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Buying a new home

Cantera Homebuilders

Cantera Homebuilders

has put together a New Home Buyer's Guide, which will help to guide you through the major steps of selecting, purchasing and moving into your new home. The New Home Buyer's Guide is broken down into the following sections:

Texas Real Estate Facts:

The Texas Real Estate Commission is the licensing agency for all brokers and agents. Law requires Texas Real Estate agents to explain the issues of agency as they apply to buying or selling real property in Texas. You will be presented a TREC approved bulletin or brochure describing the agent’s role at your first formal meeting with an agent.

  • Texas is a community property State
  • Texas has no State Income Tax
  • For property tax information contact the APPRAISAL DISTRICT OFFICE for the specific appraisal district.
    Or the Comptroller of Public Accounts
    P. O. Box 13528,
    Austin, Texas 78711-3528
  • Texas has a Homestead Law that protects rights of property ownership
  • Texas Financial Responsibility Law requires proof of insurance in your automobile:
    $15,000 Bodily Injury per person
    $30,000 per person per accident
    $15,000 property damage
  • To obtain a Texas driver’s license you must furnish your valid out-of-state driver’s license and take a written test. Licenses are issued for four years. Legal driving age is 18. Parental consent may be obtained for individuals under 18 and students with approved driver education may obtain a license at 16.
  • You have 30 days after arrival in Texas to obtain a valid vehicle registration card and license plates. Your vehicle must be inspected by an officer and all fees must be paid in cash at the time.
  • To register as a voter in Texas, you must be an American citizen, 18 years of age by election day and have been a resident of the new city, county or state for 30 days.

Making the Transition from Renting to Buying a Home

No doubt you've thought of how nice it would be not to write a rent check every month, but have you done the math? Nothing can make you feel more secure than owning your own house, unless buying a home will create financial problems of its own. Here's a discussion of the most important financial costs associated with home buying to stack up against your monthly rent check.

Instead of the standard deduction on your income tax return, most homeowners itemize their deductions, allowing them to deduct the following (and save on taxes): home mortgage interest, property real estate taxes, state income taxes, gifts to charity, medical and dental expenses over 7.5% of your income, personal property taxes, and most moving expenses.

Figure your monthly payments if you were to buy. Compare your monthly rent to a calculation of the following: purchase price and down payment of your home, your annual income (and debt!), property tax rate, home insurance rate, interest rate and length of loan. For best results, contact a home-buying specialist.

Other Costs
Expect other costs to home ownership. Along with your monthly mortgage and down payment, there's property tax and homeowners insurance premiums, and fees known as "closing costs." These include everything from a credit check to "points"- interest paid up-front in return for a lower interest rate. Others: title insurance fee, survey charge, attorney/escrow fees, and loan origination. So do your research!

Long-term Equity
No discussion of home ownership is complete without considering the long-term benefits of owning. What your house will be worth when you sell depends on the state of your mortgage and the housing market, in particular. Consult with real estate professionals, read up, and do your math to get a realistic sense of your future home value.

Lifestyle and Mobility
Mobility is part of renting. Freedom to take the next job or move for a relationship is easy to come by when you rent a home. And when you do move, there's often more choice of specific location, and price, when you seek rental housing. Want an apartment near a park in western Philadelphia? You may find an easier time looking to rent than buy.

Many renters say they love knowing they're not tied down - and don't have to assume financial responsibility for their living space. This is of course a big difference from home ownership: who does the work.

Who does the work
While you don't receive the joys of making a place truly "your own," you do have limited costs in renting. Landlords are responsible for general upkeep and safety, allowing you to focus on the fine points. Home ownership in contrast, puts you in the driver's seat. You shoulder the expenses and reap the rewards of home improvement - both great and small. Think about whether you want to put in additional time and money.

Choices, choices
Whether you decide to take the step of home ownership is a personal choice with its own ups and downs. Hopefully we've helped dust off the magic ball a bit; what you see in your future is up to you!


Location. Location. Location!

Location is one of the most important considerations when shopping for a new home. Weigh the pros and cons of living in the city, the suburbs or the country. Compare locations as carefully as you compare houses.

Consider practical aspects such as time and distance to work, schools and shopping, and the availability of public transportation. Make personal observations, but also consult with your builder, local government, friends, and if possible, people in the neighborhood.

As you explore each home, use the following checklist to help determine whether the location suits your needs:

Shopping.  Are adequate shopping facilities nearby?

Police and fire protection.  Are police and fire protection adequate?

Medical facilities.  Is there a hospital or medical center nearby?

Schools and day-care.  Are schools in a convenient location?  Are convenient day-care facilities available?

Traffic.  Are the streets quiet enough?   Does the speed limit on the streets suit you?  If you have children, will they be safe from traffic hazards?

Parking.  Are parking and garage facilities adequate?

Transportation.  Is public transportation frequent and convenient?

Trash and garbage collection.  Are trash and garbage collection adequate?

Recreation.  Are there suitable parks and recreational facilities nearby?

Places of worship.  Are places of worship available and convenient?

Privacy.  Do the lot and house offer adequate privacy?

Water.  Does the community have a reliable source of drinking water with adequate capacity to meet present and future needs?

Sanitation facilities.  Is the sewer system or septic tank adequate and reliable?  Does it meet present and anticipated future needs?

Landscaping.  Is the land well-drained?   Has proper landscaping been done to prevent erosion?  Is the landscaping attractive and likely to enhance the value of the home?

Taxes.  Are the property tax rates reasonable?   Is either the tax rate or the value of the house likely to change enough to cause a substantial increase in your tax payment?

Assessments.  Are there special assessments   that will force you to pay added monthly charges for a specified number of years?

Nuisances.  Are there nearby sources of noise, smoke, soot, dust, odors or other hazards that will affect the housing environment? Are any development plans under consideration that could substantially change the nature of the community?

Flooding.  Is flooding a potential problem?

