Consumer Articles of Interest Mortgage Basics Pre-Qualify Before You Buy How Do You Choose Your Homesite? How Do You Design Your Own Floorplan? Shopping for the the Right Builder Your Building Contract - What It Will Cover The Construction Process Insuring Your Home Pre-Settlement Walk-Through Tips & Checklist Home Maintenance…It’s Your Responsibility
A mortgage is a long-term loan that uses real estate as collateral. A mortgage loan is commonly used for buying a home. Mortgage loans are usually fully-amortizing, which means that the monthly principal and interest payment will pay off the loan in the number of payments stipulated on the note. Mortgage loans are also described by the length of time for repayment, such as 15, 30 or 40 years, and whether the interest rate is fixed or adjustable. A mortgage loan where the down payment is less than 20% usually requires private mortgage insurance (PMI) or government insurance or guarantee. Most mortgage loans require monthly payments of principal and interest plus additional payments that are set-aside in escrow accounts to pay property taxes, homeowners (hazard) insurance, and any condominium or homeowner association assessments. Monthly mortgage insurance premiums for loans that have private or government mortgage insurance are generally included as part of the regular monthly principal and interest payment. Although it is rare in these days of tight credit markets, some lenders may still offer “nontraditional” mortgage loans such as interest-only loans, in which case the borrower pays only the accrued interest and none of the payment is used to reduce the principal balance, or loans where the borrower chooses each month whether to make a minimum payment, pay the accrued interest only, or pay the accrued interest and a portion of the principal. Homebuyers who opt for a nontraditional mortgage should be aware that, depending on the terms of the loan, sudden and significant changes can occur in the monthly payment due to changes in the interest rate and/or payment terms. It is the homebuyer’s obligation to fully understand the terms of their loan. Homebuyers who can afford the higher monthly payment sometimes prefer a 15-year mortgage to a 30-year
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mortgage. Interest rates on 15-year mortgages usually are slightly lower than 30-year rates. In addition, a homebuyer financing a home purchase with a 15-year mortgage will repay principal substantially faster and will pay far less total interest over the term of the loan.
Conventional Mortgages A conventional mortgage is one that is not insured or guaranteed by the government. Conventional loans with a down payment of less than 20% require private mortgage insurance (PMI), which protects the lender if the homeowner defaults on the loan.
FHA-Insured Loans The Federal Housing Administration (FHA), which is a part of the US Department of Housing & Urban Development (HUD), operates several low-down payment mortgage insurance programs that buyers can use to purchase a home. FHA-insured loans generally require the buyer to make a 3.5 percent cash contribution to the down payment, not including closing costs. FHA-insured loans are available from most of the same lenders who offer conventional loans. Your lender can provide details about FHA-insured mortgages and the maximum loan amount in your area, or find information on FHA’s loan limits directly from HUD’s Web site.
VA-Guaranteed Loans If you are a veteran of military service, reservist, or on active military duty, you may be able to obtain a loan guaranteed by the Department of Veterans Affairs (VA), which requires little or no down payment. Get more information about the VA Loan Guaranty program.
loan. The “blended” interest rate on the resulting loan is lower than the current market rate as a result of the combination of the rates on the two loans. The Section 502 Guaranteed Rural Housing Loans are arranged through participating local lenders and are available to a broader range of borrowers. Find out more about RHS loan programs.
State Housing Finance Agency Loans State Housing Finance Agencies (HFA) provide loans to first-time homebuyers and veterans of military service who have not previously received a loan through an HFA, often at below-market interest rates. Program availability and eligibility requirements vary from state to state. You should check with your state HFA for programs that are currently available. Find a link to your state’s HFA from the National Council of State Housing Agencies’ Web site.
Adjustable Rate Mortgages (ARMs) With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. But with an ARM, the interest rate changes periodically, usually in relation to a specific index such as a cost of funds rate or the Treasury bill rate. Payments may go up or down accordingly. Adjustable-rate mortgages (ARMs) are characterized by the time frame for adjustment, such as 1 year, or 3, 5, 7, or 10 years. Hybrid ARMs have grown in popularity because they may offer a favorable fixed rate of interest for a time, such as 3, 5, 7, or 10 years, after which the loan becomes a 1-year ARM.
The Rural Housing Service (RHS), which is a part of the US Department of Agriculture, offers Section 502 Direct and Guaranteed Rural Housing loans to homebuyers located in rural areas. Section 502 Direct loans offer reduced interest rates to lower-income borrowers who qualify, and are arranged directly through local USDA County Agents or through USDA Rural Development state offices.
Lenders generally charge lower initial interest rates for ARMs and Hybrid ARMs than for fixed-rate mortgages. This makes the ARM easier on your pocketbook at first than a fixed-rate mortgage for the same amount. It also means that you might qualify for a larger loan because lenders sometimes make this decision on the basis of your current income and the anticipated monthly payments for the few year or two. Moreover, if interest rates remain steady or move lower, your ARM could be less expensive over a long period than a fixed-rate mortgage.
