CHM Blog

Learning the language of a new home purchase

Just as there is a difference between a car ordered up from a factory and buying a used one, there is a world of difference between a production (or tract) new construction home and a resale home.

When you decide to follow the banners to a model home park, you enter a world that has a vocabulary that spins around you — on brochures, in the models themselves, and at the builder’s design center as well.

While a new home representative is there to guide you through the purchase, he or she represents the builder. It’s hard to know what you don’t know about the process. Realtor.com’s East Coast-based Kimberly Dawn Neumann as well as California veteran new home salesperson Dena Kouremetis explain a few of the details.

Your new home will have a number of “included” features, most of which are listed in the builder brochure. Builders set aside a portion of the sales price for your selection of items like flooring, light fixtures, kitchen backsplashes, bathroom tiles, and more. Depending on whether you’re buying a home that is not yet built or is already under construction, keep in mind that (like a car on a production line), there are cut-off times for your selections. Once the foundation is poured or built, plumbing and framing commence. That means builder-offered architectural options must also be decided on, followed by electrical, etc. Upgrades are those items you decide on at the builder’s design center and are added to the sales price via a change order, requiring your signature each time the paperwork for them is generated.

“A change order is an amendment to the original contract or work order that documents changes in construction, design options, schedules, and so on,” says Neumann. “It may or may not alter the original contract, but can cause potential delays or speed up construction progress on a home depending on the scope of work.”

As a homebuyer, you want to be careful with any change orders you make since they might alter your out-of-pocket expenses, increase the construction timeline or affect your loan amount.

New home neighborhoods often come with rules, and those rules are reinforced by a homeowners association (HOA), setting limits on how its members should maintain their homes as well as the homogeneous look of the neighborhood. These rules are set out in the HOA’s covenants, conditions, and restrictions, or CC&Rs.

“If you don’t like the color or your house, you can’t just make an executive decision to paint it any color you like,” says Kouremetis. CC&Rs can specify the paint colors you are permitted to choose, dictate street parking rules, set pool hours, name pet restrictions, forbid the placement of a basketball hoop over the garage door, or inform you of noise levels that must be observed after midnight. “Be sure to read these rules carefully before you sign on the dotted line.” She recalls an instance where a homeowner wanted to build a greenhouse (visible to neighbors) in her backyard and the CC&Rs would not permit it.

A floor plan illustrates the layout of the interior of the home. Most builders offer architectural options drawn on their brochures or will show you blueprints for those options. They can be anything from ordering up a double-door entry to the main suite to the changeout of a bedroom to a home office to a loft with its own extra bedroom and bath. You’ll want to study the floor plan you have in mind in terms of furniture placement as well as the function and flow of the home.

Varying state to state as to its scope, homebuilders offer what is called a builder warranty, which stipulates what and how long a builder will replace, repair, or fix specific things after the home has been built. Don’t confuse this with manufacturer warranties on items like appliances. A home builder warranty covers materials and workmanship as well as mechanical issues for the first year (or sometimes two) after the buyer closes escrow. “Keep in mind that you can void that warranty by abusing the home or not following the maintenance guidelines for things like HVAC and plumbing,” says Kouremetis. She says this because she recalls an instance where plumbing had to be replaced when a homeowners’ children found it entertaining to see how many stuffed animals they could flush down toilets.

“Whatever you do, don’t cancel any warranty service appointments during their first year of homeownership,” says Kouremetis, no matter whether they take place soon after move-in to fix items listed on your “punch list” (things like patching, repairing, or painting/touching up nicks or dents) or for things you notice after move-in. As for the structure itself, most new homes carry a structural warranty that usually lasts about 10 years.

A “spec” or inventory home is a home that is move-in ready or nearly ready for occupancy. Homes this far along may offer a few paint or flooring options, but they exist because the builder had to continue building within a certain timeline dictated by their construction lender. Neumann explains how the choice between building from scratch and a move-in ready home is often driven by your timing needs.

The final walk-through is one of the final, exciting steps of the new-construction home process. Before closing on the property, you and the builder’s superintendent will not only conduct a final inspection of the home; he or she will also go over warranty information as well as the operation of the various systems your home contains. “Take time off work, leave the kids and pets at home and take this time seriously,” says Kouremetis. “It’s an opportunity to learn how your new home works and to spot items that need to be corrected or adjusted within that important first year of occupancy. Be sure to be armed with questions,” says Kouremetis, who adds, “You may even want to whip out your smartphone and video the builder’s superintendent explaining the presets on your HVAC system, as you may not get this special one-on-one time with him again.”

Realtor, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Lower

Mortgage rates are moving lower today. The MBS market worsened by -75 bps last week. This was enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Lower

1) Jobs: We get a ton of job and wage related data this week, the stronger it is... the worse it will be for rates and of course, vise versa: JOLTS, ADP, Challenger Job Cuts, Initial Weekly Jobless Claims, ISM data, Non Farm Payrolls, Unemployment Rate, U6 Underemployment Rate, Average Hourly Earnings.

2) The Fed: We have another full week of Fed speak before their media blackout period that precedes their June FOMC meeting.

05/30 Barkin

05/31 Collins, Harker, Jefferson and the Beige Book

06/01 Harker

3) Debt Ceiling: We start the week with press conferences claiming to have found enough common ground for an agreement. However, it is still going to be a tough slog to get enough votes to get it through.

This Week's Potential Volatility: High

This morning markets are getting a boost on the debt ceiling talk. Volatility has started high and will spike on headline news and jobs data.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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