Purchasing A New Construction Home: What You Should Know

by Victoria Stankard

If you’re in the market to purchase a new construction home, you’ll want to be an educated buyer. Many home buyers desire a newly-constructed home because they offer more energy efficiency and design options. You can customize many things such as flooring, appliances, counter tops, cabinetry, appliances and wiring (TV, audio, computers and phones).

Buying a new home instead of a resale home requires some preliminary research on your part. It’s good to know the pros and cons of purchasing a new home so that you know what to look for as well as what to look out for. Without doing your homework before you buy, you may find that your new home fails to measure up to the standards you expected.

Check Out Your Builder

You’ll want to find out as much as possible about the builder of your newly constructed home. How long has the company been in the business of “new construction?” Go online and check for any complaints against them. If you type in the builder’s name followed by “complaints,” you’ll be able to access what people have to say about their experience. You can also type the builder into the Better Business Bureau (BBB) for more dirt if there is any.

Keep in mind, even the best builders can not please everyone. But if you see page after page of disgruntled customers, take it as a red flag warning to dig deeper into the builder’s reputation. Speak with others who’ve used the builder in the past and more recently. This will be the best ways of finding out how a builder’s customer service, craftsmanship and professionalism measure up. Investigating your builder can be time consuming, but pays off ten-fold if it helps you avoid making a costly mistake that you’ll regret later.

Location Is Key

Once you have decided on the builder, the next step is researching the neighborhood you want to live in. A good place to start is the local town or city zoning board. If there are open vacant fields in your surrounding area, find out what they are zoned for. Don’t take the sales rep’s sales pitch as gospel when it comes to describing the plans for the area. Remember, they are there to “sell you” how fabulous the neighborhood is and will be. Do your own sleuthing and get the facts.

You’ll also want to find out about the schools in your area. Makes sure those zoned for your neighborhood are highly-rated whether you have school-age children or not. This is one of the main things buyers look for, if and when you should decide to sell your home down the road.

Pros and Cons

There are two sides of the coin to every decision so it’s best know what you can expect about both. Here’s a list of the pros and cons of purchasing a newly-constructed home:

Upside

• Customized options and upgrades
• Less maintenance
• Updated building and safety Codes
• Energy efficient and innovative usage of space
• Comes with state of the art amenities
• May have recreational facilities like playgrounds, community pools, clubhouses and gyms
• New building materials tend to be safer because they don’t include such things as lead and asbestos
• Comes with construction and appliance warranties

Downside

• Resale can be difficult in a sub-division before all the homes have been built
• Delays in construction are common place
• Can cost more than existing homes due to escalating land values
• Dealing with noise, dirt and construction until all the homes are built
• Additional costs such as mandatory HOA fees and other assessments
• Higher taxes due to impact fees may be charged, in order to expand new services to your area.
• Unwanted developments or businesses may continue to be built on neighboring land

Before you sign on the dotted line of a new construction home, make sure you’ve checked out the builder, researched the surrounding neighborhood and assessed the pros and cons of purchasing a new construction home.

Beazer to Exit Some Operations

Beazer Homes USA Inc (BZH) said on Friday it would cease some operations, including mortgage origination, causing unspecified charges.

The company said besides mortgage origination, it would exit some homebuilding operations in North Carolina, Ohio, South Carolina and Kentucky. Beazer also said it would enter a new marketing services deal with mortgage lender Countrywide Financial Corp (CFC).

Hilary's Disastrous Proposal to Solve the Mortgage Crisis

Senator Hillary Clinton presents herself as a policy expert and declares her readiness to govern from "day one." But her recent prescriptions for the housing market should cause doubts for thoughtful observers.

Here is Senator Clinton's plan, as she presented it in a recent speech in South Carolina:

I'm calling for freezing the monthly rate on adjustable rate mortgages for at least five years or until the mortgages have been converted into loans that families can afford. If you have an adjustable mortgage that's about to skyrocket, you'll have the chance to pay it off with affordable payments.

(In an older posting on her Web site, Senator Clinton describes the policy as applying only to sub-prime mortgages. But most of her recent speeches do not include that qualifier, and since Hillary is nothing if not careful, one can only conclude she is either expanding her proposal to all adjustable rate mortgages, or at least would like voters to think so.)