A limited amount of funding is available for Section 502 Direct loans, so some lenders also offer “Leveraged Loan” programs. Leveraged loans combine a Section 502 Direct loan that carries a low interest rate with a conventional, market-rate
Against these advantages, you have to weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. It’s a trade-off: you get a lower rate with an ARM in exchange for assuming more risk.v
Rural Housing Service Loans
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PRE-QUALIFY…Before you Buy!!! Say good-bye to the days of waiting weeks to ascertain the status of your financial buying power. No more sleepless nights wondering if the mortgage lender will pre-qualify your loan for a new home because you had a rough spot on your credit history. And standardization goes out the window as well.
Today, there are as many diverse options to pre-qualify, regardless of your credit history, as there are mortgage lenders. With all of today’s technological wonders, pre-qualifying for a new home has never been easier. Either via phone or computer, you’re wiser to see how much you can qualify for prior to viewing any homes. It’s like a screening process. It’s best to know up-front just how much house you can purchase. Banks, credit unions and mortgage companies use different criteria to determine how much money you will be able to borrow for your dream house. These include: • your gross monthly income • your credit history • the amount of your outstanding debts • your savings – or the amount of money you have available for a down payment and closing cost • your choice of mortgage (i.e. 30-year, FHA, VA) • current interest rates Lending institutions use your financial information to figure out three very important ratios: the debt-to-income ratio, the housing expense ratio and the loan-to-value ratio. The rule of thumb for the debt-to-income ratio is that the amount of debt you are paying each month (credit cards, car
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payment, student loans) does not exceed a certain percentage of your gross monthly income. The rule of thumb for the housing expense ratio is that the mortgage payment should not be more than a certain percentage of your gross monthly income. These percentages will vary with each financial institution. The rule of thumb for the loan-to-value is that the appraisal on the home is a certain amount and the loan program permits an 80 percent loan-to-value ratio, the borrower can obtain 80 percent of the appraised value of the home. Many lenders provide 24-hour phone systems that allow you to call at your convenience, toll-free, and provide the appropriate information. By the next business day, you will receive a return call with your pre-qualification status. Other lenders provide you with a computer-based approval system that reduces the amount of paperwork and information needed. After the appropriate information is provided, a financial picture is submitted to the system. The system compares your loan request with the approval decisions made previously on thousands of mortgage loans. Within minutes, the system grades your loan and lists any additional information that is needed to complete the processing of your loan. Talk about saving mountains of paperwork, and hours of headaches! This system provides two powerful benefits: 1) human emotion and bias are removed from the decision making process, i.e. a bad day for the loan officer does not affect any decisions made on your loan, and 2) because of the grading procedure, lenders can categorize prospective customers into tiers. Some tiers represent potential homeowners who have been ineligible for any mortgage loan due to poor or insufficient credit. Investors (those to whom lenders sell your loan) have emerged with options to meet these special needs, providing more opportunities of homeownership for more people. Instantaneous, paperless mortgage prequalifying is becoming the norm in today’s home buying experience. This allows lenders to do more individualized customizing of loans, and allows for more time for oneon-one service with a client. Today, your new mortgage loan can be made your way! v www.officialsubdivisionguide.com
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Your new house must be somewhere. The question is, where? Deciding where and what is acceptable for your family will require looking at many factors. Several are listed here to help start your search. FINDING YOUR SITE Driving Around Tour the areas you marked on your map and look for land with “For Sale” signs. Note location, phone number, and enough descriptive detail to help you envision it later. Take note of the surrounding areas. A camera or camcorder can aid your memory. Newspaper Ads You can discover for-sale-by-owner lots in the classified ads of local newspapers. You may find some terrific sites through this medium, but remember that the newspaper prints what the person who placed the ad dictates. The screening process that is an integral part of listing property with a real estate agent is not involved. As with all potential sites, investigate thoroughly.
Local Government The county planning commission or public library can supply information on zoning, the master plan and maps. Most communities or counties today have a master plan or a comprehensive plan. The master plan defines the density of subdivisions, size of lots, and setbacks (how far from the edge of the lot to place the home). By reviewing the master plan, you can get an idea of what the future holds for the region and whether the home you want can work on the site you are considering. Keep in mind that zoning is always subject to change. Real estate agents, builders, and subdivision sales staff can tell you what they know as of today. While you are having that conversation, someone may be organizing a campaign to change zoning-and your future view.
EVALUATING POTENTIAL SITES If a site passed your preliminary screening, take a closer look. Find the property pins. If possible, visit the site at several times of the day and in several types of weather. How would your home be positioned on the site? What about the sun, the view? Drive to and from work in both rush hours. Taking pictures can help you remember what is where, especially if you get to the point that the final choice is among several sites.
Compare the possibilities for the site to your lifestyle. If your family enjoys morning coffee on the deck, outdoor activities such as gardening, children’s games, sunbathing, will this site adapt to those activities? Will car headlights shine into bedroom windows? Street lights? What is the speed limit on the street and how much traffic is there? If you are considering a subdivision site, which models, elevations and colors would surround your home? Subdivisions usually open in phases. You may find you have to wait for the next phase to open to get your ideal lot.