Advantages of New Homes

Major Reasons To Buy a New Home Over a Resale Home

  • Attractive Financing Packages - Many builders offer decreased closing costs, closing allowances and rebate or closeout incentives. Due to volume, builders also typically offer much lower interest rates, which result in a lower payment for more house.
  • Lower Maintenance - all of the builders represented by New Home Information Center are backed by a 10-year Homeowners Warranty, which means lower maintenance costs and headaches. In addition, new homes require less maintenance in general. New homes are available with siding, windows, and trim that never need painting. Wood decks are typically made of pressure-treated lumber resistant to rot and insects. Pressure-treated wood is also used where wood comes in contact with concrete.
  • Better Safety - Occupants of new homes are almost six times less likely to die from fire than occupants of older homes. Most new homes come equipped with hard-wired smoke detectors on every level, complete with battery back-up should the power go out. Fires are diminished due to more efficient central heating systems and better insulation. Ground fault interrupters for bathrooms, kitchens, and outside receptacles reduce the chance of fire and electrocution.
  • Less Health Risks - The building industry has responded to the health risks of certain products by building with products and systems that make new homes better for your health. Asbestos, which can increase the risk of respiratory disease, has been eliminated from shingles, pipe, cement board, roof tar, floor tiles, ceiling tiles, and insulation. Lead, a potential poison, is no longer used as an ingredient in paint or as solder for plumbing. Formaldehyde emissions from particle board and hardwood plywood have been greatly reduced in new homes.
  • Better Appreciation - 84% of all homes sold are 3 years old or newer. The first seven or eight years of a home's "life" are usually its formative years, where the most appreciation can occur.
  • Lower Energy Costs - Because of better windows, more efficient heating and cooling equipment, better control of air infiltration, and greater use of insulation, new homes consume half as much energy as homes built prior to 1980. Old homes tend to be drafty and less comfortable, and frost and condensation are more likely to appear on windows, drip down, and cause deterioration of wood trim and walls.
  • Easier Qualifying - lenders will actually allow you to qualify for a higher priced home because of lower maintenance and utilities associated with a new home.
  • Best Floor Plans - older homes are very outdated by today's standards. with a new home, you pick the modern layout and design that suits your family.
  • More Square Footage - due to the competitive building market, you can almost always get more square footage for the same money as an older home.
  • More Amenities - New homes feature built-in appliances, including dishwashers, and nearly all have central air and heat. They also feature more electrical outlets. Amenities include vanity cabinets, larger closets, whirlpool tubs, and easy-to-clean plastic tub enclosures.
  • Better Foundations - the new post tension foundation system has cured many settling and foundation problems older homes may have.
  • Choice of Colors - depending on the stage of construction, you may desire to choose your carpet, wallpaper, countertops and other design elements of your new home.

The following article, titled "Four Major Reasons to Buy a New Home over a Resale Home", is provided courtesy of Realty Times written by Dena Amoruso; Copyright © 1999 Realty Times. All Rights Reserved.

Anything new usually carries the buzzwords "cutting edge", "latest technology", "best design yet", and "ground floor opportunity". Used seems to connote "established", "mature", "time-tested", and the impression that buying something with previous experience evokes the adage "they don't make 'em like they used to".

But how does this apply to homes? Real estate industry experts may disagree, but either camp can convincingly make its point. Home building, however, is a part of our way of life that can stir up the very essence of what makes up the American dream. It's the pioneers with their homesteads; the immigrants and "squatters" cutting out a part of the forest with fresh logs to house their families. It's the "Go west, young man" mentality that helped to create a nation teeming with innovation and pride in its newness.

If a builder were writing this article, the reasons he may cite to buy a new home instead of a re-sale would literally spill off the page and fill up a book. I will cite only a few, but substantial ones here, in hopes it creates "food for thought" for those home buyers that are literally up for grabs and are trying to decide whether to buy a new or used.

Residential real estate experiences a life of its own, similar to the growth of an individual, many experts agree. The first seven or eight years are usually its "formative" years, where the most appreciation can occur. It is during this time that the new home can have the most appeal, and grow with its surrounding area and economy. The second stage may be referred to as the "maturation" period. This can extend into year 16 or so, and may find the now "not so new" home stabilizing in terms of appreciation. This is when depreciation begins to add to the equation. The home's features and trappings can begin to look "dated" and some items may need to be replaced, such as roofing, flooring, carpeting, etc.

Keeping up with these items as the years go by may very well help buyers hang on to a good chunk of the original appreciation from its first few years. However, one or two buyers willing to invest in updating their homes in a given neighborhood may not be enough to convince an appraiser that the entire neighborhood is as concerned with keeping the values up.

Years 16-35 are sometimes referred to as the period of "built-in obsolescence". By now new home builders have so significantly changed features, energy efficiency, and floor plans to suit the buying public's emerging lifestyles that a major re-model of an aging home may need to take place, should the occupants be interested in getting top dollar for their home. Appreciation becomes an issue primarily when selling or refinancing a home. Neither of these issues may be of significant importance to those wishing to stay put through retirement, have a tolerable interest rate for their home loan, or own their homes outright. Without a crystal ball, however, it is difficult to tell when homeowners may need to sell, accept employment relocation opportunities, or decide to downscale as their families grow up and move out. This is why homeowners tend to remain concerned with their investments in terms of value and future value.

New homes carry better and better new home warranties as products improve and builders feel increasingly confident in them. The first two years of a new home warranty may cover almost everything from appliances to carpeting, to heating and air conditioning systems (heavier on the first year) and the first ten years usually carries a required ten-year structural clause. Structural problems in a house can be the source of a myriad of problems, but I prefer to liken the idea of a structural problem to a picture one can conjure up fairly easily. Imagine you are standing at your kitchen sink, and one foot literally feels to be on higher ground than the other. Looking down, you see a ridge in your vinyl as if an earthquake may have happened under foot. This is a structural problem. It can be caused by a number of reasons, ranging from erosion of the grading of your property, to the shifting of cobble beneath the structure. A concrete slab whose curing process may not have been up to snuff may require the builder to hold its concrete sub-contractors feet to the fire to repair the slab if it is within its warranty period. (Raised sub-floor carries some different issues) Dealing with it, as most would agree, can be a nightmare. When a home is past its first decade or so and has changed occupants several times, recourse to address problems such as this is difficult to pursue, and you may literally be out thousands of dollars when all is said and done to fix it. Although real estate laws have been progressively designed to protect the consumer, with disclosures abounding in real estate contracts throughout the country, "caveat emptor" (let the buyer beware) remains inherently implied in buying real estate. The new home buyer is simply more informed about his new home community and structure because of the amount of disclosure builders are required to supply, that there may indeed be lessened risk-taking in buying a new home.

