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I want a brand-new home. What are my options?
Actually you have several options - a home in a brand-new development usually built by one builder who offers various models, a custom-built home in a new subdivision, a custom-built home in an existing neighborhood, or a new home commissioned by an investor built in an existing neighborhood.
I heard that building your own home can give you instant equity because it is cheaper. Is this true?
Maybe. The theory is that a person who acts as his or her own general contractor and works on the building will be putting in both time and effort that would otherwise need to be paid for. Anyone attempting this must have significant experience in the building industry, especially in dealing with contractors.
In order to build your own home you will need to commit to a significant amount of time at the building site as a builder or as a supervisor of construction workers, which may cause problems with your regular job that pays the bills. Anything that can cause a change in your income will bother the lenders that provide funding for construction loans.
Unless you have the experience of being a general contractor and the funds, leave the house building for the professionals. Look at it this way - if you seriously mess up in building your dream house your spouse may never forgive you, while if a hired general contractor messes up you can always sue him or her.
How do new developments work?
A developer will purchase a large portion (tract) of land that does not have the usual improvements such as streets, electricity, sewers, etc.The developer then determines where streets go, the size of individual lots, and the type of homes being built. Sometimes the developer will stop at that point and just advertise for prospective home buyers.This developer usually works out of a trailer and has blueprints, designs, and mock ups of how the community will look.
Another way developers work is to actually build a model home of each type of home to be built in this new area. The models will be completed and fully furnished. The potential home buyer not only gets to look at blueprints, designs, and mock ups, they can actually walk through the model of the home to see what the building will really look like.
Developments are great. A home buyer can select from a few styles of homes, add options, select a lot, and be involved with every aspect of the house being built. It is like going into a fancy department store and ordering your home off the shelf. Be careful, though, because some lenders may not finance the total amount of all upgrades, which may leave you putting up more cash. To save money, you may want to consider which upgrades you can install yourself after you take possession of the home.
As for the actual purchase, developers differ. Some work in conjunction with a real estate firm, but most do not. As a buyer you are dealing directly with the builder, so you may decide not to incur the cost for your own real estate agent. While you may be able to negotiate some costs with a developer, the prices usually have very little flexibility for negotiation.
However, developers in a buyer's market may be more willing to move a little on the cost or throw in extras for that signed sales contract. As with all sales contracts, you should let your attorney review all contracts with the developer. As for obtaining a mortgage, many developers also provide or have a financial institution that provides financing.