Steps to successful home ownership

Home ownership is a large part of the American dream.  Unfortunately, that dream sometimes turns into a terrible nightmare for people not prepared for the challenges of building or buying a new home.  Here we identify thirteen simple steps to consider in hopes of avoiding the nightmare.  Although pages could be written about each step, we have attempted to highlight the essential terms and simplify the process so that your next home purchase can result in a very successful, satisfactory and rewarding experience.

1. Plan for Your Tastes and Circumstances. Home ownership is not as simple as walking to the store to purchase the first item that attracts your eye.  You know that afterwards, you drive home wondering if you really needed that particular item or if it is what you really wanted.  Hopefully none of us are this impulsive when purchasing a home.Whether you are buying a completed structure or constructing your own, the same planning process needs to take place.  Your individual circumstances will dictate the location of your next home.  Are you young, starting out with a new job and family, or seasoned, approaching retirement and the golden years?  Do you value peace and tranquility, or the hustle and bustle of city life and the convenience of quick shopping?  Think of how many trips to school, the grocery store, or to health care providers you will require in any given week.  Maybe you have better health, have free time to pursue and enjoy hobbies, and you appreciate more scenic driving and avoiding traffic.  If you are a parent with young children, consider very carefully the proximity of schools and work.  Perhaps your family is grown, and you picture yourself in the peaceful serenity of being outside of the hustle and bustle of the city, or among mountain grandeur or overlooking coastlines devoid of traffic and congestion.
2. Know the Property Before You Close. Before you purchase your selected home, or the lot upon which you plan to construct your home, you should investigate and familiarize yourself with the area.  Contact the local municipal authorities and find our if there are any assessments pending or anticipated against the property you are purchasing, or any construction or development plans that will impact your area.  Make sure you are dealing with a reputable realtor and contractor.  Before closing on your property, request and obtain all appropriate sellers’ written disclosures, soils reports, conditions and restrictions that are recorded against your property, and review all applicable zoning laws.  These documents and information will give you a “heads-up” on any concerns that may impact the purchase, design and construction of your home. When working with appropriate municipal agents or a prior owner of your property, ask for copies of water, power, gas and other utility bills, so you are aware of what general services are available in the area, and can better estimate how much your home services will cost each month.  If your home is or will be located within a common development, find out if there are any limitations or restriction placed upon your property by the local homeowners’ association or by covenants recorded in the county recorder’s office.  Such restrictions may affect your use of the property for hobbies, home occupations, the keeping of pets or other generally common uses.
3. Properly Engage a Reputable Contractor. If you are planning to construct a home and haven’t engaged a contractor, make sure you complete the appropriate due diligence before deciding.  Check your contractor out thoroughly.  You can do this by visiting with the Southern Utah Homebuilders Association, the Association of General Contractors, and other individuals who are familiar with the construction business in the area.  Make sure you deal with a reputable contractor and confirm that he is licensed with the state and other local governments which require it.  Once you have engaged your licensed contractor, insist that he use licensed subcontractors that are also reputable.  Engage a contractor only with a written contract, and if you are not comfortable with or don’t understand all of the contract’s provisions, consult a lawyer or someone else with expertise in the construction field.  Make sure prior to engaging the contractor that both you and he understand the time frame in which you anticipate completion of your home, including what other work may be competing for his time and how it will affect progress on your home.  You can also discuss incentives for early completion or penalties for late completion.  If construction will not commence immediately or is expected to last an extended period of time, discuss with your contractor how fluctuating material costs will be reflected within the contract.  Neither you nor your contractor will benefit from a price negotiated today which is outdated next year due to market conditions or increases in material costs not anticipated by the contractor.
4. Do the Paperwork. “Paperwork” is a word dreaded and feared by homeowners and contractors alike.  However, you cannot place too much emphasis on the necessity and value of good solid paperwork in a home purchase or construction.   Written contracts are a must in every phase of home construction or purchase.  In addition to your written contract with the builder on the construction of your home, you should also insist that your contractor enters written contracts with each of its subcontractors and material suppliers.  If possible, obtain copies of the written subcontracts for your own records.Prior to construction, insist that your contractor provide you with a list of all known subcontractors and material suppliers that will be providing services and materials to your home.  If you are going to negotiate a “cost plus” contract with your contractor—a contract which requires for you to pay the costs of construction plus a percentage profit to the contractor—then protect yourself by requiring a guaranteed maximum price.  If your contractor includes, as part of the general contract, a line item allowance sheet, discuss with the contractor how the allowances will be made and if any credit will reduce the price in your favor if the allowance amount is not met.  Make sure that all the essential terms of your contract are included, in writing, and that you completely read and understand the terms.  Get a copy of your contractor’s license and verify that it is still current.  Encourage your contractor to be thoroughly familiar with the plans and specifications for construction, and, if necessary, make the appropriate introduction to your architect so that the communication lines between them can be open for any questions your contractor may have.  Make sure your contractor has a complete copy of your soils report and that he thoroughly understands the contents and the specific requirements for excavation and foundation construction on your new home.
5. Secure Proper Financing. Again, it is essential that you deal with a reputable institution and one that has had prior construction financing experience and understands how a construction project evolves.  Shop the rates early and do your best to lock in the best rate.  When executing the loan documents, make sure you review and understand all of the terms, as well as any hidden charges.  In dealing with the financial institution, always remember there are no dumb questions.