EVALUATE AND COMPARE SITES EQUALLY Costs Double-check all numbers, including property taxes, assessments and homeowners association fees, to confirm the lot cost will work with your budget. Exceptions are easy to find, but a traditional guideline is that cost of the finished lot (with utilities available at the site) should run about 20-25 percent of the total package, house and land. Utilities When comparing custom sites, check the status and cost of utility hook-ups or tap fees. Raw land may not have utilities nearby. If utility services must (continued)
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still be extended to the site, obtain information on the cost. Besides their costs, what is the lead time for approval and installation of services? You cannot build a house without arranging for these services. Impact Fees An impact fee is a charge for the impact your new home and family will have on infrastructure (roads and community services). These fees are significant in some parts of the country. Your house plan built on one site can carry impact fees of $0 and on another, $35,000 or more. Premiums Be realistic about view lots and the premiums charged for them. What is the likelihood that the view will be preserved? Legal Status “Covenant-protected” refers to the restrictions placed on the residents and homes in a community by a homeowners association. A typical example of one such restriction means neighbors cannot paint their home purple with chartreuse shutters and a red polka-dot door. Of course, neither can you. Review the documents of any homeowners association carefully for requirements and restrictions. Associations do enforce covenants and they usually win in court. Survey Working with your builder, check the site survey. Will the house you want to build fit on the lot? Is the lot appropriate for the style you have in mind? If you have not completed your house plans, information about the lot may affect design decisions. Slope of the lot can significantly affect the cost of the foundation, driveway, and landscaping. Will you be able to add on to the home in the future? Your builder or architect can help you analyze the site and make all these determinations. Construction Factors Physical conditions should support the design of the home. The most appealing results come when the home design blends into the site. Extensive grading may be physically possible, but is expensive. Within a subdivision, the effect on neighboring lots can limit grade changes. Your builder or architect can help
identify concerns. Consider other natural conditions such as wetlands, wildlife, rocks, ground water and trees.
Additional details to remember include the following: - 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 & day-care. Are schools in a convenient location? Are conve nient 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 & convenient? - Trash & garbage collection. Are trash and garbage collection adequate? - Recreation. Are there suitable parks & recreational facilities nearby? - Places of worship. Are places of worship available and convenient?
this decision. Many details about your new home can be remodeled in later years as your lifestyle evolves, but changing the location is not one of them. This choice is a matter of lifestyle and attitudes, not a matter of right or wrong. Like your new home, it will be one of the most important decisions you make concerning yourself and your family. Evaluate and choose wisely.
- 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?
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Take your time in making
- Nuisances. Are there nearby sources of noise, smoke, soot, dust, odors or other hazards that will affect the housing environment? - FUTURE DEVELOPMENT. Are any development plans under consideration that could substan tially change the nature of the community? - Flooding. Is flooding a potential problem? - Hazards. Some criticism is possible for every site. A negative factor should not automatically eliminate it from consideration, but do be aware of possible extra costs and avoid surprises. Many desirable areas come with natural hazards such as hurricanes, tornadoes, floods, earthquakes or challenging winter driving conditions. v www.officialsubdivisionguide.com
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How Do You
ome has a unique meaning for each of us. In planning your new home, you need to analyze the needs of your household, considering work, school, hobbies, entertaining, and holidays. What lifestyle changes do you expect in the next 5 to 10 years? Identify characteristics you equate with quality. Consider aesthetics, function, maintenance, and environmental impact. Compile notes and collect ideas for each area of the home. The list below offers a starting point. Your challenge is to include the features you love, avoid those you dislike, and accomplish all this within your budget. The items on your
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wish list may have arrived there without regard to cost. During the design process, your budget will guide you in setting priorities and making final decisions. Your home may not have all of the items listed below, and it may have items not on the list. Get Started and Have FUN!!! One day the new house begins to look as you imagined it would; all the meetings, decisions, documents, and details are suddenly worth the effort. This unique product - part science, part art, and part plain hard work - provides an experience long remembered and a product long valued: your new home.
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EXTERIOR ELEVATIONS __ Cape Cod __ Colonial __ Contemporary __ Southwest __ Traditional __ Tudor ENTRY • Porch • Foyer __ Single or two-story __ Separate entrances • Door __ Single or double __ Sidelights __ Transom __ Wood, fiberglass, metal __ Glass Inserts • Stair Conﬁguration __ Straight __ Curved __ T-shaped __ L-shaped __ U-shaped ROOMS AND ROOM SIZES • Living room • Great room • Kitchen __ Snack Bar __ Island __ Pantry __ Desk • Nook • Formal dining room • Butler’s pantry • Family room __ Media pre-wire __ Fireplace or wood-burning stove • Master bedroom __ Main floor master __ Sitting area __ Fireplace __ Breakfast bar __ Dressing room • Number of secondary BRs • Number of bathrooms • Library • Den • Home ofﬁce • Guest room • Sunroom • Laundry room • Mudroom • Closets