Senator Clinton's proposal might appeal to homeowners with adjustable rate mortgages scheduled for a rate increase. But, as with most offers that look too good to be true, this one comes with many problems.

The first is its enormous scope. The plan is essentially to repudiate, revoke, or compel the revision of millions of contracts. There are approximately eleven million mortgages in America with adjustable rates, with a total value of more than $2 trillion dollars--a lot of money, even by Washington standards. Even restricting the plan to the 3.4 million subprime ARM loans (roughly $700 billion) would require an intervention of massive scale.

An even more serious problem with Hillary's proposal is the nature of the solution it proposes. When someone takes out a loan with a low, so-called "teaser rate" that is scheduled to increase in a couple years, the investors who put up the money for that loan are counting on at least some of the borrowers to hold on to their mortgage long enough to start paying the higher rates. Without the promise of this increase, the initial rate would have had to be much higher. As economists like to say, there is no such thing as a free lunch.

What would happen if scheduled rate increases were halted? Although it might make some borrowers happy, such a freeze could potentially poison the mortgage market and quickly exacerbate the slump in housing prices. If lenders and investors do not receive the interest payments they expected, they will be wary going forward. Should they avoid providing funds for adjustable rate mortgages, since the government would have just proven that the terms can be changed if difficulty arises? Should they avoid all mortgages, since the government now seems to prioritize short-term concerns for borrowers? Maybe they should avoid lending in the United States altogether?

Such a policy would clearly send a dangerous message far beyond our borders. Two trillion dollars of U.S. national debt is held by foreign governments. Interest rates on this debt are low in part because foreigners trust the U.S. to pay back its loans as promised. The rates would surely be higher if its holders thought the U.S. could renege on its promises to pay. But this is precisely the expectation America would encourage by unilaterally changing the terms on $2 trillion in mortgages held by investors around the world.

The Clinton proposal is a blunt tool applied too broadly to problems that are, in principle, contained and specific. Only 3.1 percent of prime (good credit) ARM loans are seriously (90 days or more) delinquent. The disconcerting delinquency rate of 16 percent is for the subprime sector--which is alarming, to be sure, but 84 percent are not seriously delinquent. Over the last three years there was an unusually large volume of aggressive lending activity with flaws at several levels. Some borrowers were led into loans they did not understand. These people deserve some concern. Other loans were made to speculators who do not live in the homes and were betting that house prices would continue to go up. The inhabitants of these homes deserve our concern, but the investors do not. It is now clear that there were too few checks and controls to assure reasonable loan underwriting practices (for example, no escrow accounts for taxes and insurance) or even good recordkeeping.

An accurate assessment of the current mortgage problem would probably reveal no more than 700,000 loans with distressed borrowers. Why, then, would the U.S. government rewrite eleven million loans, or even all 3.4 million subprime mortgages? Any intervention should be targeted at the borrowers who are truly in trouble, especially those who were likely duped by unscrupulous mortgage lenders. The numbers suggest these victims are disproportionately poor, young, and African American. Looking forward, the government needs to take steps to make this market more transparent and make it easier for borrowers to make good choices. But it would be irresponsible to do this by ruling millions of legal contracts null and void.

Senator Clinton's policy amounts to a command-and-control approach to economic policy in which the government announces prices and tells suppliers what to produce. Undertaking such an intervention can only raise interest rates on mortgages (and maybe other interest rates as well) as markets attempt to incorporate risk premiums to cope with possible future interventions. Promising the American people that you can fix things by just lowering their interest rates is dishonest, a fairy tale that won't come true.

Richard Thaler is a professor of economics at the Graduate School of Business, University of Chicago, and author (with Cass Sunstein) of the forthcoming book, Nudge. Susan Woodward is an economist at Sand Hill Econometrics, and formerly served as chief economist of the U.S. Securities and Exchange Commission and U.S. Department of Housing and Urban Development.

Upstate housing doing well nationally

Upstate counties issued fewer residential building permits in 2007, with builders generally slowing the torrid pace of construction they set the previous two years.