Up to date technology in construction, more and more timely inspections required by city and county entities, and features that reflect consumers' changing needs are showcased in new home construction. Builders want protection from defect litigation by enlisting suppliers who help eliminate warranty work in general.

Requirements to increase energy efficiency by local utility companies literally force builders to find new and better ways to lower your utility bills and save the environment at the same time. Many new homes are now equipped with dual-paned "low-E squared" glass, likened to putting sunglasses on a new home, providing more energy efficiency and less fading to furniture, cabinetry and carpeting in brutal sun-exposure areas. The newer vinyl frames are less prone to leakage from moisture and air, provide more noise abatement for the home's occupants, and even glide more easily than aluminum or wood frames. Innovations such as these in new home construction can contribute to a lower budget for utilities, less frequent home repairs, and more peace of mind in the long run. Innovations in insulation, trusses, and dwelling integrity continue to be showcased at major builder conferences nationwide, adding to the appeal and quality going into new homes.

It's new and it's yours and no one else has ever laid claim to it. A new home is primarily an expression of its first owners. Options to the floor plan, colors and materials chosen to decorate it, and even the excitement you feel during your walkthrough with the builder, make up a snapshot of you and you alone. No one else's cooking smells, cigarette smoke, or family squabbles ever took place in your new home. The pride you take in fine-tuning your home's trappings and landscaping the first few years adds to its character and fills up your photo albums. The neighborhood is filled with people reflecting much of the same pride and concerns for the future of the neighborhood that you have. A natural commonality created by everyone being literally in the same boat at the same time (putting in their backyards, pools, or enhancing their new homes) breeds a rapport unlike established neighborhoods. This is your history and of those around you, creating your own homesteads and taking pride in either your beginnings or your accomplishments. It is a place where Thanksgiving dinners, new babies, the eventual empty nest, and family memories are happening for the first time.

Buying a home is, of course, a very individual and very emotional decision for most people. Whether to buy new or used will continue to be a topic of discussion for perpetuity, and there hasn't been a better time to buy in the past decade than right now. Interest rates are enticingly low, a robust economy, not relying on shaky ground for recovery from past mistakes, and consumer confidence all add to a good feeling about the future, in many buyers' estimations.

In the building industry, however, most professionals will smile when asked why to buy a new home instead of one with previous experience. "Well," they'll smugly reply, "because it's new!"

Is There any room to haggle with a builder?

written by Dena Amoruso; Copyright © 1999 Realty Times. All Rights Reserved.

Is everything truly negotiable in real estate? You can "make your best deal" on a car, and you can counter offer on a re-sale (used) home, but what gives these days on new homes? Is there any room to haggle with the builder? How often are offers on newly constructed homes entertained or even tolerated in a market like this?

To be honest, not often. But I guess what goes around comes around.

I can clearly recall the days of huge buyer incentives (a free swimming pool with a home purchase?!), no lot premiums, and sales people saying things like "If you could make a commitment to buy this home today, what would it take to make a deal?" And that market lasted, and lasted, and lasted. Today the tables are turned and, of course, no one knows if this "seller's market" will last as long as the "buyer's market" did. All new home builders know is the usual "supply and demand" thing. Factors such as land costs, material costs and labor costs are skyrocketing, so negotiation is all but out of the question in many new home communities. For builders, turning a profit isn't a bad idea, either, after such a long draught.

So what are the exceptions to the rule, and what can you do to make a "sweeter deal" in a market like this? I suppose you have to put yourself in the builder's shoes to think up what might be attractive to him. For instance, the builder, in many instances, would not consider lowering a price or offering an incentive to a potential buyer on a house whose construction has not even yet begun. But he may blink twice when it's a house that is due to be finished within the next 30 to 45 days. Why? Because he'll incur a whopping house payment on it at completion, on top of the cost he is already incurring for carrying the land for that unit. If a house is this close to completion, he may just be getting nervous, because builders base their margins on projections for closed sales. If the builder prefers not to mess with the appraised values of home in his community, he may only deal on incentives, such as paying for your closing costs, throwing in some upgrades, or not charging a lot premium. Lowering the base price of the home may affect values later on, so he may just steer clear of that thought.

Is the home site in a location that not everyone would be crazy about, but it suits you just fine? How long has it been available for sale? Does that finished house have someone else's upgrades selections in it, but they're not all that bad? Whatever the average buyer may balk at is what a builder may soften his position for.

Sometimes becoming this shrewd a home buyer takes time and patience. It takes a watchful eye, and a good rapport with the new home sales agent as well. If you're looking for just the "right" situation, keep in touch with the agent, or drop by on a regular basis to find out what's going on in the new home community you're focused on. Ask them to call you if someone "falls out of escrow" (sounds like going into the abyss . . .). Tell the agent what home site you would like to become a "back-up" buyer on, but be willing to make a fast deal if your dream come true. Luck, fate, and timing can also use a savvy buyer, but requires you to strike when the iron is hot. Be sure that your financing pre-approval is in hand, and your down payment money is arranged before poising yourself for this scenario.

Builder closeouts are another place to sniff around. The last few homes may become bargains, since the builder is not as concerned with exact values any longer, but you may need to take whatever you get in terms of location. Still, if values all around you are higher and home values in general are one the rise, it may turn out to be a winning deal.

We're all good at pointing out the "should-haves and could-haves" of our lives. Cutting any kind of a "deal" on a new home in this market, however, just could be one of those accomplishments you can boast about a few years from now.

Signing a Builder’s purchase contract

written by Dena Amoruso; Copyright © 1999 Realty Times. All Rights Reserved.

It's all set. You are to meet at the model home sales office at 10 a.m. on Saturday morning and draw up what the sales person calls the "purchase agreement" for the elegant home-to-be on that great lot overlooking the greenbelt. It took some hard thinking, comparison shopping and sleepless nights to get to this point, but you did the Ben Franklin, took into consideration what the sales consultant said about the home and the neighborhood, and walked all the available home sites. This is it.

So what can you expect from this appointment; how long will it take, what should you do to prepare for it and how do you know you are getting an explanation you can feel comfortable with by the time this mini-seminar on a new home purchase is complete?

