New Construction versus Pre-existing
Building (new construction)
While it may be desirous to build your own house, making it exactly how you want it to be, there are some major considerations involved. Building your house will cost approximately 2-3 times what a pre-existing house will cost. These are the steps for building your own house:
1. Find an attorney specializing in real estate transactions. You will rely on your attorney to ensure you do not accidentally find yourself in a disadvantageous situation with no recourse.
2. Find a bank that offers new construction loans. Most will want 20% down.
3. Obtain pre-approval for you loan. This will require pay stubs, copies of the last two tax returns, proof of any investments, retirement accounts, etc.
Find a building lot you like and that works for your needs
4. Agree on a price with the seller
5. Place a purchase offer, contingent on bank and attorney approval, as well as any tests that are necessary
6. Have an engineer perform a perc test (if public sewer is not available)
7. Find a builder (best done while you are looking for land as time is of the essence).
8. Check the builder’s current in-progress projects for quality (if you are not confident in your abilities, take someone with you who is)
9. Agree on a price with the builder
10. Sign a contract, contingent on bank approval and with the builder agreeing to submit to bank requirements
11. The builder will have to communicate with the bank to discuss payment schedules
12. Pay an architect to turn your plans into something the Town can approve and the builder can build
13. Submit all project documents to the bank. The bank will approve or deny the entire project based on what they estimate the completed project will be appraised at. At this point the bank will give you a commitment letter. This letter is often all the builder needs to start ordering materials for your project.
14. At some point during the process the land seller will have the survey performed or updated. If there are any questions regarding the land borders, it might be worthwhile to pay the additional fees to have additional pegs placed. A standard survey only includes the four corners.
15. Once the project is approved and the survey is completed the bank and attorneys will arrange the closing
16. At closing the bank will pay the land seller and, if applicable, any advance to the builder. Closing costs include a pro-rata share of property and school taxes, attorney fees, title search fees, appraisal fees, any number of insurances, and other fees as required by the bank. Closing costs typically range 2-5% of the total project cost.
17. After closing your builder will be ready to start as soon as his schedule and the weather allow. It is advised to check on the building process often to ensure the builder is following best practices and building you a quality home that will last for years. Too many builders today sacrifice quality for speed and it is not uncommon to find cracks in the foundation or frames built with substandard wood- things that will be easily covered up before you take possession, but that will cause you money and headaches down the road. Your builder has to give you a very basic warranty by law, but there are many people who have discovered too late that the builder either cannot or will not make the necessary corrections. It is better to do some research before you begin and make sure you have a quality builder than to find out after the house is done and you have moved in that there is not enough insulation, the windows are junk, or there are structural issues.
18. During the build process, the bank and the Town will be inspecting the building and signing off that minimum standards are met before the next phase can occur. At the end, the Town will inspect the house and give you a certificate of occupancy. Upon receiving this certificate, the builder will give you the keys and you can begin moving in. I highly recommend you change the locks immediately as you have no idea who could have been in contact with your keys and could have made a copy.
OR
You can find a pre-existing home. The steps for purchasing an existing home are:
1. Find a bank that offers home loans. Most will want 20% down or they will require Private Mortgage Insurance (PMI). PMI can cost as much as the mortgage, so do everything in your power to avoid it. Some mortgage programs will require a lower down payment without requiring PMI. Ask your bank loan officer if you qualify for any of these programs.
2. Obtain pre-approval for you loan. This will require pay stubs, copies of the last two tax returns, proof of any investments, retirement accounts, etc.
Find a house you like in the area you like. Working with a realtor can be extremely helpful. Your realtor will know what you are looking for and will know any properties coming on the market before you can find them on local search engines.
3. Place a purchase offer, contingent on bank and attorney approval, as well as any tests that are necessary.
4. Have an engineer perform a perc test (if the house has septic).
5. Test the well water, if applicable.
6. Have the house inspected, if you do not feel confident enough in your abilities to inspect the house for any deficiencies. A house inspection is hundreds of dollars and they will not find all of the problems.
7. At some point during the process the seller will have the survey performed or updated. If there are any questions regarding the land borders, it might be worthwhile to pay the additional fees to have additional pegs placed. A standard survey only includes the four corners.
8. Once the home is appraised and the survey is completed the bank and attorneys will arrange the closing.
9. At closing the bank will pay the seller and there will be a statement of closing costs. Closing costs include a pro-rata share of property and school taxes, a pro-rata share of any utilities, attorney fees, title search fees, appraisal fees, any number of insurances, and other fees as required by the bank. Closing costs typically range 2-5% of the total project cost.
10. At closing the seller will give you the keys and you can begin moving in. I highly recommend you change the locks immediately as you have no idea who could have been in contact with your keys and could have made a copy.