Some homebuyers will take nothing less than a new home with an untouched bathtub. Others want a home with character in an established neighborhood.

Personal preferences aside, there are pros and cons to buying a newly built home over a resale, as well as financial implications for each option.

New-home advantages
Rochelle Fitzgerald, a sales associate with Coldwell Banker Residential Brokerage’s Rockwall office near Dallas, says, “There’s no question that some people prefer that ‘new-home smell’ and the idea that no one else’s feet have been on the carpet. On top of that, many people like to personalize their home by picking out everything from the beginning.”

Some buyers focus on the more practical aspect of buying a new home because it typically will require less maintenance than an older house.

“It’s very important to some buyers to have everything new, plus they have the peace of mind that comes along with the builder’s warranty,” says Dan Kruse, broker/owner of Century 21 Affiliated in Madison, Wis.

On the financial side, builders, particularly in a slow real-estate market, offer plenty of incentives to buyers.

“In a sellers market, new homebuyers will often spend as much as 10% or more above the purchase price for optional features,” says Jeff Ristine, broker/owner of Weichert, Realtors: Kingsland Properties near Chicago. “Now many builders are offering free options as an incentive to buyers, such as a finished basement and an upgraded kitchen. Builders are tailoring their incentives to specific buyers, so some will throw in things like initiation fees for a country-club membership.”

New-home disadvantages
In spite of the added builder incentives, real-estate experts say new homes are typically more expensive than existing homes.

“Traditionally, new homes are more expensive because they are being built from the ground up,” Kruse says. “In recent years, some new homes have come down somewhat in cost because the builders have been hurt so badly by the downturn in the housing market. For the most part, though, builders try to keep price integrity and will offer closing-cost assistance or upgrades rather than lower the base price.”

Upgrades and closing costs are typically tied to the buyer using a builder-designated lender and title company.

“I would caution buyers, at least in our market in the Chicago area, to be careful buying a new home because builders are competing against foreclosures and it could be long time before a new home will increase in value,” Ristine says. “Even with builder incentives, you are usually paying a premium for buying a new home, so you need to hold onto it for five years or more to build any equity.”

Fitzgerald says buyers of new homes should expect to own for longer than buyers of existing homes because of differences in price appreciation.

“In a new-home community, if you need to sell within a year or two, you are competing against the other homes that are still being built and can be customized,” Fitzgerald says. “Buyers will choose a brand-new home rather than a 1-year-old home, especially if the builder can offer incentives that a regular seller cannot.”

One other downside is the potential for living amid a construction site for several years, particularly if the builder has slowed development because of the recession.

When to buy a new home
Real-estate agents agree that the best values for a new home come when the development is nearly complete.

“In years past, buyers wanted to get in early to take advantage of pre-construction pricing and a better location within the community,” Kruse says. “But now, buyers want to get in late, so if you have to sell you won’t be competing with newer homes in the development.”

Ristine says buyers should be cautious about buying before a community is nearly complete, because some builders are so financially strapped that they cannot complete their developments.

Existing-home advantages
“The biggest advantage of existing homes is the maturity of the community,” Kruse says. Buyers can look at how well the homes have held their value historically. Plus, buyers willing to purchase a fixer-upper can more easily increase the value of their property than someone with a new home.

Fitzgerald says that buying in an established community allows homeowners to know more about the schools and neighbors before they buy.

Long-term value in new and existing homes
For most homebuyers today, the biggest concern is whether the property will hold its value.

“In 10 years, a new home purchased today is likely to have more value simply because you own a newer home designed to meet today’s standards,” Fitzgerald says. “A new community will have newer amenities, too, including schools and shopping areas.”

Kruse and Ristine believe long-term value depends more on location than the age of the property.

“Value depends on where a home is located and how well the home has been maintained,” Ristine says. “People do like new things, but if a home has been upgraded with a new kitchen and bath, it can compete very well with a new home.”

Ultimately, the decision to buy a new or existing home comes down to what a buyer values more: a maintenance-free, new home or a mature neighborhood.

Read at:  http://realestate.msn.com/should-you-buy-a-newly-built-home

Faced with plunging property values and rising defaults, lenders are charging borrowers higher mortgage rates and adding fees. Not all of these added costs are set in stone, however. If you’re looking for a loan, vigilant shopping and a little haggling can go a long way toward landing a better deal. Here are five fees to watch out for and how to avoid paying them:

Application fees

Just because an ad says “no application fee” doesn’t mean there’s no fee at the time you submit a mortgage application. Each lender gives different names to its fees, which makes it hard to comparison-shop. Fees paid outside of closing — meaning at the time you submit loan paperwork — typically include an application fee (an average of $252, according to HSH Associates, a mortgage-information company in Pompton Plains, N.J.), an upfront property appraisal ($331) and a credit check ($33). They may be listed separately or lumped together as a “document-processing fee.” To avoid overpaying, ask lenders for a good-faith estimate of mortgage costs. Though lenders are under no obligation to provide one, most will.

The yield-spread premium

One dirty little secret of the mortgage industry is the yield-spread premium. In return for arranging loans with inflated interest rates, some brokers receive fattened payments — referred to as the yield-spread premium — from lenders. Even a slight difference in rate — say, 6.779% instead of 6.495% — amounts to nearly $17,000 in extra interest over the life of a 30-year, $250,000 loan. To avoid getting suckered, ask your broker whether the lender pays a flat rate or a percentage commission based on loan terms. Also, obtain a copy of your credit score and use Fair Isaac’s MyFICO.com to get a realistic estimate for a fixed-rate mortgage based on your score.

