Many people have been through this decision in the past few years. Its pretty simple; if interest rates drop significantly below the rate of an existing mortgage, refinancing may make sense. Advice from HUD (US Dept of Housing & Urban Development) experts is "2% and 18 months." If you plan to remain in the home for at least a year and a half, and if you can qualify for a rate thats 2% lower than your current rate, refinancing is worth a look. Keep in mind that refinancing is not free. The refi process involves many of the same inquiries, validation and fees as the original financing. "Rolling the costs into the new loan" can mask the long-term financial impact. Compare the math carefully.

The term "mortgage" is commonly used to refer to the loan someone obtains to buy a home or property. Technically, the loan is one part of the arrangement. The other — the mortgage itself — is a legal claim (a "lien") that gives the lender rights to the home or property used as security, until the loan is paid off. The loan component of the financial package has two key features you should understand. Principal — the amount you are borrowing. For the lender, risk is balanced by their lien on the property. Interest — the additional amount you are paying, over time, to borrow the principal. Because mortgage loans usually take years to pay off, understanding that interest is compounded — "interest on interest" — will help you make sense of the total cost of the home. For fun — the roots of the word "mortgage" are death (mort) and pledge (gage). It captures the long-term promises involved in buying a home.

Beautiful, modern model homes and neighborhoods can make the job of comparing different builders and projects a challenge. Here are a few questions to help you. Ask everyone the same questions, like: How is the final price of a home in your project set, and when? Do you offer a warranty option? Can we have a copy of the warranty terms? How many different models are available? Can we see plans or brochures? Can I make changes and upgrades during construction? Until what stage? When do inspections take place in your construction schedule? Who would be supervising construction of our particular home? When is completion scheduled? What happens if there are delays? Also ask about other projects, and their history in this business: Are you insured? Licensed? How many other homes have you built? Where? Do you provide references, such as from prior buyers? Ask for written confirmation of things you consider to be key. Compare the answers from different projects, sales teams and builders. And consider involving a real estate buyers agent, or new-home cobroker, for professional advice.

Buying a new-construction home means contractual commitments. While the sales team at a project may understand the contracts very well, their job is not to look out for your interests. Since most of us do not buy homes and sign real estate contracts on a regular basis, theres a good argument to be made for having a knowledgeable attorney review a contract on your behalf. Construction project contracts are frequently "fill-in-the-blanks" because they involve many buyers and many homes. This can leave little room for negotiation, and as a result, less opportunity for questions and answers to clarify the contract. An attorney can help you be very clear about what you are committing to, whether or not they recommend changes in the contract. Their biggest value may be in explaining the contract to you, not necessarily re-negotiating it. If incentives, deals or specials on project homes compel you to sign quickly, ask for a clause making the contract contingent on review and approval by your attorney. Reputable builders should be OK with this, if you are prompt about arranging the review.

You may run across the terms "production builder" and "custom builder." They sound complicated, but its pretty simple. Think about buying a dress or a suit. You can buy one "off the rack", or have a tailor measure and make for you. Production builders create a "rack" of homes; custom builders measure lots, learn buyer preferences, and make highly customized homes. Which you select depends on your budget and preferences: How much time do you have? Do you own a lot on which to build? How much design input would you like? Production builders frequently build multiple homes on multiple lots in the same place, so they generally combine the home and the lot in a package deal. If you already own a lot, a spot lot builder who constructs an off-the-rack model from plans on your lot, may be your only alternative to a custom builder. As with suits or dresses, quality and price vary for both production and custom builds. Take the time to evaluate both carefully in your local market.

The interest rate on a mortgage has a large impact on payments and costs. Available rates change all the time, based on government policies, financial conditions and more. In the weeks-to-months required for a home purchase, rates could go up (or down). So most lenders offer mortgage customers options for a guaranteed rate — the common term is rate lock. The availability of rate locks, and the factors that are involved in a lock, also vary with market conditions. Of course, the buyers financial profile will affect availability as well: What is your credit score? How solid is your credit history? What is the LTV ratio of the offer on the property? Where is the property located? Rate locks are usually available for: An accepted offer, on a specific property, For a given combination of interest rate and points, For a set period of time, Whether market rates go UP or DOWN. The last point is key. Accepting a rate lock could mean slightly higher-than-market costs if rates go down after you have locked. At some point in the home-buying process, you may be offered the option of a rate lock. Are mortgage rates changing rapidly? Trending up, or down? Are there factors about the transaction, or construction schedules, that might matter? Deciding whether to lock or to stick with market conditions and "float" is a judgement call. Get advice, read and research, and then make the best decision for your situation.

Home mortgages are for completed homes, not construction projects. But construction projects may become completed homes, so there is a loan structure designed to cover construction, and convert to a mortgage at the appropriate point. These are commonly called "construction perm" loans. Loan terms during construction are frequently based on variable rates, and provide scheduled cash disbursements — "draws" — to match the stages of construction. When the home is legally complete-enough to qualify for a Certificate of Occupancy (CO), the loan is converted to a mortgage. Construction perm loans have the advantage of a single application and closing, and dealing with a single lender. If you are considering a construction perm loan, compare interest-rate trends to your construction schedule. Assume construction delays. Evaluate if a rate-lock on the mortgage stage looks advantageous. In addition, weigh the short-term cost of the construction-perm arrangement against your mortgage rate and its long-term costs.

You may see or hear the term "punch list" in the process of buying a new home. Heres what it means. When a project is nearly done — "substantially complete" — a pre-final inspection is customary. The list of final things to be done (or checked) is called the "punch list" in the US, and the "snag list" in some countries. These tasks include things like security-system activation and elevator permitting, as well as minor/final repairs such as fixing wall cracks, trim or windows. Organization by type-of-subcontractor is common; all carpentry items together, all electrical, all plumbing, and so on. Critically, completion of the punch list can be required before final payment. Calling sub-contractors back afterwards, on the homeowners nickel, is obviously less desirable. In short, assuming the contract allows it, do not close escrow until the punch list is complete, or until you are satisfied with how items have been addressed.

One of the more common incentives in new-home purchases is the "decorating allowance." This is an offer to upgrade some aspect of the home before closing, such as carpeting, flooring, or appliances. Since builders are buying such things "at scale" for multiple homes, the perceived value of the incentive may be higher than their actual cost. If you are considering a decorating allowance, ask these questions about the allowance offer: Is the allowance credited at closing, and can it be applied to your closing costs? What purchase terms must your accepted offer meet to qualify for the allowance? Check with the lender you have selected to make sure the terms the buyer is offering are allowed in your loan arrangement. At closing, make sure the allowance addendum is included on loan disclosures. And make the allowance/upgrade is valuable enough to you to tip the balance in such an important decision.

A "home warranty" is frequently available at the time of purchase, and may even be a tool in negotiating terms. These warranties provide protection for a short period of time — like 1 year — against unexpected costs in home systems and appliances. A failed heater or oven, for example, might be covered by a home warranty. This financial protection in the period immediately after home purchase can be helpful, especially if down payment and closing have drained cash reserves. Home warranty may not be an option after purchase, so consider the benefits and costs prior to finalizing your deal.