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• Garage __ 2- or 3-car __ Side entry __ Extra storage __ Insulation and finish • Basement __ Height __ Insulation __ Plumbing for future bath __ Phone and electrical for future use DESIGN DETAILS • Ceilings __ Height __ Vaulted __ Coffered __ Flat • Windows __ Single hung __ Double hung __ Slider __ Casement __ Wood __ Vinyl __ Single, double, triple glass __ Skylights • Drywall ﬁnish __ Flat or textured __ Square or rounded corners • Interior trim (paint or stain?) __ Cased entryways __ Cased windows __ Crown mold __ Chair rail __ Picture panels __ Plate rail __ Built-ins __ Door style • Wall Finish __ Paint __ Faux __ Wallpaper __ Wallpaper borders • Countertops __ Laminate __ Tile __ Marble or manmade marble __ Granite __ Edge detail __ Tile backsplash • Cabinets __ Wood or laminate __ Knobs & drawer pulls
__ Glass doors __ Roll out shelves __ European (concealed) hinges __ Recycling bins • Floor Coverings __ Carpet (plush, Berber, sculptured; wool, nylon, acrylic; pad) __ Hardwood or laminate (strip, plank, parquet) __ Tile, slate, brick __ Resilient (sheet or squares) • Lighting __ Fixtures __ Indirect lighting __ Work area lighting __ Display lighting __ Landscape lighting • Plumbing ﬁxtures __ Faucets __ Spa or whirlpool __ Sinks and tubs APPLIANCES __ Range, cooktop, grill
__ Oven __ Microwave __ Dishwasher __ Disposal __ Compactor __ Instant hot water __ Water filter __ Refrigerator __ Freezer __ Washer-dryer MECHANICAL SYSTEMS • Heat source __ Gas forced air furnace __ Heat pump __ Hot water heat __ Radiant heat __ Air-conditioning __ Whole-house fan __ Air cleaner __ Humidifier __ Water heater __ Recirculating pump __ Electrical, phone and cable service __ Intercom and/or security system __ Wall vacuum
Inline Lighting Showroom Showroom Hours 8:00-5:00 Monday-Friday Open until 6:00 on Thursday 9:00-2:00 on Saturday
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Shopping for the Right Builder Your home is your castle. Don’t trust it to just anyone to build or remodel. Whether you are making minor repairs, adding an addition to your home, or building a new home, arm yourself with the information necessary to choose the right builder. Before hiring someone, thoroughly research your project and the builders you’re considering working with. Here are some tips to get you started:
1 Numbers You Need To Know: Home Builders Licensure Board Phone: 800-304-0853 www.hblb.state.al.us
Huntsville/Madison County Builders Association 256-536-2602 www.buildersassn.org
Home Builders Association of Alabama 800-745-4222 www.hbaa.org
Better Business Bureau 800-824-5274 www.bbb.org
Verify the builder’s name, address and phone number.
Request references on similar work performed by the builder. For customer references, find out: • If they are current references or really old ones; • If the references are for jobs similar to yours; • Are the projects similar in scope and price range to yours?
Call customer references. Ask the tough questions: • How much was the original bid? • How much was the final project? • How did the builder handle communi- cation? Did he/she keep you informed at all times? Were there any surprises? • Did the job finish on schedule? • Are/were you satisfied with the project’s quality and workmanship? • Has the contractor handled punch list items and call back items to your satisfaction?
Verify the builder is licensed. In the State of Alabama, a residential home builder and/or remodeler must be licensed with the Alabama Homebuilders Licensure Board which is located in Montgomery, Alabama. To find out if the builder is licensed, you can contact the Board at 1-800-304-0853 or check on-line at www.hblb.state.al.us. Check with the
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local Better Business Bureau to see if there is a history of complaints and with the local Builders Association.
Ask for proof of insurance; general liability and workman’s comp (when applicable).
Obtain 2 or 3 bids. When comparing estimates, be sure each is based upon the same set of plans, specifications, and scope of work. You must be comparing apples to apples!
Be sure you have a good rapport with the builder. Good communication is essential with your builder. You are entering into a long term relationship (approximately 18 months from start through warranty period) and you must feel comfortable asking questions of the builder and communicating your feelings.
Be sure you understand the contract and warranty. There are no stupid questions! Once you’ve selected your builder, let the person do his or her job! Stay informed and make timely decisions when requested. Pick a plan, stick with it, and don’t change your mind every five minutes. Changes cost money, and clients are often their own worst enemy during the job’s progress.
And finally, trust the relationship you’ve created. In the end, the goal is to be happy with the finished project. v
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The contract for the purchase of a new home includes a collection of documents. These may include the purchase agreement itself, blueprints, specifications, option and color selection sheets, lighting schedule, site drawing, and limited warranty. Besides drawing this collection together, the purchase agreement includes many common clauses such as those briefly described here.
PRICE AND ALLOWANCES The total cost of your home is stated in the contract. This cost is subject to change based on your change orders and selections. You may be ready to get the building process moving but still need more time to finalize choices for items like carpet, cabinets, tile, appliances, and light fixtures. To address these items, you and your builder can agree to an allowance in the contract. An allowance is the estimated cost of each listed item. This amount is included in the contract total and therefore your mortgage. If the actual cost of the item exceeds the allowance, you can pay the difference in cash or ask your lender to approve a higher mortgage.
Contracts vary in form, length, content, and print size. Expect standard elements such as the names of the parties, dates, and signatures to show up in every contract. Contracts often contain clauses that address company experiences and regional items.