Risk-adjusted rates

Getting deemed a risky borrower is no longer just a matter of a low credit score. Lenders now consider other risk factors. Buy in an area that has seen values drop precipitously — such as Florida or Las Vegas — and you can expect a higher rate. The good news is that each lender gives different weight to individual risk factors. So make sure to collect bids from various lenders.

Down-payment penalties

The days of zero down on a mortgage are over. Without a down payment of at least 20%, prospective homebuyers will undoubtedly get hit with a higher interest rate and need to pay for more points. (Each point usually amounts to a fee of about 1% of a mortgage.) Also, if buyers can’t put 20% down, they’ll need to get private mortgage insurance, which typically costs 0.5% of the loan. Shopping around for lenders with more-favorable points and insurance charges can help lessen the blow.

Closing costs

The way closing fees are disclosed is, frankly, quite bad. That’s problematic, considering closing fees amount to 2% to 5% of a home’s price. Location plays a big role, as taxes and other requirements vary by state. Some states require expensive attorneys to oversee the closing process, while others allow a title agent or escrow officer. Ask potential lenders for a good-faith estimate of closing costs. Then check in weekly with whoever is handling the closing to see whether there are any changes in either lender or third-party fees. Here’s how to keep these fees under control:

• Lender fees. Ask which expenses go into each fee, and challenge anything that seems unnecessary or inflated, such as overly high charges for faxing documents or overnight delivery. Be particularly cautious about fees prorated based on the closing date. Such fees are easily miscalculated, especially if the closing date changes.

• Third-party fees. Home-buyers also have to deal with title insurance companies, surveyors and inspectors, all of whom have their own fees. Comparison-shop at other local companies to ensure you’re getting a competitive bid. If you find a better rate, ask the lender to use that vendor instead.

This story was reported and written by By Kelli B. Grant for SmartMoney. Published Oct. 2, 2008

Who’s in charge?

A professional settlement agent orchestrates a closing. The agent files documents, pays taxes on your behalf, ensures every task is done and recorded in the time specified by law, and also may hire an appraiser, pest inspector and other professional services. The agent represents the buyer, the seller and the lender equally. In some states, the agent must be an attorney. In others, it’s an independent settlement or escrow company. (An escrow company is one licensed by the state to hold money and documents.) In many states, title companies — whose primary jobs are to make sure there are no claims on the property and to sell insurance guaranteeing that the title is clear — may be the settlement agent.

States’ requirements vary:

• In New York, only an attorney — usually a specialized “closing attorney” — oversees a closing.
• In Nevada, as in most states, title companies act as the settlement agent.
• In California and Wyoming, escrow companies are used.

The federal forms and rules used to disclose your loan costs and closing fees, however, are identical in every state:

• Your lender must give you a binding good-faith estimate, or GFE, within three business days after you apply for a loan. It shows loan costs and estimates your other closing costs. Your final origination charges and transfer taxes can’t vary from this estimate. Quotes for other services may vary by up to 10%. Bigger variations are a “tolerance violation” and the lender must credit you the difference within 30 days of your closing, says Cathy Blaszyk, vice president for lender services at Closing.com.
• At your closing, the settlement agent will give you a HUD-1 form showing your final costs.

How to shop

Closing costs vary greatly. In its 2009 survey of average total closing costs in 52 cities and states, Bankrate.com found a $1,579 difference between the highest-cost state, Texas, at $3,855, and Nevada, with the lowest average cost, $2,276. Most of these fees are negotiable, and you can shop separately for many of them. The consumer has to open their eyes, because they can save a lot of money. People spend more time shopping for a big-screen TV. Closing.com’s closing costs calculator lets you plug in home-purchase information to get numerous estimates and quotes on closing services from providers near you. By shopping aggressively, you might:

• Qualify for a better interest rate than you’d expected.
• Find that a loan offer with a higher interest rate is really the best deal when all closing costs are considered.
• Spot “junk” fees.
• Find lower rates on services such as title insurance, settlement services or inspections.
• Use these lower bids to negotiate better prices with your lender.

Start shopping for settlement services and for additional loan offers once you’ve made one mortgage-loan application. A lender must stick to its good-faith estimate for 10 days. The bank or broker can’t go back and make changes, which gives the borrower a chance to make comparisons. Don’t worry about hurting your credit score by making numerous loan applications. In “4 credit-scoring myths,” personal finance guru and MSN Money contributor Liz Pulliam Weston says that your FICO score will register multiple inquiries in a 45-day period as just one inquiry. Applying is free, except maybe for the cost of pulling your credit report — about $15, tops. Lenders can’t collect application or appraisal fees while you’re comparison shopping. Although recent changes in federal law make it harder for lenders to pad fees, you should still get expert help in reviewing offers and closing documents. The key is getting somebody who is trained and who can comprehensively look at it for you.

In advance, line up either of these:

• A real-estate attorney through the American Bar Association lawyer locator  or find referrals from a state or local bar association.
• A free, housing counselor certified by the Department of Housing and Urban Development (call 800-569-4287.

Read more at: http://realestate.msn.com/article.aspx?cp-documentid=25322086&page=2