Does the prospect of getting to choose your perfect floorplan excite you? And what about the thrill of picking out your own appliances, cabinets, countertops and fixtures that will reflect your individual style instead of someone else’s taste? If this describes your home purchasing preference then, by now, you have likely decided that you are going to opt for a newly built home.

There are a number of advantages to purchasing a new home such as all appliances, the roof and water heater are brand new and under warranty.   These components of a new home allow for the latest design and building material available and will not likely need replacing any time soon. Today’s new homes also offer a number of energy efficient features that were not available even five years ago. Most new homes offer double if not triple pane windows which, in turn, can save you some money on your monthly utility bill. Also new home construction offers you the latest in designs, style and comfort.

Is Your Builder’s Preferred Lender and Contract Your Best Bet?

Builders will often entice buyers with “incentives” for those who choose to use their lender. Builders will likely promise to pay for closing costs or offer buyers credits at the design center to use on a wide array of upgrades. But before you start dreaming about those gorgeous bathroom fixtures or that elegant fancy chandelier for the entryway, you owe it to yourself to get your calculator out and make sure you understand that what you are being offered is a good deal.

And if you are in Colorado, an important point for buyers to be aware of is that builders are not required to use Colorado contracts, instead they will probably use their own contract which will likely be biased toward their own interests. So it is important that you read the contract before signing anything and make sure your builder has a license and is insured. Also, make sure you understand the warranty being offered, the default provision and the dispute resolution clause in case a dispute arises. While the hope is that everything goes smoothly with your new build it is always wise to protect yourself from any unforeseen circumstances.

Avoid This Pitfall

Avoid the pitfall of automatically assuming that your builder’s lender will offer you the best possible deal.  And be careful if your builder “requires” that you use their lender.  What unsuspecting home buyers may not be aware of is that these builder incentives that sound so good may indeed come at a price in the form of higher than market interest rates or higher than average closing costs. These costs can escape notice because they get rolled into the purchase price of the home.

When a buyer is looking at new construction, one important thing to consider is the time it takes to build your dream home. This means that you will need to decide whether to lock in your interest rate near the beginning of the building process hoping there are no delivery delays or wait and take your chances on the rates not going up if you lock in at a later date. Either way, the risk rests with, you the buyer.

 Upgrades vs Closing Costs, Is It Really A Good Deal?

What if your builder has just offered you a sum of $10,000 in credit to use in their design center?  Before you get carried away picking out your interior design upgrades ask your builder to show you the calculated closing statement so you can see what they estimate the closing costs will be on your new home. I had a client who was offered a tantalizing $15,000 credit toward closing costs and/or design center upgrades. The best part they were told is that they could customize how to use their “free money” based on their budget and needs to suit their specific situation. In addition, the builder was offering a 4% interest rate on the loan for a longer term lock on the rate so if the rates were to increase from the time the construction started until occupancy was granted my clients would be insulated from the risk of rising interest rates.  It all sounded really good, until they asked me to review the details with them.

After reviewing their documents, we discovered that there were a number of unexplained fees and costs to the tune of $13,000 included in their closing statement.  When you take this into consideration, what the builder’s incentive amounted to was $2,000 left over for possible upgrades. The closing fees were considerably higher than what I was charging for closing fees through my mortgage company which was less than $5,000 in this particular situation. In addition, we opted to not lock in their rate and were able to secure a lower fixed interest rate by a quarter percent at the time of closing. So in the end, while my clients ended up “forfeiting” the $2,000 they had left to pay for upgrades, they ended up saving more than $20,000 over the life of their loan. Now that is being a savvy new home purchaser and not falling into the trap of being lulled into believing that the builder always has your best interests at heart.

Seek Help From Professionals

In reality, it can be quite overwhelming to slog through all the pros and cons of deciding what your best deal is and in some cases it can feel like comparing apples to oranges. But with my experience as a loan officer I am used to reviewing these type of documents.  I can help steer you toward the best possible rate and loan that best fits your needs.

When you work with me, I will get you the best possible deal by looking at exactly what the builder is offering you in terms of credits, interest rates and closing costs and then comparing it to the costs and interest rates I am able to offer you.  This could end up saving you thousands of dollars in the long run.

If you are in the Broomfield or Westminster, Colorado area and are considering purchasing a new home, I would love to sit down with you and help you review all your options so we can discover the truly best deal for your home purchase.  Please give me a call at (720) 279-5982, I look forward to working with you.