A Knoxville, Tenn.-based company that tracks residential building trends said there were 34,780 permits issued in the Upstate last year, compared with 40,877 in 2006.

Dale Akins, president of The Market Edge, called the numbers "relatively good" compared with the rest of the country. Parts of California, Florida, and Kentucky are down as much as 50 percent in residential building activity, he said.

The 2007 numbers show that the Upstate market is moving back "to a normal production level that actually meets demand," Akins said.

Greenville, for example, had an 18.6 percent drop in building permits last year. But that follows a spike of more than 20 percent in 2005 and a 3.8 percent increase in 2006.

"If this was 2005, and we were looking at 2003 and 2004 totals only, it would be the best year ever for housing starts in Greenville County," Akins said. "We should be off 12 to 15 percent in all of these markets and it's carrying these trends accordingly.

"Across the board in all of our markets, with the secondary mortgage market being as weak as it is and there appears to be less buyers out there, you want to see these numbers come down. What would worry me is if we have a lot of production and there's no demand. That means we're accumulating inventory."

Michael Dey, executive vice president of the Home Builders Association of Greenville, said homebuilding has reflected the housing market in general, with 2005 and 2006 "just extraordinary years."

"We were anticipating the market and new construction to back off to a more typical level," he said. "I think (The Market Edge) report is probably pretty much on par with more of what was happening in 2002, 2003 2004, which were historic highs, but they weren't quite as high as what we saw the last couple of years."

Home sales in the Greenville market -- both new and existing -- were off slightly last year, according to Multiple Listing Service numbers. Sales totaled 10,058 in 2007, compared with 10,388 in 2006, a 3.3 percent drop.

Vicki Galloway Duke, 2008 president of the Greater Greenville Association of Realtors, said, "We're down a little bit, but certainly not by national standards.

"The Greenville market, because we've got so much new industry coming in to town and businesses opening up, we feel like we've been pretty steady. We're very enthused about 2008 and just seeing the activity in this first part of the month has been really encouraging."

Mountain views and custom homes combine at Brownstone Crossing

Brownstone Crossing, located along S.C. Highway 253, is a custom home community that offers mountain views but is still close to shopping, dining and recreation.

Laura Simmons with Joy Real Estate, agent for Hanson Homes at Brownstone Crossing, said the new community is close to the Cherrydale area and approximately 15 minutes from downtown Greenville.

"It's convenient to Northside Park," she said. "It's within five to seven minutes of Travelers Rest."

Local builder Clifford Hanson with Hanson Homes has 57 lots at this community; 31 lots are still available. Model homes are open daily for touring.

"He is a local builder. He has a good business ethic. Quality and customer satisfaction is what he's seeking," Simmons said, adding that Hanson has been in the building industry for 14 years, with the past seven years spent building locally. She also said Joy Real Estate has been representing Hanson for the past six years.

Hanson Homes' motto is "We're where you want us to be and we have everything you want."

Hanson offers one- and two-story homes with three, four or five bedrooms plus bonus rooms. Simmons said all Hanson Homes are built on a crawlspace, and Hanson is also building at The Woodlands at Walnut Cove, which is located off S.C. Highway 101.

Homes at Brownstone Crossing range from the low $160,000s to the low $200,000s. At The Woodlands at Walnut Cove, homes start in the mid-$150,000s to the high $190,000s, and the community features a paved nature trail leading to Lake Robinson.

"Our standards are other builders' upgrades," Hanson said.

The craftsman-style houses at Brownstone Crossing range from 1,400 to 2,500 square feet. Standard features include stone columns on front porches, stone fireplaces with raised hearths, crown molding, carriage- style garage doors, sodded front yards, hardwood entryways and exterior vinyl shakes that look like cedar.

Simmons said some details specific to Hanson Homes include interior columns, covered back porches, sunrooms and screened porches.

Brownstone Crossing homes are vinyl with stone accents on lots that range from about a half acre to more than one acre. Simmons said the homes come with two-car garages and a patio or deck, depending on the lot. Walk-out basement and wooded lots are available.