   If you will need a construction loan to finance a new home, then make sure that you and your loan officer understand the mechanics that will take place before disbursement of a pay request to any contractor or subcontractor.  Ask if there is a process which requires that disbursements mirror the percentage of completion on your home.  Inspections are a must.  Require the construction lender to make no construction payments for work that has not been completed and approved.  Review the draw request forms provided to ensure they are sufficiently detailed so that the allocation of a particular payment could later be tracked if necessary.  Require that all payment disbursements appropriately identify your project, and insist that all other checks disbursed by your contractor to vendors, tradesmen or laborers also reflect the same identification and account number for their records.  All disbursement checks paid by your construction lender should have restrictive endorsements reflecting an appropriate release and lien waiver by the contractor, subcontractor, or supplier for payments received.

6. Monitor the Construction Phase. One of the most exhilarating and enjoyable times of home ownership is during the construction and watching your dream come to pass. Inspect and monitor the job frequently, asking questions of your contractor when you think of them; saving them for later may be too late.  With your lender and contractor, discuss and address appropriately in writing whom will bear the risk of a fire or other disaster during construction.  The last thing you want to do is end up paying twice for the same home.  Request and make sure you receive copies of all inspection reports.  Insist that the construction is in absolute conformity to all plan specifications and the local building code.  Remember during construction to keep the lines of communication open with your contractor.  If communication is properly utilized during construction, there will be fewer questions and problems that will develop after the construction process has been completed.  Realize and anticipate that changes will occur during construction.  When a change or modification does arise, specifically inquire as to how this will impact progress on your home, and what additional costs or savings will be reflected in the final price you pay your contractor.
7. Don’t Discount the Walk-Through and Inspection. Always conduct a walk-through and inspection prior to closing of sale on an existing home or the issuance of a certificate of occupancy for a new home.  New homeowners often overlook or discount this inspection because of the excitement and anticipation of occupying their new home.  If necessary, take a knowledgeable contractor, your architect, or a licensed inspector to make sure that all construction has been completed as required or that the condition of the home is as represented.  Make sure you test for proper performance all appliances, heating, air conditioning and electrical systems, plumbing and any other systems that are incorporated in your home.  Listen for unusual sounds and watch for visual indicators of potential problems.  Have all pressurized systems—such as water and gas—tested by persons with appropriate expertise both during construction and at the conclusion of construction on a new home, and during the inspection period allowed during the purchase of an existing home.
8. Be Prepared for Completion or Closing. Closing is not just a meeting in which you sign all final documents.  Be aware that if there are any warranties you want to preserve beyond closing, they must be specifically stated and written in the closing documents.  Otherwise, those warranties and representations will be waived following the closing.  Be aware that the typical one-year home warranty for workmanship on a new home is a contractual term, not one required by law.  You are free to discuss at closing with your builder any length of time for your warranty.  Why keep it at one year if your contractor is willing to extend it further?  If your home has not been completed and there are certain “punch list” items that will be completed after closing, then insist that sufficient funds be reserved to satisfy the punch list items.  This serves as a wonderful incentive to the contractor to complete all punch list items in a prompt and diligent matter.  Make sure that prior to closing, your title officer has conducted a final review of the title records to ensure there are no remaining liens or title issues to address prior to closing.