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The contract lists the plans, specifications, and buyer selections sheet-by name, number of pages, and date-that describe the work to be done. The builder commits to doing this work in a “workmanlike manner” as defined by general practice in the region. Commence and Complete Construction Under-standably, you are anxious for the builder to start your home. However, several preliminary tasks usually need to be completed before the builder begins construction. Many builders wait for the buyer’s loan to be approved before beginning to build the home. Obtaining a permit can take from a few days to a few months. Skilled labor shortages, weather, and change orders can extend the construction schedule. Contracts often specify that the home is considered complete and ready to close when the building department issues a certificate of occupancy. The builder should keep you updated about the target delivery date. Seldom does either party intentionally delay the process; the buyers generally want their home and the builder wants to be paid. However, most contracts describe the liability for extra expenses due to avoidable delays caused by either the builder or the buyers. Change Orders - Many builders allow buyers to request changes during construction. Wise buyers and builders make all changes in writing, including detailed descriptions of materials and labor whether added or deleted, schedule extension, and costs.
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Conformance with Plans and Specifications - This clause allows the builder to make changes required by code revisions, site conditions, or other events outside his or her control. If a supplier goes out of business or a manufacturer updates models, the builder has no choice but to alter the intended home accordingly. “The builder has the right to substitute materials or equipment of equal or better value” appears in nearly every new home contract. Similarly, since a home is handcrafted by human beings, exact reproduction is unlikely. Measurements will vary slightly from any model or plans. The exact placement of switches, outlets, and vents change a bit. Review each detail of your home’s specifications carefully. They define the materials and methods the builder will use to construct your home. Plan Ownership - Production and semi-custom builders own the plans from which they build, even if they allow some custom changes. A few builders will sell a copy and grant permission to use them with limitations. The cost is usually significant since house plans are intellectual property. Site Visits - Your builder may restrict site visits due to increased safety regulations and insurance liability. Recognizing buyers’ understandable interest, some builders schedule tours of the home at specified stages of construction. Noninterference - The builder’s routine inspections identify items that need attention. Your input should be given to the builder, not the people working on site. They have no authority to change anything, and confusion can easily result. Inspections and Acceptance - Shortly before closing, you will review your home to confirm that it includes all the items you ordered and that your builder met the promised standards. Most builders combine this tour with an educational demonstration of your new home and discussion of maintenance and limited warranty coverage. Site Clean-Up - Keeping the construction site clean and safe is the builder’s and trade contractors’ responsibility.
An Insulation Notice is one example of a mandatory clause. Builders must specify the standards of insulation used in your home. This information can appear in the contract or an addendum to the contract. A notice discussing radon, while not required, has become common. Warranty - Another document “incorporated herein by reference” is the builder’s limited warranty. The limited warranty your builder provides defines responsibilities if something goes wrong in your home after you close on it. The limited warranty is then part of the legal agreement between yourself and your builder. Homeowners Association - The contract will reference applicable homeowners association documents as part of your agreement. These include Covenants, Conditions, and
Restrictions, known affectionately as “CC&Rs.” Review them carefully and take them seriously. Settlement - This clause explains how the builder transfers ownership of the home to you. The Real Estate Settlement Procedures Act, RESPA, regulates this event. Possession - When the title or escrow company has recorded transfer of title to the property, you can take possession of your new home. In most jurisdictions, you may take possession or move belongings into the home only after the builder obtains a certificate of occupancy from the building department. Insurance - Adequate insurance coverage for construction work is essential. The contract designates the type and amount of coverage the builder will maintain. Default or Termination - A termination clause defines the circumstances under which either party can terminate the contract and what obligations and costs exist if either party defaults or fails to fulfill its duties under the contract. Alternative Dispute Resolution (ADR) - No one plans to have disagreements during construction of a new home or the warranty period, but they can occur. Some contracts address this possibility by providing for arbitration or mediation. In arbitration, each side presents its views and the arbitrator makes a decision. In mediation, a mediator facilitates communication and guides the discussion as the two parties try to come to their own solution. Either can forestall court action, at least until the parties have used the ADR method described in the contract. Make sure the contract is clear about whether the result of ADR is binding. Co-Op Broker - If applicable, the name and address of your real estate agent may appear in the contract along with the percentage or amount of commission due at closing. Miscellaneous - Most contracts contain clauses covering standard legalities. The “entire agreement” clause is one of the most significant. It says that only what is in writing counts. The contract documents should contain all points of agreement. In fairness to yourself and the builder, do not rely on human memory regarding undocumented promises. Other miscellaneous clauses might include information such as the following: 1) where notices about the contract must be mailed; 2) that pronouns and gender words do not limit the application of the clauses; 3) that if one clause is found unenforceable by a court or is waived by either party, the rest of the contract still applies; and 4) that the terms of the contract survive or continue in force after the closing or settlement on the home. The contract is in force only when all named parties have signed it. The meeting to go over all the paperwork and sign everything can take up to several hours. Prepare for it by asking to review it prior to the meeting and note any points or items you want clarified. Read everything before you sign it. This paperwork is the official beginning of building your new home. v