"Many homes offer wraparound front porches that you can sit on and enjoy your morning coffee," she said. "The subdivision has fantastic mountain views."

Residents at Brownstone Crossing have views of Paris Mountain and Glassy Mountain. Simmons said the community backs up to Northside Park and is located within three miles of Paris Mountain State Park, which has many recreational opportunities. The community is also close to Travelers Rest and the Cherrydale area.

"You will feel like you have escaped to paradise, yet you are only minutes to your daily routine," Simmons said. "I am pleased to say that I work with Clifford Hanson because he not only builds with outstanding morals, but he lives them too."

Mortgage Meltdown Has More to do with Fraud than Anything Else

Recently, I was discussing the mortgage meltdown with a reporter who made the mistake of asking me who or what I believed was primarily responsible for the mortgage meltdown and housing crash of 2007. My reply consisted of a single word: “fraud.” My conservative estimates target fraud as being responsible for at least 80% of the problem, and most of this fraud was perpetrated by industry insiders (both in the Real Estate and mortgage loan industries) on the consumers.

Of course, there is plenty of blame to go around. If consumers were not so greedy, using their homes like ATM machines whenever they needed an equity fix, perhaps the problem would not be so widespread and so deep. If fiscal conservatives were in charge of running the government at federal, state, and local levels, maybe we would not have a culture built around deficit spending. If politicians hadn’t agreed to ship manufacturing jobs overseas and open our markets to free foreign competition, maybe Americans would have more money to make house payments. If we had universal healthcare coverage, people wouldn’t end up in bankruptcy whenever they needed surgery.

I could go on, but from what I have witnessed in the Real Estate and mortgage loan industry comprises a concerted effort on the part of industry professionals and insiders to fleece the consumer. Cash back at closing schemes caused a huge part of the problem. When homeowners purchased their homes, many of them would borrow in excess of the property’s true market value–sometimes hundreds of thousands or even millions of dollars more than the home was worth. They were then stuffing the proceeds in their pockets as if they had earned it.

Some might say that in this case, consumers are clearly at fault. After all, they were the ones who benefited most from the scam. However, in a huge majority of cases, professionals were advising these homeowners, telling them that this was a perfectly acceptable practice, that “everyone was doing it,” and that you were almost stupid for not doing it. The professionals would even conspire to defraud the banks, lining up appraisers who were known to appraise houses at whatever target value the buyer, seller, and agent decided. In return, the appraiser won more business, and the loan officer and real estate agent “earned” higher commissions. Everybody wins!

Another tactic that mortgage lenders used to suck in clueless buyers consisted of selling consumers on adjustable rate mortgages (ARMs) that had teaser rates. When housing prices were spiraling into the stratosphere, fewer and fewer people were able to afford to take out a conventional mortgage to purchase a home. They simply didn’t have the income and savings required to obtain loan approval at the current interest rates. Instead of denying these high-risk lenders loans, the industry simply lowered the initial interest rate, so more people could qualify. Loan officers downplayed the fact that the interest rates would probably rise significantly months or years down the road. They told the buyers that they could simply refinance if the rate was too high. Unfortunately, when credit tightened, homeowners could no longer refinance with a conventional mortgage. Foreclosure became imminent.

During the big party when housing prices were on the rise and interest rates were dropping, mortgage brokers and the loan officers who worked for them, turned away few if any applicants. If you didn’t make enough money, they would encourage you to fudge the numbers on your loan application. To boost your credit score, you could simply piggyback on someone else’s credit card (this little loophole has been fixed). In some cases, the loan officer would simply have the applicant sign a blank loan application, so the loan officer could fill in the required information later–information that would be sure to win the applicant loan approval.

And this is just the day-to-day fraud. Professional con artists are also responsible for boldfaced scams that have ripped off homeowners and lenders alike. Armed with the Internet, technology, and know-how, these fraudsters could produce forged paperwork to score millions of dollars in mortgage loans for homes they never even bought.

What we are seeing now is fraud fallout. The system has been bruised and battered for too long. The very professionals who rely on the industry to feed them and their families have caused the problem, and many of them are now nowhere to be found. They scammed the system and left hard-working Americans to pick up the tab.