9. Request and Receive Proper Documentation. You will generally receive any documentation regarding your home either during the walk-through inspection or at closing.  At that time, insist that your contractor or the seller provide you all written warranties that pertain to the construction of your home, as well as the operation of all equipment and fixtures installed in the home.  These warranties will include written manufacturers’ warranties on appliances, heating and ventilation systems, and any other mechanical equipment that has been incorporated into your home.  Request a list of all suppliers that provided the equipment, appliances, roofing and other such material, in the event that you need warranty work or have questions about operation.  If your home has completed landscaping, request a layout of all sprinkling and irrigation lines, valve boxes and other equipment for future maintenance and repairs. Obtain from the title company complete title reports and closing documents, including copies of all recorded Covenants, Conditions, and Restrictions, and all other related documentation pertaining to your home.  Verify that your financial institution has closed your construction loan and has satisfied themselves that all appropriate disbursements have been made to, and final lien waivers and releases have been executed by, the general contractor and in return by his individual subcontractors and material suppliers.
10. Don’t be Afraid to Ask Questions. At any time during the home purchase experience, don’t be afraid to ask questions.  If you sense there is a problem or a miscommunication, act immediately.  Problems not addressed tend to get worse and more costly over time.  Make sure that you are satisfied with the responses you receive from all parties you deal with in purchasing or constructing your home.  Do not sign anything unless you have completely read and understood the terms and conditions.
11. Mortgaging your Home. When you’re making an offer on a home, you will benefit from having a letter of preapproval from a mortgage lender. To receive this, you must provide the lender your personal information, credit history and income. The lender will then determine the amount you can borrow to purchase a home and the term of this payment. Once the seller accepts your offer, you must contact your mortgage lender again to begin the approval process. The lender will then verify your details, which could affect the rate and term of your mortgage. After your mortgage receives approval, you will sign documents legalizing the loan contract at a closing.
12. Negotiating the purchase price If you are purchasing an existing home, you likely won’t pay the asking price on the home you buy. Instead, you will make an offer through your agent. The seller will either accept, reject or counter your offer, and you may continue negotiating until you achieve a compromise. Furthermore, you will have to put a deposit down on the home – called earnest money – that confirms your intent on purchasing it. If you back out of the deal, the seller may be able to keep the earnest money.
13. Dealing with inspection and title issues As part of the real estate contract, you will need your new home inspected before you move in. This process makes sure it has no problems beyond those the real estate agent or seller advertised. An inspection protects you in case any exist. You will also benefit from a title search. This process ensures the property has no liens or judgments on it that would prevent its sale. And you will also need to purchase title insurance for your home. This coverage protects your ownership from these liens and judgments, as well as any encroachment or deed issues that need resolving before your move.

    Homebuying is a difficult endeavor that you don’t need to go through alone. Working with a real estate attorney can help clarify and ease the process.

Again, remember that constructing or purchasing a home can be one of the most wonderful and satisfying experiences, an essential part of the American dream—but it can easily turn into an absolute nightmare. Take the time to act prudently, and if necessary, consult appropriate building, financial or legal professionals to help you resolve questions or concerns.