There is a difference between “lying” (not recommended) and “withholding information.” Builders have the advantage when you visit their model homes and are greeted by a professional salesperson with freshly baked cookies. They have been trained to overcome many of your objections and move you toward committing before you may really be ready. After all, a home should not be an “impulse” buy!
During your first onsite visit to preview a builder’s homes, there are a few things to keep to yourself. These things will keep onsite sales professionals from overwhelming you with their sales tactics and desire to “lock” you in before you have really had time to absorb the information, analyze the numbers, and decompress from the excitement of having seen a perfect home with all of the upgrades you may or may not be able to afford. Here are some things that you should know but do not need to share:
- Keep Your Loan Approval Amount to Yourself. You should have a pretty accurate idea of what you can afford to pay for your new home and have already secured a pre-approval letter from your lender. It’s important to note that just because you’re qualified for a certain amount, doesn’t necessarily mean you need to spend that amount on your new home. Regardless of how much of a new home loan you qualify for, you’ll need to decide how much you should spend on the house based on your household budget.
- Your Actual Monthly Budget. At some point during the conversation you’ll have with the builder at the model home, the topic of your desired price and the monthly payment arise. You really don’t have to tell the builder anything at this point, but, if the builder doesn’t think you know how much you want to spend on a new home, they may not take you seriously, or not be as helpful as they could be. There’s nothing wrong with letting the builder know how much you want to spend, but I’d recommend that you focus on the total price of the house. You should know this amount based on your discussions with your mortgage specialist. Just because you qualify for a monthly payment of $2,500 doesn’t mean that is the amount that fits comfortably into your budget. Find the right amount and keep your search focused on homes that meet that criteria.
- Your Down Payment Amount: Here’s how a builder will determine how much you can spend based on a discussion. First, they’ll ask you how much you’d like to spend, and you’ll give them a number, say $300,000. While they may ask you how you arrived at that number, they’ll also immediately calculate that with a current interest rate (say 3.92% at the writing of this chapter) that you’re comfortable with a payment of $1,418 on a 30-year mortgage. They may even ask if you plan on putting a down payment on the home. If you say yes and give them the amount (say $20,000), they’ll quickly recalculate the monthly mortgage payment and arrive at a figure of $1,324. Most good home builder salespeople can do this in the blink of an eye. The first thing they’ll do is add a couple of hundred dollars to the monthly amount because they’ll assume you’re low-balling the number, so the $1,324 monthly payment that they calculated immediately becomes $1,524. Then, they’ll start to take some of the cost savings that you’ll get with a new home and add those dollars to your monthly payment. Things like tax advantages, energy efficiency, the savings on a lower interest rate, gym memberships (if the community has an exercise room) and gas savings to get to work or church can total up to save homeowners $200-$400 per month! The salesperson will then add these savings to the $1,500 per month payment in their head to arrive at a total of $1,900 per month for a mortgage. A payment of $1,900 per month will allow you to purchase a home valued at $400,000 (100k more than your original estimate), and that will be the price of the homes they’ll show you. You may be a little alarmed at the price of the homes that you’ll be touring at this point, but the salesperson will confidently tell you that they think that the homes you’re viewing will easily fit into your budget. Once an onsite sales representative can assign a monthly payment to you, they’re off and running!
- Your Willingness To Go Above Your Budgeted Amount. The new home salesperson may even show you homes that are priced well above the $400,000 level. You may walk through inventory homes or certain house plans that cost $425,000 or even $475,000. The salesperson may show you an amazing home that is priced at $475,000. You’ll be amazed that you can afford the home, but as the sales rep walks you through a real cost analysis of this home, illustrating all the amazing savings you’ll get with a new home, the possibility of owning this home will become more real.
- Your Buying Timeline.Salespeople need to sell houses to make money. Once they think you’re a real, immediate buyer for a home, they’ll do all they can to fight to get you the deal. It is very hard for a builder, even in the best of economic times to turn down a real deal, even one that isn’t perfect!
- Your First-Year Expense Budget. Finally, as you look for your new home and discuss pricing with the builder, keep in mind that most people who purchase a new construction home spend between $10,000 and $11,000 on things like appliances, new furniture and interior alterations on the home in the very first year they live in it. You’ll probably want to spend money on things like furniture, new bed linens, towels, TVs, stereo, paint and maybe even a higher quality refrigerator, stove or oven. It’s always a good idea to create a first-year expenses budget and allow yourself some room to personalize the home with important additions the first year.
- Your Excitement Over the Model Home. Salespeople have a knack for knowing how enthusiasm can help buyers commit to something prematurely. Buying a new home is not an impulse-buy and you need to create some space between you and a salesperson who only makes money when they sell a home!