The New Home Buying Process - Part I

Summer is a great time for new home shopping! You've seen the ads, you've shopped the websites, you have added items to your Pinterest and vision boards, and are ready to move forward with the idea of building a new home. 

Evaluate and Prepare Your Finances

The first thing potential buyers should do is to evaluate their credit score and credit report. A good credit score is very important for securing favorable loan terms.  The higher your credit score, the better position you'll be in. Lenders also advise home shoppers to calculate your debt-to-income ratio (DTI). Lenders use DTI to assess your ability to manage monthly loan payments. 

Clean Up Credit Issues

If you are serious about building a new home, and your credit isn't optimal, it may be wise to take some time and pay down debt, make sure there's no errors in your credit report, take care of anything in collections, and improve your DTI ratio.  

Lenders also recommend that home buyers NOT make any large purchases or take on new debt (such as a new auto purchase) during the mortgage approval process. 

Cash Upfront & Deposits

It's always a good idea to have access to cash -- both to hold a lot and for down payment and construction deposits. If don't have access to savings, visit with your lender about liquidating investments or retirement accounts. 

Pre-Qualify for a Mortgage

Once you have an idea of the state of your personal finances, it's time to determine how much you can comfortably afford. Consider your income, debts, down payment, and other homeownership expenses. Create a portfolio of your debts and income in order to prove to the lender and underwriter that you have the level of income and the DTI to afford the home you plan to build.

Select a Lender

Next up in the preparation is to choose and visit with a lender. It's always good to consider using the builder's preferred lender. The builder's preferred lender will ensure clear communication and your lender will work with your buyer as a team on your project. We regularly recommend Flat Branch Home Loans, as Senior Mortgage Banker, Missy Palitzsch is eager to help our buyers get into their Houston Home of choice. 

The lender will have you fill out an application in order to get an informal estimate of how much you may be able to borrow; based on your self-reported financial information. This is called pre-qualification. With a pre-qualification letter from a lender, builders are more likely to see you as a legitimate prospect who is ready to buy. 

Pre-Approval with Lender of Choice

Pre-approval with the lender is the next step.  While it sounds the same as a pre-qualification, pre-approval involves a more thorough review of your financial situation and a hard credit check, providing a more accurate loan amount and demonstrating to sellers that you are a serious buyer.

In order to gain a pre-approval, buyers will need to gather necessary documentation including: 

• Pay stubs
• Tax returns
• Bank statements
• Investment statements
• Gift letters/deposit records
• Other financial documentation as requested

A historically standard down payment for a new home is 20% of the purchase price. However, down payments can now range from as little as 0-3% for some government-backed loans (like VA and USDA loans). 

The specific rate will depend on the type of loan, your credit score, and your financial situation. It is important to remember that once you select a home site and plan, a cash deposit will be expected to hold the lot, and approximately 3-5% of the home price will be required as a construction deposit after you make your selections and are ready to build.

Shop and Sign

Once you are pre-approved by your lender, the fun part begins! Shopping for your new home is exciting. While it's not necessary to use a Realtor during this process, having one as an advocate is always a great idea. Let your builder know as soon as possible if you are working with a Realtor and give them his/her/their information so they can earn their commission.

Location, Location, Location

When looking for a new home, visit multiple communities in the area you prefer to live in. If you're not a current resident of the area, ask questions relevant to you about school, shopping, medical facilities, and other amenities. Ask about HOA fees, and any capitol fees the HOA requires when starting out. 

Visit multiple model homes to get a feel for the quality of the craftsmanship, the flow of the home's floorplan, and make decisions about how many bedrooms, baths, and other room types are needed in your home. Most builders have multiple floorplans with ranch style and multi-level homes with various exterior elevation options.

Home Site Selection

Once you make your home floorplan selection, choose a lot within the community that best meets your needs. Here in Missouri, most builders offer both walk-out and in-grade basement lots. You'll need to consider the width of the lot, and how the plan you selected will fit within the lot. You may be asked to put down a home site deposit to hold the lot of your choice while you complete the pre-approval process. There may be premiums - an up charge on various lots based on type, location and desirability. Home site premiums typically range from $0 to $20,000 on production homes. (Premiums may vary depending on builder and community.)

If there are any changes to the plan, like optional bedroom, extended garage, porches and balconies, etc., be sure to check with your builder to ensure those customizations can be achieved and still be within your budget. 

After you have decided upon your plan, lot and placement, and are ready to move forward, you will be expected to write a contract, and set a budget or allowance for your home features. 

Design Center Selections

While it's possible to purchase a home at the advertised base price, most home buyers retain a budget to add home features or upgrade from the standards. Ask the design manager to thoroughly go through the builder's standard features, so you know what you are starting with. 

Your design manager will take you through and go over exterior and interior selections, allowing you to choose your finishes, bathroom and kitchen fixtures, countertops, paint colors, roof colors, flooring, fireplaces, trims, door types, etc. 

Once you have made your selections, the design manager will tally up the additional costs and add it to the price of the home for a final sales price. 

From there, the builder will schedule a pre-construction meeting with you, your community sales manager, and the community's superintendent to discuss the construction process, the timeline for the project, what to expect, and collect the construction deposit. 

- More to come in Part II: The New Home Construction Process

For more information on the loan process or to apply for pre-qualification with Houston Home's preferred lender, Flat Branch Home Loans, contact Missy Palitzsch by email at missyp@fbhl.com or phone (314) 374-9608. 

Visit any one of Houston Homes five active new home communities to explore and tour our model homes.