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It is understood that once you make the decision to build, you look forward with great anticipation to the date you can move into your new home! It’s natural to want to see immediate and frequent progress, but it’s important for you to have realistic expectations about the building process. Be flexible and avoid making arrangements that might cause you to worry if the move-in date changes slightly over time. Before Construction In the initial stages of the project, there are several factors beyond the builder’s control: Weather: this is an obvious factor throughout construction. Design Review Committee: many communities today have covenants protected by a homeowners’ association; your house plans may need to be approved before construction can begin. Structural Changes: the home design must be finalized before applying for a building permit, and it may take several days to several weeks to update the plans when you make structural changes. Building Permit: most residential construction requires a permit, and the time needed to obtain a permit varies depending on local practices and workload. During Construction The builder creates a construction schedule based on experience and input from the trades. At several points during construction, nothing appears to be happening…don’t panic! Builders are experienced in handling many issues that affect the progress of the home: Trade Contractors, early: sometimes a trade completes its work ahead of schedule; the next trade has an assigned time that the builder cannot change on short notice. Trade Contractors, late: one late trade can force the builder to reschedule several others; this may cause your home to lose its place in line with one of the affected contractors. Building Inspection: at several points during construction, the work up to that point needs to pass required building inspections; work cannot move beyond that point until the inspection is completed. Material Delays: materials may not arrive on time or arrive incomplete or damaged. Perceived Delays: some portions of the work move quickly while other tasks require more time; work may be progressing quite well even though you don’t see much change. Site Visits Many builders schedule specific dates for you to visit the construction site of you new home; when on the site, remember
that your safety, satisfaction, and the smooth flow of work are the builder’s prime concerns: Contact the Builder: if you have a question or concern, contact the builder; do not give instructions directly to trade contractors. Degree of Urgency: with any issue, consider whether if it can wait until the next planned conversation with the builder or whether you should contact the builder immediately; try to resist pointing out items the builder will address in the normal sequence of construction. Play it Safe: if you’re in doubt about how urgent your concern is, contact the builder. Put it in Writing: reduce the possibility of miscommunication by putting your comments in writing; remember to keep a copy for your records. Safety For your safety and to avoid violations and fines, the builder may require that you be accompanied by company personnel when visiting your home site; you may also be required to wear a hard hat at various phases of construction. Whatever the builder’s policies, keep the following points in mind at all times: Always look in the direction you’re walking: beams, boards, etc may be sticking out where you would normally not expect them. Stay clear of large, noisy equipment and power tools: assume the operator does not see or hear you. Be aware of someone working above you: construction personnel working on the roof may not hear you arrive. Hands off: avoid handling or attempting to use any tools, equipment or ladders you see on the site. After Construction Here it is! After all the discussions with the builder, all the site visits, the final walk-through and closing, you have finally made it through the construction process. You have waited patiently through all the different phases of construction and you have the keys to your new home. When you started this process, you may have thought this day was a long way away. But you are now ready to move into your new home and enjoy the results of all the research, all the planning and all the discussions. Your new home – Isn’t it great? v
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Insuring Your Home
When you bought your home, you took out an insurance policy to cover the house and all of your family’s belongings inside. But was that the last time you thought about your insurance coverage? Homeowners insurance includes insurance on the actual structure and the contents inside.
The structural part of the package generally covers damage such as fire and smoke, lightning, wind and hail storms, vehicles, explosion, and aircraft or other falling objects. The package should also include coverage for theft, vandalism, riot or civil commotion, freezing or sudden water escape from the plumbing system or appliances, glass breakage, About and sudden tearing of heating or cooling systems. A comprehensive home owner’s policy should cover your home, any structure attached to it such as a porch or garage and any unattached buildings on your property that are not used for business or rented to others. Damage caused by flooding, earthquakes and hurricanes are not covered by your regular homeowner’s policy. Your insurance agent can provide you with information about coverage of these natural disasters.
changes are based on the movement of an inflation index and are reflected in the premium on each renewal.
But how do you know if you have too little or too much insurance? Start with a home inventory to help you assess your insurance needs. First you need to know how much it would cost to rebuild your house today on your existing lot. Ask your builder what the market rate is per square foot to rebuild your house. Multiply that times the square footage of your house and that’s how much insurance coverage you should have. The amount of your personal property coverage is a percentage of that amount (normally 55% and can one out be upgraded to 75%).
of every three homeowners has proper insurance coverage. Take some time today to make sure you are one of them.
The personal property portion of the insurance package protects things in your home like clothes and furniture. It should also provide protection for your personal property while you are away from home, the things you take with you on vacation. The amount of insurance on your personal property is equal to a percentage of the amount of insurance on your home (usually 55%). However, it is important that you know that special limits may apply to certain types of personal property. For example, money bank note and rare coins, securities, stamp collections, jewelry and furs, firearms, silverware/goldware, rugs, tapestries and wall hangings. Higher limits on most of these items are available through upgrades on the policy or by taking out a separate policy for the items. Check to see that your policy is written for replacement costs and you may want to consider inflation coverage. Replacement cost coverage on your personal property means that the insurance will pay to repair or replace your personal property that is covered. For example, if you bought an item several years ago for $100 and to replace it today would cost you $200, the insurance would pay $200. Inflation coverage automatically increases the amount of your insurance coverage on your home and personal property as inflation changes the cost of replacing your property. The
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For your belongings inventory, list every item in your home, attic and garage, when you bought it, its original cost and its estimated value. It also helps to have photographs or a videotape of your possessions. Have a couple of sets of the photos or videos made. Keep one copy in a fireproof safe at home or a safety deposit box. Marking your items with a personal identification number such as the last four digits of your social security number (don’t put your full number as that will make you venerable to identity theft) will make reclaiming any stolen items easier.
