Question about buying a new construction house

[emmjay]

I didn't see anything relating to this, so I hope it isn't a duplicate thread!

DH and I are considering buying new construction next year, and I'm wondering how the process works in terms of getting approved for a mortgage (we would be first time homebuyers). If the company starts selling houses in Jan 08 before construction begins, and the houses are ready in Aug 08, when do we go through the mortgage approval process? Would we sign a contract in January and have to have our down payment and loan approval at that point? Or would we sign a contract with a deposit and then do the actual mortgage closer to the time we move into the house?

I'm wondering because the later we could do the loan approval, the bigger our down payment would be.

[sea74]

For us, we knew cthe ost builder would charge for the new home. We got preapproval for that amount and went into contract for the new house. Only when the house was done and we were ready to close did we lock in our interest rate.
The only deposit we put down was was $5,000 for "good faith" and we would have lost that $$$ if we had decided we did not want the house when it was completed.

Hope that helps.

[Sandie78]

We had to give 10% of the price and get pre-approved for a mortgage before the builder would start building. We actually secured the mortgage much closer the closing at which time we could put down whatever we wanted for the down payment.

[HeatherFL]

My own experience was giving a deposit for the lot at the beginning and getting the loan approved at the beginning as well. When it came time to close, we just paid whatever fees were due and that was it. Had we backed out after signing the intention to buy (we had 72 hours to do so on both houses we built), we would have lost the deposit.

~H.

[emmjay]

OK, thanks for the info! So it sounds like we will pay a deposit and get pre-approved for the loan at the beginning, and then when it comes time for closing is when the exact terms of the mortgage will be settled (incl. the amount of down payment). Is that right?

Another question - what happens with the deposit? Does that count toward the value of the home? The down payment? Fees?

[maxandmolly]

It all depends on the builder. Everyone does it different. The majority of the time, you will get pre-approved, submit all yours docs, etc. Then around 30 days before closing, you will re-submit/update your docs and lock in your rate.
Most builders take up front deposits, which is money you would lose if you cancelled your contract, which will go either towards your down payment or closing costs. It all depends on how the contract is written, and, well, how desperate the builder is for the deal (new construction is taking a beating right now). You may able to get the builder to contribute to your closing costs, as well. Most larger builders (all the nationals and many regional/locals) will also have a joint venture with a lender or a preferred lender they deal with. If they want you to go to their lender, make sure they make it worth your while. Many people will also get a Good Faith Estimate either from another lender or their regular bank, just to keep them honest with junk fees & such.
Good luck!

[carrie9142]

We are thinking about buying a newly built house in another state. There are a number of new developments with floor plans available. So you might have 3 new houses with the same floor plan at the same price. My question is-can you offer below the listing price on new constructions? I have only ever bought a house from a person, not a building company, so I don't know if they will typically accept offers below listing price. I guess we could offer, but it seems like they could just wait for another buyer. :confused:

Thanks!

[udsweetpea]

You'll have a construction-perm loan first before the house is built, and that loan is for when the builder needs to take draws for certain steps in the process. When the house is complete, you'll close on your permanent loan.

[Sandie78]

We did not have to get a construction-perm loan. We gave the builder 10% down to start the house then they used their money to build it. We bought it from them after it was completed.

[maxandmolly]

You'll have a construction-perm loan first before the house is built, and that loan is for when the builder needs to take draws for certain steps in the process. When the house is complete, you'll close on your permanent loan.

We did not have to get a construction-perm loan. We gave the builder 10% down to start the house then they used their money to build it. We bought it from them after it was completed.
VERY few larger builders do CP loans. I worked for a large local builder, and we barely bothered with them. Big 5 nationals, I highly doubt, are all that interested in CPs. They have more than enough means and capital to take out a construction loan of their own, which is paid off after closing. A smaller builder who has no/less lending power or capital at their disposal, would be more likely to do a CP.
Also, generally speaking, you have to have much better credit for a CP than an end. Interest accrues while the house is being built, and the draws are taken-the builder I worked for paid for the buyers, but not all of them do that.

[udsweetpea]

I guess things work differently in Delaware.

Most builders we work with are local and don't have the means, I suppose.