If you are the type of buyer who will not consider buying a big-ticket item (and this would assuredly qualify as one of the biggest) without reading all the fine print, it would not be uncommon to ask for a copy of the entire purchase agreement ahead of time. Most builders would acquiesce to this request, though some may have rules about releasing proprietary documents before explaining them.
Take the documents home and look them over, however, try to keep yourself from overreacting to the "legalese" of every paragraph or you will surely never buy a home. Most of the phrases are in the form of disclosures and explanations geared to protecting the builder from a myriad of issues to avoid litigation of them. After all, this is America, where people sue over too-hot coffee, so just think of what a builder/developer must deal with in guarding their business from extremism. If you decide to wait until signing time to review the purchase agreement, it is wise to at least take home a copy of the public report, the document required by the local Department of Real Estate giving permission for the builder to sell there. In it, you may read all about the area, its public easements, its intended future use, and the community parameters. Also take home a copy of the Covenants, Conditions, and Restrictions (C.C. & R's) and look them over carefully, making sure this is a neighborhood that doesn't "cramp your style". Now is not the time to assume that parking your trailer on your driveway will be "overlooked" by the neighborhood association just because you're you. By the same token, if there are not a sufficient number of restrictions to make you comfortable with the eventual "streetscape" of the neighborhood, this is also the time to re-think your purchase.

Builder purchase agreements are customarily not "fill in the blanks" type documents, as in resale varieties. The newer, sophisticated builder software enables them to have their agreements and addenda computer generated, to make them unique to each subdivision the builder sells. Oftentimes, the information from your visitor guest registration card has been input into their computer hard drive and lies in wait for your decision to purchase, making it easy for the agent to transfer the information to the purchase agreement.

Although builders vary greatly in their presentation of purchase documents, these are the basic ingredients of most builder agreements:

  • In-file sheet: A document for you to fill out, detailing just who you are and where you came from; your estimated income, family size, employer, etc. This may be used in-house by the builder for demographics use (and is confidential) and also given to the lender to help start the pre-approval process. Although this can be computer-generated by the agent after a verbal interview, most buyers like to fill the information out themselves.
  • Statement of Identity: In states where title and escrow companies are used in lieu of attorneys, this document (and the extreme pain that it causes in jogging your memory about past residence addresses) is used for various title searches under your name, both past and present. It is vital to getting clear title to your new home, assuring you will not record under someone else's name, and making sure there are no unpaid liens to contend with at close of escrow.
  • Purchase Agreement: Usually the most detailed document, presented in clauses describing what is agreed to by both buyer and seller. It should explain and define terms (such as title, escrow, deposits, mortgage loan, and defaults and how they are dealt with). Most have allowances for arbitration, liquidated damages, casualty before closing, and disclaimers about anomalies to soils conditions. Builders may state that their production homes cannot mirror a model home item for item, inform you of their right to make changes or feature substitutions to the house, change suppliers during construction when deemed necessary, and spell out a general time frame for completion of the dwelling. I have covered only a few items here; this, of course, is the heart of your agreement with the builder.
  • Addenda: How many of these you encounter will definitely vary with the builder you buy from. Addenda to the purchase agreement are extra agreements "tacked on" to the original agreement, but become part and parcel of the contract. They can deal with more disclosures, financing terms, decorator items, upgrades to be added to the purchase price, explanations regarding the use of their in-house lender, and even deal with minutiae that we cannot even predict (such as allowing for inevitable variations to colors and cabinet stains from your design center tour.) More of these will, no doubt, pop up during the construction of the home as things are added or changed.
  • Receipt for Public Report and Receipt for C.C. & Rs: Sign these after reviewing the documents.
  • Loan Packet: this may or may not be given to you at the time of purchase. Some builders will make sure you have a full loan pre-approval (pending property address) for an adequate amount, and some will have pre-qualified you briefly and will hand you a packet to fill out before meeting with their lender or your own.
Be prepared for the builder to request the entire earnest money deposit to get the construction of your new home off the starting blocks, if you haven't already surrendered it. This deposit becomes a part of your down payment monies, along with further deposits given by you when opting for upgrades to the new home. Most builders will not even touch the dirt on your home site without the required deposits, so plan ahead to have this money available.

Get copies of everything you sign. If the copies are from a handwritten agreement, make sure your copy is legible. If not, ask the agent to make copies of the original. Another copy will usually be generated from the builder's main office after the seller (usually the builder's division president or sales manager) has signed the contract. Don't forget that the new home agent is usually only a representative of the seller. Although their signature may appear on most documents, they are not the owners of the property and cannot be the final word on the agreement.

Keep all your documents in a special folder, easily accessible during and after the construction of your new home. It's also advisable to keep a copy of the original brochure, with its renderings and included features list attached, in case there are claims you may need to make over something that didn't turn out quite the way it was described originally. The brochure also comes in handy someday when selling your home.

Plan at least two hours for a full-tilt discussion of your agreement; less if you got explanations ahead of time. Leave small children with a sitter to give your undivided attention to this meeting, and make sure every person who wishes to be on title is there to sign. If doing this long distance, make special arrangements with the agent for overnight parcels, conference calls, and e-mails to cover the same territory you would face to face.

This process may indeed sound extremely formidable compared to the process of purchasing a re-sale home. Special attention to written details paid at this time will reap its rewards later on. You may feel increasingly comfortable with your purchase and have fewer questions during construction, giving you the peace of mind you need to look forward to moving day.

Applying for a Mortgage

Before you apply for a loan, you will need the following:

Pre-qualification letter -- Lender pre-qualification provides a ballpark estimate of how large a mortgage you can afford. While it doesn’t obligate the lender to approve your loan, it’s a way to help ensure that you will apply for a mortgage loan within your price range. If you’ve met with the lender to get pre-qualified for a loan, you will have a good idea of the maximum mortgage amount you can afford and will have focused your house search on properties within your price range.  

Ratified sales contract -- Most loan applicants go to their loan interview with a ratified contract of sale on a house in hand. Typically, your real estate sales professional has presented your offer to the seller of the property and helped you negotiate any sales contingencies with the seller (such as making repairs, settling by a certain date, etc.). A ratified sales contract means both the buyer and the seller have signed off on the final offer. This final sales contract is the starting point for the loan application interview. Your ratified contract will specify the amount of your down payment, the price you will pay for your house, the type of mortgage financing you will seek, and your proposed closing and occupancy dates. When you meet with your loan officer, you will need to communicate all these terms specified in the sales contract.