If you ever need to file a claim, the inventory will make it easier and ensure that you are compensated for virtually everything. If it’s not on your list when you file a claim, you won’t be compensated for something that you’ve paid for years to insure. Check with your insurance agent or company for a home inventory guide or advice on how to best organize your list if you should ever need to file a claim with them.
A home owner’s policy will also include “personal liability” coverage. That is, the insurance provides payments for bodily injury or property damage for which you or a relative who lives with you may be legally responsible. For example, if someone is accidentally injured on your premises, such as falling down stairs and breaking a leg, or if your ladder falls over on your neighbors car and damages it. Personal liability also includes medical payments to others, meaning that if someone is accidentally injured on your property or is accidentally injured by you or a relative who lives with you, the insurance will cover medical expenses to a certain limit. In case of a legal matter, your personal liability coverage includes the cost of defending you, whether you are liable or not, against an insured or covered law suits. v www.officialsubdivisionguide.com
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TIPS & CHECKLIST
Before you go to settlement on a new home, you and your builder
will “walk through” the house to conduct a final inspection. 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 se 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. Following the checklist below will help you, the buyer, inspect all aspect of your future home and include any items that need attention. You and your builder can then agree to a timetable for repairs.
PRE-SETTLEMENT WALK-THROUGH CHECKLIST GENERAL APPEARANCE q Foyer q Living Room q Powder Room q Bathrooms q Dining Room q Kitchen q Bedrooms q Utility Room q Breakfast Room q Laundry Room q Closets q Porch q Patio q Deck q Garage q Other Areas q Drives q Walks q Yard q Exterior of Home
SMOKE DETECTOR - Verify that the smoke detectors are functioning properly.
DOORS - Verify that the weatherstripping, locking mechanism, thresholds and stops are correctly installed and function smoothly and properly.
Verify that switches and outlets are tested for electric current (hot), proper grounding and proper polarity. Bring a hair dryer to test the outlets. Test doorbell
q Foyer q Living Room q Powder Room q Bathrooms q Dining Room q Kitchen q Bedrooms q Utility Room q Breakfast Room q Laundry Room q Closets q Porch q Patio q Deck q Garage q Check Automatic
HVAC UNIT - Verify that heating and cooling systems, including thermostat, insulation, and filter are correctly installed and operating properly. Verify that unit turns on. Verify that air flow is at each vent and that vent opens and closes.
BREAKER BOX - Check to make sure door opens and closes properly, all circuits are labeled properly, and the breakers are functioning properly.
HOT WATER HEATER - Check the pop-off valve and drain to make sure they are functioning properly. Verify that hot water flows out of all faucets.
ELECTRICAL SWITCHES/ OUTLETS/SAFETY SWITCHES -
q q q q q q q q q q q q
Foyer Living Room Powder Room Bathrooms Dining Room Kitchen Bedrooms Utility Room Breakfast Room Laundry Room Closets Porch
Garage Door Opener
q Other Areas WINDOWS/SCREENS - Verify that the weather-stripping and locking mechanisms are correctly installed and function smoothly and properly.
q q q q q q q q q q q q q q q q
Foyer Living Room Powder Room Bathrooms Dining Room Kitchen Bedrooms Utility Room Breakfast Room Laundry Room Closets Porch Patio Deck Garage Other Areas
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q q q q q q q q
Patio Deck Garage Other Areas Drives Walks Yard Exterior of Home
LIGHT FIXTURES/CEILING FANS - Verify that fixtures are hung straight and level, operating correctly and that bulbs are installed and burn.
q q q q q q q q q q q q q q q q
Foyer Living Room Powder Room Bathrooms Dining Room Kitchen Bedrooms Utility Room Breakfast Room Laundry Room Closets Porch Patio Deck Garage Other Areas
AUDIO/SECURITY SYSTEMS - Check for proper installation, operation and appearance.
q q q q
Structured Wiring Panel Box Keypads Cameras TV/Phone/Computer Jacks
WALLS/CEILINGS - Check all walls and ceilings to verify that appearance is acceptable. BASEBOARDS/TRIM - Inspect baseboards and trim for proper installation and appearance. FLOOR COVERING - Inspect all carpet for proper installation and appearance. Inspect all vinyl, ceramic tile and wood flooring for proper installation and appearance. CLOSETS - Inspect shelves and rods for proper installation and appearance.
q q q q q q q
Powder Room Bathrooms Bedrooms Utility Room Laundry Room Closets Other Areas
CABINETS - Inspect doors, drawers, shelves and hardware for proper installation and operation. Check that all drawers and doors open properly.
KITCHEN PLUMBING FIXTURES Inspect for proper installation and operation of sink, sprayer, stopper, garbage disposal and dishwasher. Check for leaks under sink. Check dishwasher door for correct closing. Run garbage Disposal and check for leaks under sink. Run dishwasher through cycle and check for leaks around door and under sink.