[lml41981]

It really depends on the market conditions in the area in which you're buying and the neighborhood. We did new construction for this home and backed out of two contracts the first time we were looking... For the very first contract and this one, we couldn't really offer less. There was too much interest in the neighborhoods and no real incentive for the builder to accept less. For the other one, the neighborhood was not selling quickly and they were motivated to get buyers, so they accepted about 10k below their set price and included some of our upgrades for free.

Considering you're out of state, I'd definitely get a Realtor who is used to working with builders. You won't be out anything and almost all builders will work with them (though some will say that your Realtor must be present with you the first time you visit).

eta: Has DH matched?

[coquelicot]

When we had ours built, they did come down $500--but that came out of the realtor's commission. Other than that, they weren't willing to budge on the price. Too much demand for them to do so.

[hmbay]

most builders won't go down if you are having the house built--if you buy "existing inventory" it's possible they'll go down some. If it's in the process of being built with no buyer yet they might throw in some free upgrades. It all depends on how the market is in your area but if you're starting from scratch the builder usually will not go down.

[carrie9142]

Sorry I wasn't clear. I am talking about houses that are newly built, finished, but unoccupied. We don't have enough time to have a house built specifically for us, unfortunately. In a few of the neighborhoods we are looking at there are 2 or 3 of the same house-all empty and all the same price. I am wondering how often builders are willing to take below listing price.

lml-Yup! He matched and we are moving. :eek: :)

[Ameez]

All builders negotiate, whether you're building or buying already complete. If the houses are sitting there empty, then they will be more motivated to negotiate. They're losing money for every day that house sits empty.

We bought a new construction house back in November (will be finished at the end of this month). When we walked in, they were offering $12k in incentives. After my husband got done negotiating with them, we ended up with $40k in incentives and upgrades. They will definitely negotiate - you just have to know how to do it (my hubby is great at it!)

ETA - if you're looking at three different ones from different builders, use that to your advantage. The builder would rather come down than lose the sale to another builder.

[jajacobsen]

As previous posters have stated, it all depends on the local market conditions.

[pride&prejudice]

Sorry I wasn't clear. I am talking about houses that are newly built, finished, but unoccupied. We don't have enough time to have a house built specifically for us, unfortunately. In a few of the neighborhoods we are looking at there are 2 or 3 of the same house-all empty and all the same price. I am wondering how often builders are willing to take below listing price.



This is exactly how we got our current house. The people who had "started it" wound up backing out or having their mortage fall through. The story varies according to who you ask.

It was all finished except for the flooring (which we got to choose). There were a lot fo nice upgrades that they had ripped out and replaced with cheaper ones (why, I'll never know since they lost money doing that since what they ripped out isn't reusable). But I digress.....

Anyhoo, we got it for $50k below what they were asking, and $75k below its value becuase they were looking to get it unloaded. Ours was the last to be sold in the neighborhood. All I can say is you might want to be prepared for them to be tough to deal with once you sign the papers. Making a long story short, ours where just pains between us signing the contract and actually closing on the house.

Good luck!

[craftgenius]

We bought a new constuction home also. It had been sitting on the market for several months and the builder was trying to get it sold so they could start on some new houses, so they lowered the priced by $5000 and paid $3000 towards our closing costs.

[flygirl]

We bought a spec home, almost completed, and negotiated about 2% toward closing costs. Builders are more willing to work with upgrades & cash back than actual cost reduction, but as a pp said, everything is negotiable.

[hmbay]

When we were going to build the big builder wanted a deposit on the lot and a preapproval letter. Then they wanted another smaller deposit and a percentage of the upgrade pricing down to start. Before close then we had to get the final mortgage approval.

We ended up building with a smaller builder. He wanted 10-20% down to start building along with a preapproval. Then we did the final mortgage approval a few weeks before closing along with locking our rate. We did no additional downpayment at close because we'd already given it to the builder for him to start.

[carrie9142]

Thanks for all your help :) We ended up buying an older house.

[Secret_Squirrel]

We got pre-approval first and put down 1500 earnest money (3000 was the norm, but the builder's preferred lender's offer was too sweet to pass up).

This is my first new construction purchase and my lender said I would not need to reapply or redocument at close - they'd just run another credit check (but each lender may have a different policy). We can't lock in until we're within 60 days of closing.