Earnest money deposit -- This is a “good-faith” payment you submitted with the offer to show the seller that you are serious. The earnest money is deposited in an escrow account and will be applied to your closing costs. Sometimes, your lender will want you to bring a receipt for the earnest money deposit along with your sales contract to the initial loan application meeting.

Home inspection report -- Obtaining a satisfactory home inspection report should be one of the terms in your sales contract. As part of your decision to go ahead and buy a certain house, you will want the peace of mind that comes from having hired a professional house inspector who has evaluated the structural and mechanical conditions of the property. The home inspection report can identify problems before you purchase a home. If you put a contingency clause into your purchase agreement stating that the purchase of your home depends on a satisfactory home inspection report, then you will be able to cancel the sales contract if serious problems are identified, or you may be able to get the seller to agree to pay for needed repairs or renegotiate the terms of the purchase.

Information your lender needs at application
Typically, you will complete the Uniform Residential Loan Application when you meet with your lender. This standard residential mortgage loan application is a four-page document that asks in-depth questions about you, your income, your assets and liabilities, and your credit and asks for a description of the property you wish to buy. In some cases, the lender may ask you to fill out your loan application before your interview. You will then bring your completed application form to the interview. Or, you can mail or fax the application to your lender prior to your appointment. Some lenders may even let you fill out your application over the telephone with a loan officer. By receiving your completed application before your meeting, your lender will be better prepared to advise you. Ask your lender what to bring to your initial loan interview. It may take a bit of time to gather all the required information. However, knowing what to bring will result in fewer delays in the processing of your loan. And that will save you time in the long run.

Decisions you make at application
By the time you go to your loan interview, you may have already determined the type of mortgage you want and the mortgage amount. Other important information may need to be determined at the time of your loan application. The lender will need key information about the following:

Type of mortgage -- Your loan application asks you to specify the type of mortgage you want. Your lender will most likely offer you a variety of fixed-rate or adjustable-rate mortgages with various repayment terms. There are also balloon mortgages, Two-Step Mortgages®, Fannie Mae's Community Home Buyer’s Program(SM), FHA and VA loans, and many others. It’s advantageous to learn about the various types of mortgages available to you before you apply for your loan. In fact, it makes a lot of sense to see what types of mortgage loans are available even before you start the house-hunting process. The type of mortgage you choose will directly affect how much house you can afford - and the amount of your monthly mortgage payments. If you bring a ratified sales contract to your loan application interview, it may specify the type of financing you want. Your contract to buy the house may depend on your ability to secure or receive a commitment for the type of loan you specify. If you are coming to your loan interview without a specified type of loan in mind, be sure you’ve done your research beforehand to know which type of financing is best suited to your lifestyle and budget.

Mortgage amount -- This is the amount of money you want to borrow. Again, this is a decision you most likely will have made before the loan application. Your requested mortgage amount will be based on the purchase price of your new home and the amount of money you will be putting toward a down payment. Before actually applying for a loan, many borrowers find out how much they can afford by getting pre-qualified by a mortgage lender. However, if you have been pre-qualified, remember that your prequalification letter from a lender is only a ballpark range of your buying power. It doesn’t obligate the lender to approve your loan for that full amount. The lender can approve you for the amount requested, or a lesser amount, or nothing at all, depending on other factors such as your credit and the appraised value of the property. If your loan application reveals you as creditworthy, it is likely that your pre-qualification amount will be close to the actual amount of mortgage funds a lender will be willing to loan you.

Down payment -- Some loan programs offer 3 percent down payments if you meet certain income standards. The Veterans Administration (VA) and the Rural Housing Service (RHS) offer no-down-payment loans. However, most lenders expect home buyers to have enough money available to make a down payment of at least 5 percent of the value of the home. If you can afford to put more money toward a down payment, it will reduce the amount of your monthly mortgage payments. The lender will want to know how much money you plan to put down and the source of those funds. Sources you may draw upon include savings, stocks and bonds, Individual Retirement Accounts (IRAs), pension funds, real estate holdings, life insurance policies, mutual funds, and employee savings plans. Under some mortgage programs, such as Fannie Mae’s Community Home Buyer’s Program(SM) with the 3/2 Option®, part of your down payment may come from a grant from a nonprofit housing provider in your community. You may also rely on a gift of money given to you by a parent or another relative that need not be repaid. If you use gift money for a down payment, you will need to present a letter to your lender that states the amount of the gift, is signed by the giver(s), and is usually notarized by a third party.

Settlement date -- In your sales contract, you specify a time frame in which you wish to close on your new home (usually 30, 45, or 60 days from the time you have a ratified sales contract). If you have a limited time frame, ask your lender about any type of express services that may allow for less documentation and alternative means to verify information you’ve furnished on your application. You will need to tell your loan officer the approximate date you would like to close your loan, so that your loan processing will coincide with this date.

Lock-in interest rate -- Mortgage interest rates may increase between the day you apply for your mortgage and when you actually close on your home. That’s why many mortgage lenders offer loan applicants a rate lock-in, which guarantees a specified interest rate for a set period of time. If you opt for a lock-in, make sure the expected closing date is well within the lock-in period. Ask the lender if the rate can be locked in at the time of application or only at loan approval, how long the lock-in remains in effect, whether there is a charge for locking in the rate, and if you can also lock in points.

Application costs you pay
In addition to the information described earlier, you should also bring your checkbook to the interview. Although costs and terms vary among lenders, most lenders require you to pay an application fee, a credit report fee, and in some cases a separate appraisal fee at the time of your loan application.

Application fee -- The application fee covers the lender’s cost to process the information on your loan. Often, the fee includes the appraisal - which is the cost the lender will pay a professional appraiser to estimate the value of the property you plan to purchase.

Appraisal fee -- An appraiser is a person who is qualified by education, training, and experience to estimate the value of real and personal property. Appraisers usually charge one fee for a single-family home and slightly higher fees for a two-family, three-family, or four-family home. Appraisals for government-insured loans, such as a FHA (Federal Housing Administration) loan or a VA (Department of Veterans Affairs) loan, need to be done by FHA- or VA-certified appraisers and may cost you less than those for other types of loans.