APPLIANCES - Check for proper installation, make & model you ordered and operation of:
q Range q Turn On & Off q Temperature Control q Oven Light q Broiler Pan q Oven Elements q Oven Racks q Hood q Light q Fan q Refrigerator q Gasket q Ice Maker q Light q Shelves q Temperature Control q Garbage Disposal q Turn On & Run q Reset Button q Seal q Stopper q Proper Drainage q Dishwasher q Arm q Basket q Controls q Drainage system q Door q Run Full Cycle q Microwave q Light q Fan PLUMBING - Inspect for proper fittings, water draining freely, hot and cold water, proper washer/dryer hook ups and the presence of any leaks. Check and record water pressure.
q Utility Room q Laundry Room q Other Areas BATHROOM FIXTURES - Inspect for the correct installation and operation of bathroom fixtures. Check for leaks and presence of any damage
to fixtures. Place a double hand full of toilet tissue in each commode and test flush.
TOWEL BARS/PAPER HOLDERS/ SOAP DISH/TOOTHBRUSH HOLDERS/TUMBLER - Inspect for proper installation and location.
MIRRORS - Verify that mirrors are plumb and square and there are no factory defects in the silvering and no cracks or chips on glass edges. VENT FANS - Check for proper installation and operation. FIREPLACE - Inspect for proper installation, operation and appearance.
q q q q q q q
ATTIC q Insulation q Flooring CLEANLINESS - Inspect for thoroughness of cleaning. EXTERIOR OF HOME q Painting q Full Coverage q Caulking at Joints q Roof q All Shingles Flat & Tight q Valleys Appear Normal q Ridge Shingles in Place q Metal/Cooper Roofing q Trim q Matched in Place q Fitting Properly q Sofit Vent Open q Gutters, Downspouts, Splash Blocks q Matched in Place q Fitting Properly q Drains Water Away from House q Brick q Patio/Walk/Drive q Level (no bird baths) q Drains q No Cracks or Separations q Heating & A/C Unit q Installed Level in Workman Like Manner
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Hearth Surround Unit Screens Glass Damper Doors
Certificate of Occupancy 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 walkthrough 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, 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 walkthrough 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.
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Home Maintenance… It’s Your Responsibility Buying a home is the biggest purchase most people make in their lifetime. And they want it to last a lifetime. In order for that home to stay in excellent condition home maintenance must be done on monthly, semi-annually and annual basis. The following suggested maintenance schedule identifies some of the more common maintenance tasks that may be performed on a monthly, on a semi-annual and on an annual basis. Tailor it to fit your own situation, adding or deleting items as required. As a homeowner, you have normal maintenance responsibilities for your new home. Establishing a maintenance schedule is the best way to manage your maintenance budget. This suggested maintenance tasks and schedule should not replace the manufacturer’s recommendations. We suggest the use of licensed contractors for any tasks you may feel unprepared to complete. Remember, safety first! What seems like a simple plumbing or electrical repair can cost you many times what you think you might save if you don’t do it correctly. The following is a suggested schedule for monthly, semi-annually and annual maintenance: MONTHLY MAINTENANCE • Smoke Detectors - Check operation by pushing test button. Check and replace battery if necessary. • Check fire extinguishers for proper charge. Never buy units without a pressure gauge. Be sure that you hove an adequate number, located in kitchen, garage and basement. Test Ground Fault Circuit Interrupters (GFCI) to insure proper protection. • Clean garbage disposal blades by grinding ice cubes and citrus fruit rinds. • Clean or replace dirty filter in range hood. • Check for evidence of leaks around toilets, under sinks and around dishwasher. • Clean and freshen sink drains by flushing with hot water and baking soda. • Inspect furnace and air-conditioning filters, humidifier and electronic air cleaners. Replace as required.
SEMI-ANNUAL MAINTENANCE • Inspect roof and chimney for broken or missing tiles or shingles, identifying anything that might cause leaks or problems. Inspect and clean gutters and down spouts. Have a service professional to check your roof, chimney and gutters and down spouts. Do not walk on the roof as it is dangerous and may cause damage. • Inspect outside of home and condition of siding, paint, masonry, stucco or Exterior Insulated Finish System (EIFS) and wood trim. If necessary, have a service professional inspect it for you. • Inspect doors and windows to verify proper operation, security and weather -resistance. Clean tracks of windows and sliding glass doors before applying silicone lubricant. • Maintain wall finishes as needed. • Monitor and maintain cabinets and countertops. • Inspect the foundation, basement or crawl space. • Inspect main service panel, circuit breakers, all GFI outlets and breakers. • Complete seasonal maintenance on heating and air conditioning by licensed HVAC contractor. Check general condition of compressor; remove debris as necessary. • Inspect and replace as needed caulking and grout around tubs, showers and sinks. • Have carpets professionally cleaned at least once a year.
• Clean aerators on faucets regularly, depending upon water hardness. You may need to use a rust or scale remover to return them to normal condition, or have them replaced. Check water filters and softeners regularly. The life of the filters is dependent upon water usage and water characteristics. Retailers can help with this analysis.
• Monitor and maintain floor coverings on an as required basis. Regular vacuuming will reduce wear of carpets and other floor coverings. Repair tears and remove stains as soon as possible.
• Check condition of septic tank and leech field. Consult with septic tank pumping service.
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• Examine caulking around windows, doors and other areas following instructions in this manual. • Inspect condition of concrete slabs and patios following suggestions in this manual.
• Visually survey wood trim following suggestions in this manual. Clean all woodwork and wax. • Complete annual furnace and air conditioning maintenance by a licensed HVAC contractor. • Schedule professional inspection of major appliances especially if gas fueled. v www.officialsubdivisionguide.com
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