Financing a new home


Dear Mr. Azrael:

My husband and I recently contracted to have a home built. The home is scheduled for construction to begin in October with an estimated settlement in January.

We have put a down payment down and expect to put down over 20 percent at settlement. We need to secure a mortgage company [and] pay for an appraisal fee and a credit report.

My question is that, since January is so far away, and no one knows what the rates will be, what is the best way to handle the financing?

Do we just go ahead and go with [the builder's mortgage company] for now and see what the rates are in January? If we go with a different mortgage company, will we have to pay another appraisal fee and credit report?

Finally, please provide me with a list of guidelines or tasks that we should perform during the process of home construction and financing. I just want to be sure that we have covered our steps.

Tasia Howe, Baltimore

Dear Ms. Howe:

Many homebuilders offer financing options for buyers. Some encourage buyers to choose a particular lender, by agreeing to pay part of the closing costs.

Lenders typically require the buyer to pay a $300 to $350 fee for a credit report and property appraisal. A buyer may pay these fees and later decide to apply for financing with a different lender.

The buyer, in this situation, should ask the first lender to turn over the appraisal and credit report to the second lender. The first lender normally will honor this request, as the buyer is entitled to copies of these materials.

If you intend to remain in a home for five years or less, it usually does not make good economic sense to pay higher upfront discount "points" even though the interest rate may be lower. That is because "points" are not refunded when you pay off your loan early.

Factors to consider:

How long do I think I will remain in the home?

How large a down payment do I want to make?

What monthly payment am I willing and able to make?

As for general guidelines for the construction of a home, the Home Builders Association of Maryland publishes and distributes a New Homebuyer's Guide. It is available free of charge and can be obtained by calling HBAM at 410-265-7400.

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