Credit report fee -- The credit report fee covers the lender’s cost for ordering a credit report on you from a credit reporting agency. This report will verify information that you supply on your application and will supply additional information from the credit agency’s own files and from the public record. When a credit report is received, your lender will check it against your application and look for any discrepancies. You may be asked to explain information in your credit report.

If you change your mind
Check with your lender to see if there are any circumstances under which you would be entitled to a refund of your application or credit report fee. In some cases, you can only get a refund of your application fee if your lender does not approve or deny your application in the time agreed upon (usually 30 days from the date of your completed application).

Application legal requirements
Legally, your lender is required to furnish you with several types of documents and information in conjunction with your application for a mortgage loan. This information includes the following:

Annual percentage rate -- Also known as the APR, this percentage figure combines the interest you will pay with certain closing costs, any points, and other finance charges and divides the total amount by the term of the loan. The result is your "effective rate of interest." The APR must be disclosed to you according to federal Truth-in-Lending laws within three business days of when you apply for a loan, or prior to or at closing for a refinance.

Disclosure about ARMs -- Federal law requires your lender to give you information either when you receive an application form for an ARM or pay a non-refundable fee - whichever comes first. Your lender should provide you with a written summary of the important terms and costs of the loan, the past performance of the index which the interest rate will be tied, and a copy of the booklet Consumer Handbook on Adjustable-Rate Mortgages.

Good-faith estimate -- Within three days after you have submitted your application for a home loan, the lender is required by federal law to provide you with an itemized estimate of the costs to close (or settle) the loan. This report is referred to as a “good-faith estimate.” It is a ballpark estimate of how much money you will need to pay at the closing table along with the seller's costs. Costs can and will vary from the actual amounts indicated, so be sure to take this for what it is - an estimate.

Guide to settlement costs -- The lender must also give you a copy of the government publication Settlement Costs: A HUD Guide. This publication describes the settlement process and nature of its charges, provides information about your rights, and includes an item-by-item explanation of settlement services and costs. The lender has three business days after your written application is taken to give this guide to you.

Authorization forms -- You may be asked to sign several authorization forms that will allow your lender to verify the information on your application. These include the authorization of credit investigation and authorization to verify your employment, past rental or mortgage payment history, and bank deposits. When compiling a credit profile of you, your lender must certify that the credit report will only be used for the purpose of qualifying you for a mortgage loan. As part of the credit evaluation process, your lender cannot seek any subjective information from your neighbors or co-workers concerning your character, reputation, or other personal aspects unless you receive notice. These limitations are set by the Fair Credit Reporting Act. Under the Equal Credit Opportunity Act, your lender cannot discriminate based on race, color, national origin, sex, marital status, age, religion, and the fact that all or part of your income comes from a public assistance program, and your exercise of any rights under the Consumer Credit Protection Act. Your lender also cannot ask questions about your future parenting plans, although the lender may ask about the current number of children you have and their ages.

Alternative documentation loans -- An alternative-doc (or alternative documentation) loan uses methods other than traditional documentation to verify information. Instead of sending a letter to the borrower’s employer, the lender asks for the applicant’s last two annual W-2 forms and a month’s worth of computerized pay stubs. The lender may then make a phone call to the employer to verify the documentation. Instead of sending a letter to the bank, the lender accepts the borrower’s bank statements for the preceding three months, and 12 months of canceled checks substitute for the letter of verification mailed to the landlord or the previous mortgage lender. Before your loan interview, ask whether your lender offers alternative documentation - and find out if you may be eligible. In most cases, alternative documentation can be used for salaried individuals who receive a computerized (as opposed to handwritten) paycheck. Self-employed individuals or those who earn commissions will most likely not be able to use alternative documentation for employment verification.

Pre-Settlement Inspection

You will or should conduct an inspection of your new home after contract and before closing, whether you are buying a new or pre-owned home. However, the process will vary depending on if the home is a builder's home or a resale.

For a re-sale home, you will choose your own inspector and set up the inspection.  The right to have inspections comes with the challenge of hiring diligent and competent inspectors. Finding the right person isn't as easy as it may seem because in most states, just about anyone with an official-looking checklist and a flashlight can set up shop as a home inspector. The exception to this free-for-all is that special training is required to perform inspection or remediation work for such potentially hazardous materials as asbestos and lead-based paint.

Here are six of the many factors to consider:

1. Qualifications. Ask open-ended questions about the inspector's training and experience as it relates to home inspections. The inspector should have some training in construction and building maintenance standards and a track-record of experience in the home inspection business. Depending on the location and age of the home, you may need to hire an inspector who's qualified to deal with asbestos, lead-based paint or other potentially hazardous substances. You may also need to hire a geologist or structural engineer.

2. Scope. Ask the inspector which components of the property are -- and are not -- included in his or her inspection. Will the inspector check out the roof? How about the swimming pool? The built-in appliances?

3. Sample report. Ask the inspector to provide a sample of his or her checklist or inspection report. Does the report include a narrative description or just check-off boxes? Is the information presented and explained clearly and completely? Does the report highlight any problems that could present a safety hazard?

4. References. Ask the inspector for the names and telephone numbers of several homeowners who have used his or her services. Call those people and ask them whether they were satisfied with the report and other services they received. Be sure to talk to some people who have owned their home for a few months or longer. Some problems overlooked by an inspection can take a while to surface.

5. Memberships. Many good inspectors don't belong to a national or state association of home inspectors. However, all else being equal, an association membership is often a plus. These groups provide their members with training and certification programs and up-to-date information about industry practices and inspection standards.

6. Errors and omissions. Even top-notch inspectors are only human and can make errors or overlook problems they probably should have noticed. Ask about the company's policy in such situations. Does the company have insurance for errors and omissions? Does the company or individual inspector stand behind the report? Many companies ask customers to sign a waiver limiting the company's liability to the cost of the inspection.

On a new builder's home, your inspection will be done with the construction supervisor of the builder, and is also called a "walk-through".  You usually have the right to hire your own inspector to accompany you on the walk-through.  The walk-through provides an opportunity for you to learn how your new home works and to spot items that need to be corrected or adjusted.

Often, a builder will use the walk-through to inform buyers about:

  • The operation of the house's components.
  • The buyer's responsibilities for maintenance and upkeep.
  • Warranty coverage and procedures.
  • The larger community in which the home is located.

