple pre-approvals and lender preferences. Donnie with Ruoff Mortgage was fantastic to work with. They have very flexible options for various credit scores and down payments, and he spent a lot of time answering questions for us. They are able to match rates on competitor’s quotes. He was always quick to respond, and I can’t say enough good about our experience with Ruoff. In the end, we finalized with a different lender simply because of the incentives offered by our builder.
New vs Used
Once you have your budget and preapproval, you should decide whether you want to do a new build or purchase an exciting home. New builds are fun because you have the opportunity to choose most options. You shop floor plans and colors. You get to piece together your preferences and fit your home to your style. However, you also have to choose the options, shop floor plans and colors, and piece together all of the items. It is a LOT of decisions. Are you the kind of person who wants to make all of those decisions all at one time? You will likely be able to find a home with a lower price per square foot if you purchase existing. Ask yourself how much it matters to you to make all of those decisions up front. If you pay less for the home up front, are those things you could do yourself once you are in the home or hire a contractor to do for you once you have possession of the home? Call a handyman for prices. Shop local hardware stores for prices. Do some legwork and it could save you thousands of dollars now and in the future. In the end, the faster you can pay off that home, the less you pay out in interest and a few dollars more a month can add up quickly. Are those decisions really worth the price difference?
If you choose to build or are considering building, the basic number listed on the builder’s website for a floor plan is not likely what your final home price will be. Most people do some upgrades. Flooring, counter tops, cabinets all add up quickly. It is safe to assume you will increase the base price of the home by $20,000-50,000, and perhaps more if you want granite counter tops and sod throughout your yard. Price the upgrades you want before you make a final decision on the new home. It may be more than you think, or it may be less!
New or used, you should get an inspection. There are various kinds of inspections. For a new home build, there are companies out there that offer a 3 tier inspection during the building process. I was personally impressed with Security Home Inspections, who we discovered has the 3 tier inspection. They will come out and inspect the home 3 times during the building process. Unfortunately for us, we didn’t know this option existed until it was too late. You may not think it’s necessary, but even higher end builders make mistakes. You HOPE it’s not on your home and yes there should be a number of outside inspections along the way, but IF something was missed you will certainly be glad you paid for the inspection. My interaction with Security Home Inspections was very positive. Latoya in their office patiently answered all of my questions and offered to provide referrals for other items they don’t handle in their office.
One difference you will find with new vs used is the cost of insurance. Many home insurance companies offer discounts for new purchase and new build. These discounts typically age off over the next few years, but it gives a nice break up front when you are already trying to come up with down payment, initial insurance costs, inspections, potential closing costs, etc. My personal insurance cost was about $500 more for a home built in 1995 compared to our new build. Talk to your insurance agent. Find a few addresses and ask for quotes/estimates on both properties. Updates can be a large factor in the home insurance cost. A 2-year-old roof is much different than a 22-year-old roof and insurance companies will give a discount for having a newer roof. Also ask about updates to the heating, electrical, and other appliances that could need to be replaced soon. Moving into a newly purchased home and finding out the roof and the furnace both need replaced can be a very stressful situation. Ask about updates!
Neighbors and HoA
You may be an introvert, but it is good if you have a chance to knock on your future neighbor’s door and chat a moment. Ask about the neighborhood. Is it quiet or busy? Do the residents celebrate the 4th of July from May 1 until August 2nd? How well do they plow the streets in the winter? Is this really a neighborhood you want to be in? How strict is the homeowner’s associations? Will they let you add a barn, or do you need to make sure you have extra garage space? Are there specific requirements for fences or pets? The people who have lived there will know better than the covenants listed on the HoA website. Maybe the lawn care requirement listed isn’t really enforced.
The mortgage process can be very confusing. This was my second mortgage experience. We also correspond with mortgagees often in the course of the insurance work as our customers purchase homes. I THOUGHT I had a good understanding of what to expect. However, we received an email 3 days before closing advising that something I had asked about a few different times had still been overlooked. Plan to have extra time set aside the 3-5 business days before your closing to track down additional documents or tie up loose ends. Even if the mortgage company has had something on hand for 6 months, it all gets reviewed again the week before closing. That often means you will be scrambling for this or that. Make sure you have the time. Also, if utilities have been scheduled and the closing gets delayed, you will likely need to call back and reschedule. If you have an appointment set up for internet, phone, electric, gas, water, trash, those phone calls alone can be a good chunk of your morning. We also had appliances set to deliver and movers scheduled. All of that has to be rescheduled when closing gets delayed. Make sure you have time set aside.
In the end, this is likely not a temporary decision. You will want to ask questions and consider options. Talk to people who have owned their home for a while. What would they have done differently? What do they love about their home? Talk to your immediate family or anyone who will be living with you. What things matter most? If you have to make changes, you will want to know what kind of changes to expect, what things are deal breakers, and what things really make your home feel like YOUR home. A little extra planning can save a LOT of time and stress on one of the most significant decisions you will make as an adult. In the end, you want it to be something you enjoy, and not something that is a plague. We are happy to help at any step along the way. Feel free to call us with questions.