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Regular Contributor
Posts: 149
Registered: ‎04-29-2012
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Builder is saying we can't count money we gave them toward down payment.

So, I am having a new home built and it's almost complete. A few months ago, we picked out some upgrades for the home and paid $2,000 up front for those upgrades. We were hoping that money would go toward our down payment but the builder says they won't allow it. My loan officer thinks they should raise the purchase price by the amount we paid for upgrades and count that money toward downpayment. Anyone ever had any experience with this? I'm frustrated because at the very least, I think this should be considered earnest money because we paid the money toward the purchase of the home.
Valued Contributor
Posts: 3,406
Registered: ‎12-19-2012
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Re: Builder is saying we can't count money we gave them toward down payment.

Yes. Your earnest money should go towards either downpayment or closing costs. I am also buying a new home and the builder is using our earnest money for closing costs (we are going through the builder's preferred lender and I don't know if that makes a difference or not). Our home was fully built when we put our offer in so I don't know if it is different when you are getting the house built from the ground up but it shouldn't be.
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Valued Contributor
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Re: Builder is saying we can't count money we gave them toward down payment.

Did you ask them why your earnest money couldn't be applied as a downpayment?
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Regular Contributor
Posts: 149
Registered: ‎04-29-2012
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Re: Builder is saying we can't count money we gave them toward down payment.

The agent for the builder said the money was for the upgrades and couldn't be used for earnest money. I don't agree because the money was paid toward the purchase of the home. Hopefully we can work this out and use that $2,000 for part of the down payment.
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Re: Builder is saying we can't count money we gave them toward down payment.

[ Edited ]

Earnest money does go toward down payment.

 

However, the original author said that he/she paid $2000 toward her upgrades. Builders collect the funds for the upgrades in advance usually. Sometimes they collect a portion of the upgrade cost, sometimes they collect the entire cost. It varies by the builder.

 

Those two types of money (earnest money and upgrade payments) are two different things.

Your contract specifies how the funds will be applied. What does your contract say?

 

Regular Contributor
Posts: 146
Registered: ‎12-04-2012
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Re: Builder is saying we can't count money we gave them toward down payment.

I don't understand.  If the money you paid does not go towards the down payment, what is it applied to?  Do you mean they are saying you still need to bring x% down payment in addition to the $2000 you paid?

Regular Contributor
Posts: 149
Registered: ‎04-29-2012
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Re: Builder is saying we can't count money we gave them toward down payment.

Yes, I am doing an FHA loan and was told by my loan officer that they could just raise the purchase price by the amount we paid for upgrades. Then the amount I paid for upgrades could be subtracted from the down payment amount required. The builder doesn't agree.
Regular Contributor
Posts: 146
Registered: ‎12-04-2012
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Re: Builder is saying we can't count money we gave them toward down payment.

So then what does the builder do with your $2000?  Are they pretty much saying you already bought and paid for your upgrades?  Kind of confusing.

 

We are building and had to give an options deposit but it is applied towards our down payment (although we had to give a larger earnest deposit because we are finishing the basement).  I wonder if it is different if we had to give a larger options deposit.  I will ask our builder rep and see what he says just out of curiousity.

Valued Contributor
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Registered: ‎12-19-2012
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Re: Builder is saying we can't count money we gave them toward down payment.

Well hang on...if they increase the price of the home, that increases your downpayment as it is 3.5% of the new price. So you still have to come up with the downpayment for it if the upgrades are rolled into the purchase price of the home. If the upgrades aren't rolled into the purchase price of the home, the original purchase price plus the $2,000 in upgrades would need to be paid in full. If they add the upgrades into the house price, your downpayment will go up but it will be much less than $2,000...you would have to pay 3.5% of that in addition to your original downpayment. Perhaps they don't want to roll the upgrades into the home price because the contract would have to be redone and they don't want to take the chance of other things being changed in the contract as it is being redrafted.

When we looked at the home we are purchasing, it was already fully built and the $51,000 in upgrades were already rolled into the purchase price so the upgrades are paid for with our downpayment. But we are paying a fraction of the costs upfront versus the full $51,000.
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Re: Builder is saying we can't count money we gave them toward down payment.

We added some upgrades, we are doing FHA and we had some upfront costs for some items. All the upfronts will be credited during closing to be used as either down payment or closing costs.

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