When you buy a new appliance or piece of equipment, such as a washing machine, you usually have to read the instructions before you can understand how to use all of the features. With a new house, you will be receiving a stack of instruction booklets all at once. It helps if someone can take the time to show you how to operate all of the kitchen appliances, the heating and cooling systems, the water heater, and other features in the home. Such an orientation is particularly useful considering that when moving into a new home, people often are so busy that they have trouble finding time to read instruction booklets.

Learning about maintenance and upkeep responsibilities is very important. Most new homes come with a one-year warranty on workmanship and materials. However, such warranties do not cover problems that develop because of failure to perform required maintenance. Many builders provide a booklet explaining common upkeep responsibilities and how to perform them.

Should a warranted problem arise after you move in, the builder is likely to have a set of warranty service procedures to follow. Except in emergencies, requests for service should be in writing. This is not because the builder is trying to be bureaucratic. Rather, it is to ensure that everyone clearly understands the service to be performed. The person receiving a service request is not likely to be the person performing the work, and you don't want to rely on word of mouth for transmission of your service order.

Many builders schedule two visits during the first year -- one near the beginning and the other near the end -- to make necessary adjustments and to perform work of a non-emergency nature. You should not expect a builder to rush out immediately for a problem such as a nail pop in your drywall. Such problems occur because of the natural settling of the house and are best addressed in one visit near the end of the first year.

If you have moved to a new home from a nearby area, you probably will not spend much time at the walk-through talking about the larger community in which the home is located. However, if you are moving to a new community, a builder can often provide a packet of material to help you become acclimated.

With respect to inspecting the house, an effective way to handle this is with a checklist. The list should include everything that needs attention, and you and your builder should agree to a timetable for repairs.

Builders prefer to remedy problems before you move in, because it is easier for them to work in an empty house. Some items may have to be corrected after move-in. For instance, if your walk-through is in the winter, your builder may have to delay landscaping adjustments until spring.

It is important that you be very thorough and observant during the walk-through. Carefully examine all surfaces of counters, fixtures, floors and walls for possible damage. Sometimes, disputes arise because a buyer may discover a gouge in a counter top after move-in, and there is no way to prove whether it was caused by the builder's workers or the buyer's movers.

Many builders ask their buyers to sign a form at the walk-through stating that all surfaces have been inspected and that there was no damage other than what has been noted on the walk-through checklist. Ask a lot of questions during the walk-through and take notes on the answers.

Never be afraid to appear stupid by asking too many questions. That is how you learn. It is important to view the walk-through as a positive learning experience that will enhance your enjoyment of your home.

Walk-Through Checklist Items


  • Does the ground around the foundation slope away from the house?
  • Make sure the water does not pond in swales. To check, water the areas with a hose, if possible.
  • Are there signs of erosion?
  • Is the shrubbery placed at least 2-3 feet from the foundation?
  • If the house has a basement, are the basement window wells clean and graveled?

Roof and Gutters

  • Are the shingles flat and tight?
  • Is the flashing securely in place?
  • Do the gutters, downspouts and splash blocks direct water away from the house?

Exterior Appearance

  • Are the windows and doors sealed and protected by weatherstripping?
  • Are the trim and fittings tight? Are there any cracks?
  • Does the paint cover the surface and trim smoothly?
  • Has landscaping been installed according to the terms of your contract?

Doors and Windows

  • Are all doors and windows sealed?
  • Do they open and close easily?
  • Is the glass properly in place? Is any loose or cracked?


  • Is the painting satisfactory in all rooms, closets and stairways?
  • Did the painters miss any spots?
  • Are the trim and molding in place?


  • Is the carpet tight? Do the seams match?
  • Are there any ridges or seam gaps in vinyl tile or linoleum?
  • Are wooden floors properly finished?

Appliances, Fixtures, Surfaces, Etc.

  • Do all of the appliances operate properly?
  • Are all of the appliances the model and color you ordered?
  • Check all faucets and plumbing fixtures, including toilets and showers, to make sure they operate properly.
  • Check all electrical fixtures and outlets. Bring a hair dryer to test the outlets.
  • Do the heating, cooling and water heating units operate properly? Test them to make sure.
  • If the home has a fireplace, do the draft and damper work?
  • Are there any nicks, scratches, cracks or burns on any surfaces, including cabinets and countertops?
  • Test the doorbell. Also test the intercom system, garage door opener and any other optional items.

Basement and Attic

  • Are there indications of dampness or leaks?
  • Is there significant cracking in the floors or foundation walls?
  • Are there any obvious defects in exposed components, such as floor joists, I-beams, support columns, insulation, heating ducts, plumbing, electrical, etc.?

Certificate of Occupancy

  • Has your local municipality signed off on your house?

Some problems may not be readily apparent during the walk-through. Even a professional inspector might miss a few. Most warranties cover any such problems that are the result of faulty workmanship. However, warranties usually exclude problems that result from owner neglect or improper maintenance.

Closing or Settlement Process

Settlement (or closing) is the process which passes ownership of a property from seller to purchaser. Going to settlement on a new home can be bewildering. Home buyers are usually required to sign a seemingly endless pile of documents, most of which are written in legalese.

Before you go to settlement, there are certain important items you should know about so that you can achieve the best possible terms for yourself in the transaction:

  • Ask a lender for a copy of the HUD pamphlet,Settlement Costs. Most lenders are required to provide their loan applicants with a copy of this document under the Real Estate Settlement Procedures Act (RESPA), but you will be able to shop more wisely for settlement services if you have read the pamphlet before you apply. It provides a good description of the settlement process and explains most of the expenses you will encounter.
  • When you apply for a loan, the lender is required by law to provide you with a good faith estimate of settlement costs. Shortly before settlement, you will be told exactly how much you owe so that you can get a bank check. A personal check is generally not acceptable. In some instances, you may have money returned to you instead of having to pay.
  • Before you go to settlement, familiarize yourself with the following terms:
    • Appraisal Fee. An appraisal is an estimate of the fair market value of your home. Appraisals help both the lender and the buyer to determine if the sales price is consistent with the actual value. An appraiser inspects the house and the neighborhood and makes an estimate based on the price of comparable houses and other factors.The appraisal provides no guarantee that the property is free of defects. Lenders insist on an appraisal to see how much they could recover by selling your house if you default. The fee for this service may vary considerably depending on the specific characteristics of your house.
    • Attorney’s Fees. If the lender requires an attorney to draw up any of the settlement documents, you may be charged a fee – a flat amount or a percentage of the loan. If you hire a lawyer to assist with the settlement, you will have to pay an additional fee at or immediately following settlement.
    • Credit Report. The lender may charge a fee for investigating your credit history.
    • Earnest Money. Earnest money is a deposit paid to a seller to show you are serious about buying a house. Your receipt for this payment is called a binder. If you later buy the home, the earnest money is applied to your downpayment. If not, the earnest money is returned, minus expenses for processing. Be sure that you understand the refund procedures before you make a deposit.
    • Escrow Fees and Accounts. Escrow involves having a third party hold funds and/or documents until you and the seller complete settlement. Depending on the circumstances of your loan, you may be asked to make monthly payments to an escrow account after you purchase your home. Money in the account may be used to pay taxes, insurance, and any other regular assessments as they fall due. Such accounts serve a similar purpose to withholding income tax from your paycheck; by putting aside money each month, you avoid large annual or semiannual payments. You may be charged a fee for the service. In some states, escrow accounts draw interest.

      Sometimes, escrow agents handle settlements. Rather than you and the lender meeting to sign all of the documents and transfer money, the agent works with you and the lender separately to ensure that everything is done properly. Once again, a fee is required for this service.
    • Loan Origination Fee. A lender will charge a fee for the cost of processing the loan, usually calculated as percentage of the loan amount.
    • Loan Discount (Points). The largest of your settlement cost may be the "points" lenders require to make the yield on your loan more profitable. A point is one percent on your loan amount. If you are borrowing $50,000, one point equals $500. Points are tax deductible if they are paid separately and not deducted from the loan amount. For VA loans, you can be charged a maximum of one point, but the number of points can be higher for FHA and conventional loans.

      On a 30-year loan, each point that you pay reduces your interest rate by roughly 1/8 of a percent. You may be faced with a choice between two mortgages in which one has lower monthly payments but involves paying more points up front. Annual percentage rate calculation include buyers’ points, so ask for the APR to help you make your assessment. Keep in mind that an APR is calculated on the basis of the total life of the loan. For a 30-year loan, the APR is a 30-year composite figure. If you sell your new home after a few years, the average annual cost of your points will be much higher than is reflected in the APR. If you plan to move soon, you might be better off with a loan that has a slightly higher rate but fewer points.
    • Property Survey Fee. You may have to pay to have your lot surveyed, especially if there is a question about the boundaries. The cost will depend on the complexity of the survey.
    • Recording Fee. Because title is changing hands, the transaction must be recorded with your city, county, or other appropriate branch of government. The fee covers administrative costs.
    • State and Local Transfer Taxes. Some jurisdictions levy taxes on the transfer of property or on real estate loans.
    • Settlement Costs Between Buyer and Seller. Your builder may have already paid the annual property taxes on your new home or filled up your fuel tank. When title changes hands, you must reimburse the builder for a proportional share of the taxes, any fuel that remains in the tank, and any other prepaid costs.
    • Title Search and Insurance. A title search involves having someone look through public records to see if anyone else has a claim to your property. A lender does not want to lend you money only to learn in the event of foreclosure that somebody other than you has a prior claim to the property.
You will normally be required to purchase lenders’ title insurance to guard against a faulty title search as well as hazards that even the most thorough search will not reveal – such as a forged deed that does not transfer title, a claim by a previously undisclosed relative of a former owner, or a mistake in the records. For a one-time premium at closing, title insurance will clear up title problems, pay the lender’s legal expenses for defending against an attack on title, or pay claims on property the lender may lose.

Lenders’ title insurance does not compensate buyers for any legal expenses they might incur, or the value of property they might lose. A separate owners’ title insurance is available to safeguard the buyer. Whether the seller or the buyer pays for owners’ title insurance depends on local custom.

This list of settlement terms is not all-inclusive. You may also be charged fees for notarizing documents and other miscellaneous items.

Once all the forms have been signed, you can move into your new home. But before ending the settlement session, make sure that you have received or will be sent copies of all the important documents, including:

  • Sales contract.
  • Land survey.
  • Warranties and instruction booklets from manufacturers for equipment in the house.
  • All tax payment receipts.
  • Certificate of occupancy (required in some areas).
  • Certificates from the health department for plumbing and sewer installations (required in most areas).
  • Other certificates of code compliance (required in most areas).
  • All insurance polices (some might be sent later after they have been properly endorsed).
  • The note and deed to your property (which will probably be mailed to you after being placed on record in your local registry of deeds office).

The Tax Advantages of a New Home

Buying a new home is one of the smartest purchases you can ever make. One of the reasons is that homeownership has many positive tax implications. Because of changes to the tax code passed in 1997, these tax implications are much more favorable for most home owners today than in the past.

According to the law, married home owners do not have to pay taxes on up to $500,000 in capital gains realized on the sale of their homes. The $500,000 provision applies to married home owners filing joint returns and is restricted to homes sold on or after May 7, 1997. To qualify, the home would have to have been used as a principal residence for at least two of the previous five years. Taxpayers who file individual returns may claim up to $250,000.

According to the previous rules, the tax on any profit would be deferred if the sellers of the home bought and occupied another home of equal or greater purchase price within 24 months before or 24 months after the sale of the old residence.

The previous law also allowed for a one-time capital gains exclusion. Home sellers who were at least 55 years old could realize a tax-free gain of up to $125,000 if the home had been used as a principal residence for at least three of the previous five years.

Under the old law, home sellers could use their capital gains exclusion only once after turning 55. Under the new law, people over 55 who have already used their exclusion can take advantage of the new tax provisions, assuming that they have occupied their new residence for at least two of the previous five years.

First-time buyers also benefited from a special provision of the new tax law. One of the largest obstacles to homeownership usually is the inability of potential first-time buyers to save enough money for a downpayment. In 1997, Congress passed a new provision allowing first-time buyers to withdraw up to $10,000 from their IRA accounts if the money is used for a downpayment on a home. The penalty-free provision can be applied to IRAs owned by the buyers, their parents or their grandparents. Under current law, early withdrawals from an IRA incur a 10 percent penalty.